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Mobile Wallet Media is a media, analyst and consulting firm focused on the future of mobile commerce. The company mission is to highlight industry innovation and provide insights and opinions that will be relevant and forward-looking. The author, Randy Smith, is the primary founder, inventor and former CEO of MobilePayUSA, a TechCrunch Disrupt Startup Alley Winner.
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The 7 S's Required for Success in Mobile Payments > A 7-Week Series
Copyright 2012. All rights reserved, Mobile Wallet Media, Inc. News & Opinion on the Future of Mobile Payments & Commerce!
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The key to commerce shall be the seamless completion of the value and convenience chain for consumers and merchants alike.
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Getting consumers to adopt a new product requires an incentive, especially when they are content with current one.
Savings is required to gain adoption by consumers and merchants alike. The marketing model here appears to be pretty straight forward, but the complexity of delivering savings to consumers and merchants is easier said than done. Mobile payments service providers need to offer a platform enabling merchants to easily deliver programs as follows: 1) First-time use offers, 2) Coupons, 3) Proximity offers, 4) Personalized offers using data analytics and 5) Loyalty program offering instant-savings or rewards.
On the consumer end, it is not necessary to completely reinvent the wheel here, but there is huge opportunity to do just that. The Mobile Wallet not only enables the replacement of cards, but is the new vehicle through which all retail marketing must set their plans around. So, if you are a retailer or ad agency reading this, you must realize that the Mobile Wallet is much more than just converting plastic and paper to digital. The Mobile Wallet will be the new foundation for all advertising and marketing.
Technology has made marketing, not just a moving target, but it now requires a 'Heat-Seeking Missile' to hit your target. The Mobile Wallet will soon become a necessity to engage, just like it is required for merchants to engage social media marketing or accept all four credit card brands. The Mobile Wallet is all about marketing, it is just riding the rails of payments.
By Randy Smith, Mobile Wallet Media
Monday, August 13, 2012
Giftcards are also cheaper to process (cost to maintain network for Starbucks or perhaps just pennies per transaction by a processor) vs. credit cards: 2% + 10-15 cents (?) per transaction. So now with Starbucks Card Mobile, customers load a mobile giftcard with perhaps $50 and Starbucks gets charged 2% + 10-15 cents (?) per transaction, costing Starbucks about $1.15. If the average purchase by a customer is $5, 10 transactions will cost Starbucks cost virtually nothing or perhaps 1-2 cents a transaction by a processor. So the total cost for Starbucks is about $1.25 to process 10 transactions or about 12-13 cents per transactions. If however the customer comes in 10 times, and pays with their credit card 10 times, the payment processing costs will be up to double at 20-25 cents per transaction. The 10 transactions will have cost Starbucks about $2.50 vs $1.25. Even if the customer receives a free coffee credit, the savings of the program more than pays for it. But what this is creating is a more loyal customer and guaranteed advanced sales or interest-free cash on hand (cost of card processing only).
This is like the transition from voice messaging machines to voice mail, cards vs. cash or 'Snail Mail vs. email. The benefit is clear. The Starbucks app is better and more convenient than plastic payment and loyalty card combo, especially viewed from the angle that everything is going mobile.
The Starbucks and Square partnership is one that apparently involves all their card processing and so I'm sure Starbucks is once again saving money while also gaining headlines by offering a cool new service! Square meanwhile is also gaining brand recognition and ramping up off the Starbucks Card Mobile model with generating a 2D barcode to initiate the transaction. I can only believe this is the direction Square will head with other retailers as well.
LevelUp's model of charging 40 cents of every dollar spent of Merchant Funded Incentives (MFI) is a model that appears to be working. Unlike the 'Daily Deal Model,' that asks merchants to provide a 50%+ discount off services plus 50% of the voucher sold, LevelUp's model of charging merchants of 8-28% as a percentage of MFIs, is a more economical revenue model for merchants than daily deals. But it is only heading in the right direction and is not the destination.
The LevelUp service claims to charge zero for payment processing fees. This is a big deal and a trend to be watched. Indeed it may be a forerunner of bigger trends to come.
Once again let's do some quick match. Credit transactions cost in the range of 1.5-3% + 10-50 cents per transaction. LevelUp gives two examples on their site using merchant funded incentives: $2 with a $10 purchase and $10 with a $100 purchase. So in the $2 example, LevelUp earns an 80 cent or 8% commission of funds spent. Covering the costs of credit card processing on the $10 transaction would be about 40-50 cents. Thus LevelUp merchant marketing net fees, minus the cost savings of payment processing, equals about 30-40 cents per transaction or 3-4%. Of course the merchant is still eating the $2 and so the total cost is close to 23.5%. With the $10 example, LevelUp earns $4 and covers the card processing costs, which will cost LevelUp about $2 or 2%, and thus the merchant net fees for marketing. minus the cost savings of payment processing, equals about $2.00 per transaction. And again, the merchant is funding the $10 reward and so the gross costs are about $12 or 12%.
So are there cost SAVINGS in there for the merchant (after the rocket science math it took to get here)? It seems to be the case as most merchants spend 1-15% on marketing and advertising and 2-5% on card processing fees. The discounting here is more like conventional couponing. Any savings with LevelUp would come from the savings in the cost of distribution or net redemption. So all with all unbundling performed, it comes down to just one thing or two questions. What do you as a merchant pay for your marketing and advertising as a percentage of gross sales and what are your costs on current marketing programs you run?
So is there a future for daily deals with lower fees and lessor discounts closer to that of LevelUp or Square? Or will they forever be locked into their current niche due to the 50%+ expectation consumers are now conditioned to receiving? I'll address this and the integration of daily deals into the mobile wallet and more in our upcoming feature article: Daily Deals Manifest Destiny.
With All the Change Not Forgetting the Basics is Crucial
Merchants that thrive abide to the 80/20 rule: 80% of their business comes from 20% of their customers. There are SEVEN main reasons these customers spend more:
1) They have high disposable income.
2) You offer a product or service they love.
3) You provide great customer service.
4) Your store environment is contemporary, comfortable & cool.
5) Your store location is conveniently close.
6) You provide a fair price for your services.
7) You offer a loyalty program and/or provide special discounts via email/mobile.
It has been proven that loyalty programs increase frequency of visit and spend per visit. With paper, plastic and even online loyalty programs consumer engagement was a difficult thing to obtain and retain, but with mobile loyalty will be virtually automated for consumers. In November we'll into depth about in our SuperCommerce Series with Loyalty Like Never Before!
Though the mobile wallet will change the way merchants reach, gain and transact with their customers, their core business practices will, for the most part, remain the same. But even as I'm writing this article, my thought is what does it matter if I have good ideas and analysis, if very few are reading it? So likewise, the bottom-line for retail is getting more customers through the door and producing more sales at a lower cost. This is the game and the game is changing faster and faster everyday. The only choice to make is to go with the change that keeps you in front of your customer and your customer returning to your store to buy more.
The opportunity for reinvention, disruption and opportunity here are unparalleled for marketing companies, payments companies, POS providers and even retail networks. Facebook being under pressure from Wall Street, due to the fact that with mobile there will be less of an impact on a smaller mobile screen, may indeed be a reality. However, only investors that can do more complex math can compute that display ads on mobile is but one small way to produce revenues on mobile. Next week we be discussing how the mobile wallet will connect the Social Media component into it's array of services.
This week 3 in a 7-week series: "The 7 S's Required for Success in Mobile Payments."
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With Mobile Wallet comes new convenience not previously afforded by plastic and paper cards and coupons. Carrying around dozens of cards and coupons and redeeming them is a lot of hard work when they are paper and plastic. The consumer can achieve savings and not have to work so hard in doing it.
Now it you are a retailer, you may be saying "But I don't want to give discounts to customers that will frequent my store anyways." But the end-game here is one that will produce more revenues at a much lower cost to obtain sales or customers. But it is much more than that. The Mobile Wallet enables loyalty and incentive programs like never before. A retailer could on a Friday afternoon announce a 'Surprise Sales Event' or a restaurant, on a slow week-night, could offer 'Double-Rewards or Cash-Back' if they visit in the next 2-hours. All of these rewards will need to be seamlessly redeemed via the Mobile Wallet. The cumbersome barriers to usage and redemption of coupons or rewards shall soon disappear and a new world of simplicity and consumer convenience shall rise rise.
Starbucks, Square and LevelUp are now boldly leading the way and captivating us with a glimpse of what the future of mobile payments may look like. They are showing us the way to carry out mobile campaigns married to incentives and loyalty, all while making the service even more convenient for merchants and consumers.
Starbucks Card Mobile lead the way in 2011 by showing massive adoption of it's fast and simple to use payment + loyalty app. Starbucks has always been a leader in alternative payments as they launched one of the original giftcard programs, thus giving them ten's of millions of dollars per year of interest-free money and even upside float.
Merchants and service providers must not only embrace change, they must embrace technology and the new paradigms that come with it or they will soon be as relevant as floppy disks or pay phones. Panic is not required here, but being passive is a losing proposition.
Mobile Wallet Media is a news media, analyst, marketing and consulting firm focused on the future of mobile: payments, commerce, daily deals, security, loyalty, marketing, prepaid cards, virtual currency and the convergence
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