Merchants beating mobile payments providers at their own game

Mobile payments might be relatively new to America’s highly fragmented consumer market, but they’re catching like wildfire. In 2014, mobile payments accounted for just $3.73bn worth of transactions. By 2019, that figure is expected to reach more than $34.1bn. What’s spurring such rapid growth? Essentially, a plethora of choice.

Mobile wallet apps such as Apple Pay, PayPal, Android Pay, Masterpass and Visa payWave all managed to obtain huge market shares of in-store transactions over the course of 2017, with one survey reporting that 26% of users now prefer non-traditional payments providers such as Apple Pay to facilitate transactions.

It’s not hard to see why. The convenience of Apple handsets and their freshly built-in mobile wallet functionality have pushed scores of America’s largest merchants and retail chains to upgrade their POS capabilities in order to accept Apple Pay. In August, colossal retailer and primary Walmart competitor Costco announced it would soon start accepting Apple Pay, too.

Yet while uptake has been surging among retailers and consumers alike, leading mobile payments providers are actually being outpaced by an increasingly large pool of merchant chains that have unleashed their own, brand-specific mobile wallets. When it comes to mobile payments, global coffee giant Starbucks is actually America’s market leader.

According to researchers at eMarketer, 23.4m customers aged 14 and older regularly use the Starbucks app on iPhone or Android to carry out in-store transactions. That means Starbucks enjoys a larger payments userbase than Apple Pay at 22m users, Google Pay at 11.1m users and Samsung at just under 10m. The world’s biggest retailer, Walmart, claims an even bigger number of app subscribers to its bespoke Walmart Pay app at 27m – although regular use at the chains 4,774 stores is somewhat more sporadic than that of Starbucks.

So, how has Starbucks managed to beat would-be mobile payments incumbents at their own game?

In many regards, the coffee chain app’s secret to success is added value. Through its too-good-to-be-true rewards programme, Starbucks has used its payments app to gamify the purchase of lattes and flat whites. Starbucks Rewards members receive two stars for every $1 they spend to put towards free drinks and food, birthday rewards and free in-store refills – but only if they’re paying by app. Users who order in advance and make a proximity payment via the app can also skip the queue and arrive at the exact second their coffee is ready without needing to join a line, pay anybody or even interact with the baristas.

In attempting to mimic Starbucks’ success, Walmart has similarly added value to its biometric-secure Walmart Pay app through a price check function that automatically credits users with an eGift card if the app can find a competitor online offering the same products for less.

Beyond gamification, retailer payment apps seem to be popular among consumers because they enable brands to create a more seamless payment experience than external providers. Walmart and Starbucks are able to control every element of their customers’ in-store payment experience without reliance on third-party systems. Branded payment apps also mean retailers can avoid the friction that comes hand-in-hand with a gaggle of processing payments from various ultra-secure apps, and it means merchants don’t need to implement costly upgrades POS terminals to accept multiple mobile wallets – only one.

Big box retailer Target followed suit by launching its own payment app, Wallet, at the end of 2017 – with fast-food chains McDonald’s and Dunkin’ Donuts not far behind.

It’s incredibly difficult to imagine a world in which every major US retail chain commands universal adoption of its own bespoke payments app. Quite a few of the merchants attempting to recreate Starbucks’ success will most likely end up falling short and relying upon more widely-accepted mobile payments providers like Apple Pay to reshape in-store payments. But in the meantime, payments providers should be taking notes – because if adoption plateaus, retailers could teach them a thing or two about sustainability.

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