Stores such as British supermarket Tesco and France's Auchan hope
their "digital wallets" — apps which allow users to pay with their smartphones rather than cash or cards — will also give them more
comprehensive data about customers' shopping habits than ever before
so they can target advertising.
They are joining a crowded market — banks, card companies and tech
firms like Google and Apple are all entering the mobile payment
business, each hoping their app will become the industry standard.
eBay's PayPal, well established in e-commerce, is also experimenting
with the technology.
Retailers hope to attract customers to their own services by giving
discounts and rewards to those using them, while also linking
payments automatically to loyalty schemes and offering features like
saved shopping lists.
The global market for mobile payments is forecast to grow about
threefold by 2017 to some $721 billion worth of transactions, with
more than 450 million users, according to research firm Gartner.
The growth could benefit retailers as the competition from a host of
payment providers should help drive down the fees stores pay to have
transactions processed — a service currently dominated by banks and
card firms Visa and MasterCard.
"We view merchants as overall beneficiaries of the trend toward
mobile payments," said Morgan Stanley, which estimated retailers in
developed countries spent up to $150 billion in 2012 to accept card
"Expected returns should justify any incremental investments
required in enabling mobile payments technology," it said in a
report in January.
However, it is still unclear how the retail mobile payment market
will develop, with card companies and banks seen retaining a leading
role in processing payments even if physical cards become obsolete.
Retailers' apps might struggle to take off as customers are unlikely
to be willing to use a variety of services for different stores, but
the success of Starbucks Corp in combining mobile payments with
promotions shows big players can succeed.
Starbucks, the world's biggest coffee chain, launched its mobile
payment and rewards app in 2011. It already has 10 million users and
the firm said this month it is looking for ways to expand the
program beyond its own network.
"The mobile payments platform has given us a higher degree of
frequency and higher degree of loyalty and the question is how can
we leverage that beyond our stores," Starbucks Chairman and Chief
Executive Howard Schultz told CNBC television.
An alternative path is also being explored in the United States,
where dozens of top retailers including Wal-Mart, Target and Best
Buy have announced plans to set up a joint digital wallet service — the Merchant Customer Exchange, or MCX — though no launch date has
Meanwhile, an attempt to create a mobile payment app universally
accepted by retailers has recently launched in Germany. Yapital,
owned by e-commerce firm Otto, has gone live in thousands of stores
and also allows users to pay online and make peer-to-peer transfers.
Yapital Chairman Nils Winkler expects just a few players to survive
of the 200 initiatives now clamoring for attention in Europe, with
apps tied to retailers more likely to win out than those being
developed by telecom and card firms.
"The biggest success in this field will be retail-based. PayPal is a
good example that has grown tremendously based on the retail success
of eBay," he said.
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"CLEAR BUSINESS CASE"
Tesco, the world's third-largest retailer which pioneered the
tracking of customer behavior with its Clubcard loyalty card two
decades ago, will launch its digital wallet this year, as it also
starts offering current accounts.
That is part of the British supermarket chain's eventual plan to use
smartphones — and its own-brand Hudl tablet computers — to allow
customers to navigate stores with their devices and scan products to
buy them as they shop.
Sophie Albizua, co-founder of UK-based retail consultancy eNova
Partnership, said her clients were ready to invest in overhauling
outdated till systems to enable mobile payments. "People spent the
last five to 10 years fine-tuning their websites. Now they have time
to focus on something else."
French supermarket group Auchan, Europe's fifth-biggest retailer,
launched its "Flash and Pay" electronic wallet about a year ago. It
combines payments with coupons, loyalty cards, receipts and a
shopping list feature.
"Our objective is to minimize costs. To have alternatives to
existing solutions. All other solutions try to make costs for
merchants," Arnaud Crouzet, Auchan head of global payments, told the
Merchant Payments Ecosystem conference in Berlin.
"It is difficult to imagine our data on our customers going through
a third party," he added.
Britain's Centre for Economics and Business Research said there was
a clear business case for digital wallets in terms of reduced costs
and improved customer service and sales.
UK retailers could have saved 463 million pounds ($770 million) in
transaction costs in 2013 by shifting to mobile payments from cash,
credit and charge cards, it estimates.
Mobile payments could reduce queue length in stores by speeding
users through tills and cut the cost of handling cash and card
payments, it said.
Handling cash — which accounts for over half retail transactions by
volume in Britain — is costly for retailers as it needs to be
counted and guarded, costs equivalent to about 2.5 percent of
takings, compared with about 2 percent for processing cheques and 1
percent for debit and credit cards.
However Carrefour, the world's second biggest retailer after
Wal-Mart, thinks shoppers need more time to be convinced.
"For the moment, cards are still a good solution, especially
contactless ones," said Frederic Mazurier, a vice-president for
finance and risk management at Carrefour Banque. "It is going to
take quite a few years more."
($1 = 0.6011 British pounds)
(Additional reporting by James Davey in London and Leila Abboud in
Paris; editing by Pravin Char)
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