2011.04 | NFC Mobile Payments

Image Source - Cult of Mac

The previous blog post on Starbucks 2D Barcode Mobile Payments drew questions from readers and colleagues around Near Field Communication (NFC) payments, specifically, why would Starbucks have implemented a 2d Mobile Payment solution when NFC is just around the corner?

The Starbucks solution with 2D payments is a perfect fit for the unique Starbucks situation and does not preclude them from accepting mobile NFC payments.  However, the 2d barcode payment is not one I would recommend for any other retailer unless they were have the same characteristics as Starbucks and their solution outlined in the previous post, and there are few if any retailers or consumer facing organizations in that position.

In order to provide NFC mobile payments, it is necessary to have the following elements: NFC at Point of Service, NFC enabled mobile devices, and most difficult of all, Credit Card Company and Credit Processor cooperation.

Point of Service Interface – Retailers that wish to accept mobile NFC payments require NFC enabled pinpads that already work with NFC credit cards.  The most common units in place so far in Canada are the Verifone vx810 and Ingenico i3070c.  These pinpads would provide the interface in stores for NFC ready mobile devices, and are, in fact, already widely installed by many tier 1 Canadian retailers as part of recent EMV efforts.

NFC Mobile Devices – According to rumour, both RIM (Dakota) and Apple (iPhone 5, iPad 2) have NFC ready devices coming out in 2011.  If that is the case, then we may indeed finally be looking at the long awaited electronic wallet, as we now have an encrypted and relatively secure electronic interface from mobile device to point of service device.   Apple and RIM’s massive base and marketing power, as well as their ongoing competition, certainly has the potential to drive massive traffic.  So the mobile devices might be coming, but this has been the expected for at least 4 years.  We’ll call mobile NFC devices a strong maybe.

Credit Card Company / Processor Cooperation – My thoughts on contactless payments are well documented on the blog under NFC if you want to pick it from the tag cloud. The problem isn’t the technology, it’s how the payments get processed and who gets paid to do it. See my posts here and here, as well as a recent article published on StoreFront Backtalk.  The credit card companies, and the various payment processors already get their slice of the payments pie, while all of the mobile carriers have been trying to figure a way to get theirs for years now. Both Canada (Enstream) and US (Isis) mobile carriers have established collective organizations to deliver on mobile payments.  It isn’t that all of these organizations don’t want mobile payments, it’s just very difficult to sort out, and there is really no extra potential revenue in it for them unless consumers or retailers will pay more for some reason.  Some may point to startups like Square and Twitpay, and they may take a bite out of mobile payment in the future, but it doesn’t look like it will happen in the immediate future.  Getting these organizations on board, extending a very successful and secure closed network to the uncertain security of millions of devices is a long short in the near future.

NFC mobile wallets can and should happen (you can already stick an NFC tag on your phone if you like), but sorting out who gets paid how, and how funds will stream through a secure system will take some time.  Nobody knows when that will be.

Why did Starbucks implement a 2d Barcode Payment System instead of NFC?  Only they can answer that, and much of it may be marketing, but in the end, they can drive an ROI.  With a 2D system implemented TODAY, Starbucks potentially gets more consumer card usage, drive more ‘deposits’ on their stored value card, and a quick tender.  Consumers get the convenience of paying with their phone, and the kind of bleeding edge fun many Starbucks customers enjoy.

Starbucks avoids the complex mess of processors, EMV, PCI, and dealing with the processors and credit card companies altogether by taking no the risk themselves.  They have made a good gamble on the fact that they can attract early adopters with relatively very little investment, and by the time mobile payments are mainstream, their system will have already provided a good ROI.

2011.03 | Why Starbucks’ Mobile Payment System Works

Last week Starbucks announced that the mobile payment scheme it has been piloting for some time will be available for all 6,800 Starbucks stores and Target locations across the US.  The solution is not yet in place in Canada.

For the uninitiated, the solution works as follows.  Consumers download the Starbucks Card Mobile App to their mobile phone; be it iPhone or BlackBerry. Customers with a Starbucks stored value card (effectively a gift card) that is registered on the Starbucks website, enter the card number into their phone when the obtain the app, and that card number is stored.  When consumers visit a store, they place their coffee order as usual, and indicate their desire to tender with their mobile.  Consumers start the Starbucks Card Mobile App on their mobile and navigate to the payment screen so that a 2d barcode representing the consumers’ Starbucks card is displayed.  The Starbucks associate, selects mobile as the tender in the POS, and prompts the consumer to use the customer facing imager (the same as those used in airports to read boarding passes).  The consumer places their mobile device under the imager, the 2d barcode is read, and the POS treats the tender like a gift card, following the usual payment verification procedure.  Once tender is complete, the customer obtains their coffee as usual.

The discussion on electronic wallet is an industry favourite, and this development will certainly encourage more discussion on the subject and provide some much need experience.  I’m fully behind this initiative, but at present, this solution is very much a Starbucks specific solution, and it is not easily translatable to other retailers.  While retailers can learn a great deal from the obvious careful thought that has gone into the solution, and we can look forward to others moving down this road as well.  To clarify for consumers (and non-technical retail executives) who ask why other retailers don’t have mobile payment schemes as yet, consider the following unique characteristics of the Starbucks situation that make a solution like this pay off.

Use of Stored Value Card - Very few retailers have a stored value card with the massive following and ongoing usage that Starbucks have.  Effectively consumers are giving Starbucks their funds in advance in exchange for some very small benefits (free drink on your birthday, free pump of flavouring in your drink).  Starbucks gets loyalty data on customers, and a nice balance of cash on hand.  More relevant to the mobile payment solution, the Starbucks mobile phone application allows consumers to make a payment onto their stored value card, and the application’s 2d barcode payment system is connected to that card.  Connecting the mobile payment system to the stored value card means that Starbucks can take the risk of a payment system internally.  Stored value are not subject to the same roadblocks, legislation, and scrutiny that building a mobile payment system that would access a credit card or a debit card would have.  Using the stored value card simplifies implementation and sidesteps many complexities of payment systems like EMV and PCI.

Cross Platform - While Starbucks are very keen on the iPhone, they have not limited themselves to an iPhone app, but also provided an app for the other key smart phone users via the Blackberry App.  Considering the corporate core of Blackberry users and how often meetings now take place in Starbucks stores, this is a wise move to maximize potential users.  Given the number of Android Users and the recent release and growing use of Windows 7 Phone platforms, it would not be surprising to see the Starbucks Card App ported to those platforms as well, ensuring maximum potential usage.

Valuable App - With over 400,000 apps on iTunes, retailers need to make their app unique and useful.  Ideally it pulls together the mobile and in store experience in some way.  Starbucks has managed both.  Any successful retailer’s mobile app needs something unique to it to encourage download, and having it on a consumers screen on a permanent basis.

Customer Demographic – Based on my experience, and what I have read in the media over the past few years, the average Starbucks consumer is more likely than average to be a tech-savvy iPhone or Blackberry user, and beyond that, the kind of user who would be comfortable with technology and placing a payment with their mobile.  It is important that any solution put in front of a consumer by a retailer fit their target market.  A savvy comfortable customer is more likely to use the app, and use it well, to speed transactions and drive convenience for them, and speed throughput for the retailer.

Infrastructure – Most Starbucks locations have 2 terminals.  In order to leverage 2d barcodes, special imagers are required, and this means hardware investment.  2 lanes means only a $300-$400 investment per store for imaging hardware.  Considering the potential value of transactions per store, this is a very low cost.   The ROI would be far less attractive for a lower margin retailer with dozens of lanes in a store to deploy, as it would be key to have the imagers in every lane to simplify the process for consumers.

Transaction Type - The slowest portion of any retail transaction, and the most difficult to trim time from, is the tendering process.  Given that in Starbucks transactions generally include a small basket size and the ordering time is relatively short, the value of an alternative payment is increased, as it is a greater proportion of the transaction.   This value is increased further by the incredible traffic at Starbucks sites.  Having many small transactions provides a boost to the ROI of the solution.

No Mobile Device Handling - In order for any sort of mobile payment solution to increase throughput and minimize operational complications, it is key to streamline the process of scanning the mobile device.  Starbucks has done this via a customer facing scanner with very simple signage.  This allows the consumer to place their phone in the scanning area with no need to pass the mobile device to a cashier.  This simplifies the process by providing a consistent process, not only increasing the scan speed, but also avoiding the potential of store staff dropping or otherwise damaging a customer’s mobile device.  Consumers are also more likely to use the mobile payment solution if they do not have to pass their mobile phone to a cashier, given how consumers increasingly consider the mobile device as a personal item.

As with all solutions implemented by consumer facing organizations, ROI is key.  Looking at the Starbucks solution, the costs of entry are probably not that high.  A mobile app is relatively inexpensive and standalone compared to other point of sale solution implementations.  Using the stored value card leverages electronic processes and databases already in place.  The crucial part is operationalizing the solution, and that can be put in place for hundreds or low thousands per site.  All in all, this is a relatively low cost solution with the potential for a high ROI in both funds, and in good will from consumers.  Other retailers looking to implement such a solution would do well to observe what Starbucks have done, but note well that this is not a one size fits all solution.  Any future implementers should be sure that the app suits their customer demographic, their transaction model, and has a way of dealing with the complexities of payment.  Other solutions will arise, and it will be fascinating to see what comes next.

2011.02 | Retail Technology at CES and NRF

Now that holiday season has passed, we find ourselves in trade show season.  Two of the perennial favourites for retail techies are CES (Consumer Electronics Show) and NRF‘s Big Show (National Retail Federation).  Where CES is generally the showcase of technology retailers may sell (or not), NRF reveals how to sell that technology (and lots and lots more) with technology.

At CES, there was a demonstration of one technology of more than passing interest to consumer facing organizations.  Microsoft demonstrated Surface 2.0.  A slick upgrade to their commercial platform, the new version is built on a 4 inch thick Samsung platform that allows it to be used in its’ current table iteration, as well as mounted on the wall.  Royal Bank of Canada is implementing Surface 2.o, and have already been using Surface with a number of applications as part of a recent branch makeover targeting a retail store feel.  Wind Mobile and Sheraton hotels have also been using Surface in their consumer facing areas.  Expect to see more unique application for this giant iPad coming to a bank or store near you.

At NRF, there are always too many retail technology solutions and ideas to see or cover completely, but a few highlights included:

2011.01 | Articles of Note

A few interesting retail based articles from over the holiday season:

  • I find the multiple to single queues found in banks and some retail stores to be my favourite, but not everyone sees it.   Consider why it seems you always pick the wrong line.
  • Square ships their payment at iPhone dongle and application.  Check out an unboxing.
  • Researchers at Cornell have put together a 3D food printer.  This could change food distribution for QSRs restaurants of all sorts in the future
  • While not overtly a retail technology, this iteration of the Cooper Mini App and its car integration certainly sets the stage for increasing integration between vehicles and retailers. Adding in the element of gaming to compare yourself with other drivers is a fascinating element as well.
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