By Michael Gavin
Merchant Warehouse
Debate continues over which mobile wallet or wallets will reign supreme. Will it be Google, Isis or LevelUp? Will one of the major card brands (American Express Co., MasterCard Worldwide, Visa Inc. or Discover Financial Services) rise to the top? Or will a new player - Merchant Customer Exchange, Apple Inc. or Amazon Inc., for example - enter the market and gain immediate acceptance from its loyal customer base?
According to a 2012 report from Javelin Strategy & Research, a total of $500 million in mobile POS contactless payments made up just 0.01 percent of the total U.S. retail POS volume.
However, the report forecasts that mobile payments will reach $5.4 billion, or 0.13 percent of all POS volume, by 2018. While no one can accurately predict a mobile wallet "winner," there is no denying that contactless mobile payments are gaining traction in the marketplace.
In the world of contactless payments, the majority of mobile wallets are using one of two technologies to connect with merchant payment acceptance devices wirelessly: near field communication (NFC) or quick response (QR) codes.
Regardless of whether or not the payment device is integrated with the merchant's POS system, merchants now have the option of upgrading their credit and debit card terminals to payment acceptance devices - typically customer-facing - that afford them the opportunity to accept contactless payments and potentially leverage mobile commerce and marketing opportunities.
NFC is hardly a new technology. In fact, its roots trace back to radio frequency identification (RFID), and it is hard to believe that it has already been six years since Nokia Corp. introduced the first NFC-enabled phone.
NFC is a short-range wireless connectivity technology that enables two-way contactless communication between mobile devices, like smartphones or tablets, allowing compatible devices within a few centimeters of each other to communicate. One of the downsides of NFC is that it requires special hardware for both the merchant or retailer and the consumer.
In addition to employing NFC for mobile payments, organizations have experimented with the use of NFC technologies for ticketing (for example, in public transportation systems and at movies) and hotel room access.
Even The Walt Disney Co. recently revealed its plans to use NFC/RFID bracelets to enhance the in-park guest experience and, hopefully, drive incremental sales at the same time.
A QR code is a type of two-dimensional bar code designed for quicker readability and greater storage capacity than standard bar codes. Unlike traditional bar codes, QR codes are represented as a square grid containing a series of square black dots on a plain white background.
Consumers initially gained familiarity with QR codes several years ago when advertisers began using them as a quick and easy way to drive consumers to specific websites, landing pages or unique offers. A key benefit of QR codes is that nearly any modern mobile device with data capabilities, regardless of whether it is Android- or iOS-based, can display and scan QR codes.
Unlike NFC solutions, QR codes do not require additional hardware. Instead, they leverage the existing mobile camera and a QR reader app (typically free). In the world of mobile commerce, QR codes are an increasingly popular way to process payments remotely.
A QR code can be used to store credit card or bank account information for payment access, or it can be linked directly to a reference or token that points to a payment provider application.
NFC and QR technologies offer mobile payment capability. They are both faster than traditional payments and enable contactless communication. Supporters of NFC technologies argue that it is more flexible than QR, providing for the storage of more information and more readily allowing changes - without requiring the provisioning of a new NFC tag.
One key point of differentiation supporting NFC is the technology's ability to drive two-way communication, enabling merchants to immediately deliver coupons and offers directly to the consumer's mobile device (smartphone or tablet).
Of course, specialized hardware requirements for NFC for both the merchant and consumer are currently a barrier to vast adoption and usage, especially with Apple still not committing to NFC technology.
Berg Insight noted that only 8 percent of merchants worldwide were equipped with NFC hardware as of 2011. However, it is predicted that it will grow to 53 percent worldwide, and 86 percent in North America, by 2017.
Advocates of NFC technology also argue that it offers a more user-friendly interaction with fewer steps required for users, and that the technology is more secure than QR.
Proponents of QR codes note the high accessibility and low cost of the technology. Costs are kept low because QR codes do not require hardware investments and are accessible today via nearly any "smart" device, be it a phone or tablet.
And, while security is a focus for both groups, there are mobile wallet providers using dynamic QR rendering to deliver a more secure digital wallet for its users.
Analysts and traditionalists stand behind NFC as the contactless technology of the future, but without support from Apple, approximately 17 percent of smartphone users will be left out in the cold.
Finally, while NFC and QR are the dominant technologies, other market leaders are taking advantage of what is commonly referred to as "empty hands" technology. For example, PayPal Inc. allows accountholders to pay by simply entering a phone number and a PIN.
Consumer adoption of mobile wallets and contactless payment technologies will continue to rise. And, when such technologies are coupled with value-added offers and incentives, we can most definitely expect that adoption to accelerate, driving the pressing need for merchants to offer not only these new payment options to their customers, but also leverage new commerce alternatives to attract new customers and retain existing ones.
As Merchant Warehouse Senior Vice President, Sales, Michael Gavin is responsible for day-to-day management of the company's direct sales, as well as leadership of all sales activities within the company's agent channel. He has served as a key leader within the organization since joining the company in late 2000. Merchant Warehouse's Genius Customer Engagement Platform is a single, intuitive platform that integrates every transaction technology, loyalty program and more. Contact Michael at mgavin@merchantwarehouse.com. For more information on the company, visit http://merchantwarehouse.com.
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