The Time is now for Mobile Payments

In late 2014, it felt like I was chatting with a new mobile wallet or payment startup every week. Two up and comers, Paydient and LoopPay, were emerging in Boston and then quickly acquired by PayPal and Samsung, at the same time host card emulation was being developed alongside other encryption innovations.

The only problem was that user adoption was atrocious and the user experience wasn’t any better than the Credit Card… Some might say it was worse. Then of course in October 2014, Apple launched Apple Pay and everyone immediately went into wait and see mode, including us.

The challenge with mobile payments in the US, was and always has been, about breaking the habit of swiping a credit card. Whatever was to displace this tech had to be 10x more convenient. What I didn’t see coming was that swiping a credit card was going to make itself 10x more inconvenient!!

Chip & Pin is a terrible user experience and is causing the disruption mobile payments needed to gain user adoption. Just recently, I pulled up to the Starbucks drive-through window, extended my hand to pay and was quickly waved off before having a large clumsy device handed back to me. I now needed to hold this large device, tethered by a large black cable, insert my card, wait 10 seconds, and then hand it back? I immediately got home and downloaded the Starbucks mobile app. It’s amazing how 10 seconds can change a behavior.

If there was ever a time for mobile payments in the US to take off, this was it. However, I am not sure how wide of a window this is. With every passing day users are forming the new habit of inserting their card rather than swiping it. The bigger challenge is the considerably slower processing speed. Remember the old Visa commercial where the line is held up because someone was trying to pay with cash? I’m not sure cash is any slower these days. Mobile now reigns supreme.

Who Will Win the Mobile Payment Wars?

My sense is that it will be neither Apple nor Samsung. Instead I see retailers looking to another retailer, Starbucks, who has already demonstrated significant mobile payment penetration with a whopping 24% of sales ($1.35B) going through their mobile payment app in the first quarter of 2016. What if Starbucks took a page out fellow Seattle powerhouse, Amazon’s playbook and monetized their payment app in a similar way that Amazon monetized their cloud infrastructure?

Imagine if you could use the Starbucks mobile app to spend at Pottery Barn or Target or your local grocery store? Paying with mobile at Starbucks is a habit formed by millions of consumers. This is something ApplePay fundamentally lacks. There is no habit forming event for the consumer.

For Pottery Barn, Target, and others, you are aligning with a loyal customer base and if done correctly, capturing valuable data on your consumers. This gets even more compelling if Starbucks is able to link directly to consumer’s bank accounts via ACH, eliminating transaction fees.

We are also starting to see Starbucks strike partnerships with companies like Lyft that allows users to earn Starbucks credit when spending with other companies. Imagine earning a free Latte by spending X dollars at Target? That’s something I can get behind and so can millions of consumers who start their day with a cup of coffee.

Chip & Pin will be disrupted, it’s just a matter of when and by who.

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