Scan ’n Go

Looking to ditch costly credit card payments, retailers move towards mobile payment methods.

There was a time, not long ago, when cash was king. Then along came plastic, overtaking bills and coins as the payment method of choice for consumers. Now, dozens of U.S. retailers, including Wal-Mart, Target and Kohl’s, have joined forces to poach on turf long claimed by credit card companies by pushing into the fiercely competitive and growing mobile payment market. Dubbed the Merchant Customer Exchange or MCX, consumers will be able to download the network’s retailer-controlled digital wallet app to their smartphones, connect it to their debit or credit cards, open the app and then tap or scan their phones to pay at participating stores.

While a launch date has yet to be set, the MCX already has some clout: Network members account for about $1 trillion in sales annually, and their move to mobile is spurred partly by their desire to shed the amount merchants pay in order to accept credit and debit cards. It’s just a few percent per transaction, but it adds up fast: Morgan Stanley estimates that credit card payments cost retailers in developed countries up to $150 million in 2012.
Mobile payment systems, meanwhile, present a potential low-cost solution. For instance, retailers can be up and running with a QR code scanner from LevelUp that connects to their existing POS system for a mere $50. More importantly, the company charges only a 1.95 percent payment-processing fee, versus the 3 to 5 percent in interchange that businesses have to pay to accept Visa, MasterCard or American Express.

Many retailers already have apps, but currently only offer coupons and information about promotions and products. Now stores are hoping their digital wallets will not only reduce transaction fees but also give them comprehensive data about consumers’ shopping habits so they can target their advertising initiatives. “Merchants can engage their customers with the convenience of mobile payments along with personalized offers, promotions and programs that build customer loyalty and increase share of wallet,” states Kevin Laracey, CEO and founder of Paydiant, a startup that will provide MCX members with the technology required to allow consumers to pay with their smartphones.

Yet before mobile payments can be widely adopted, some significant problems must be overcome, says Jim Stapleton, SVP of sales at Isis, a mobile payment venture backed by AT&T, Verizon and T-Mobile. For example, merchants who want to accept mobile payments are unlikely to support all the possible types, such as Google Wallet, PayPal or LevelUp. And convincing some customers that tapping a phone is better than swiping a credit card is no easy task. “Old things never die, the growth just shifts, but emphasizing the ease and simplicity of mobile wallets, coupled with the convenience of including loyalty and offers makes for a natural converstion for retailers to have with their customers,” offers Stapleton.

—Lyndsay McGregor