Sears, Starbucks and the Mobile Payment Paradigm
by Jack Hojnar
More than 30 years ago, many people were loyal Sears customers. Sears Auto, Craftsman, Kenmore and other well-known brands of a generation were common in many homes across the country. Almost every Baby Boomer remembers that the annual Sears Holiday Wish Book Catalog was the modern day equivalent to an Amazon Wishlist.
To capitalize on this loyalty, Sears offered a store credit card - one not sponsored or supported by any payment processor platform like Visa or MasterCard. Rather, this card allowed shoppers to purchase those famous Sears washers and dryers with a credit card essentially managed by Sears, so that Sears could also benefit from the interest ratesand continually interface directly with the customer. For the longest time, into the 1980s, Sears only allowed credit card transactions from its own store card, shunning the bank cards utilizing alternative processing platforms..
Eventually, Sears acquiesced and conceded its card business to the larger banks. Consumer demand forced Sears and other retailers to effectively abandon their store-based credit, in favor of traditional credit cards or co-branded bank cards. The store cards, among all retailers drifted toward a loyalty card, one used for simply collecting rewards, or in some cases morphed into retailer gift cards.
Clearly, offering credit transactions shifted to the banks, with understandable reason: the banks already had the infrastructure.
But with the ubiquitous nature of mobile devices, perhaps that balance of transaction purchase power and credit management may be shifting back toward the retailers.
Apps are Not Physical Cards
Carrying multiple cards such as bank cards, loyalty cards, and gift cards in a wallet or purse is cumbersome. But with mobile phones and subsequently mobile apps, more people carry apps related to specific merchants. Certainly app aggregators help people coordinate their gift card apps, but realistically, it's no big deal to carry multiple retailer “card” app.
So how is this related to mobile payments and retailers?
The retailers could use their store-based apps for transactions.
The Starbucks app, which gets more deserved attention in the mobile wallet space than any other concept, succeeds exactly because its transaction mechanism is embedded within the overall consumer relationship. Their app, which locates Starbucks stores, pays for your latte and offers freebies like free music and app downloads, makes it a destination worth revisiting.
In essence, the Starbucks payment mechanism is nothing more than a reloadable gift card with limits on spending. But retailers are not far away from regaining some of the transaction power similar to that of Starbucks.
Retailers and Mobile Payments
In two recent articles from Reuters and CNET.com, respectively, retailers are beginning to make the mobile wallet transaction push. Loyal customers already use store apps to search for products, subscribe to promotions and receive rewards.
"We view merchants as overall beneficiaries of the trend toward mobile payments," said Morgan Stanley, which estimated retailers in developed countries spend up to $150 billion in 2012 to accept card payments. (Reuters, April 6, 2014, "Retailers Push into Crowded Mobile Payment Market").
Australian retailer, Coles recently launched its mobile wallet for contactless payments. "Our trials revealed that 77% of Coles MasterCard customers found the Coles Pay Tag more convenient than using traditional cards," said Coles general manager of financial services, Richard Wormaid. (CNET.com, July 15, 2014, "Coles launches Mobile Wallet for contactless payments.").
Off in the Distance ... But not too Far Away
Certainly, infrastructure challenges for retailers will not completely shift the balance of transaction power any time soon. Banks and their payment platforms do provide a valuable resource and network that allow the retailers to focus on delivering the highest quality products and services. Given the recent credit card security issue that affected Target retailers, diving into the transaction management space for retailers is both a security risk and a project for future consideration.
However, not too long ago, retailers like Sears combined product loyalty with transactions in the form of store cards. With mobile technology continually easing the ability to transact anywhere, and retailers creating loyalty through mobile apps, the blending of transactions and retailer affinity is certainly a topic that should be on the business development agendas of banks and retailers alike.