Is your SMB ready for mobile payments?

Mobile Payments: Is Your SMB Ready?

August 11, 2015 Tech4BusinessNow Article

Tapping into the growing trend of mobile payments can be one way to improve customer loyalty and increase sales. Just ask Starbucks.

By Terri Coles

A few years ago, paying for everyday items with a smartphone was wishful thinking. Today it’s increasingly common—and even the smallest businesses can take advantage of the advances in transaction security and customer relations offered by mobile payment systems.

A growing number of consumers expect mobile payments to be part of their purchasing experience. For example, 15% of respondents said they used a mobile wallet app in the past six months, up from 9% in 2013, according to a recent survey by market-research firm Chadwick Martin Bailey (CMB). Another 22% said they planned to do so in the next six months.

Among people who already use a mobile wallet, 27% said they are “very likely to switch to other businesses with mobile payments capability” and 18% said they would “increase the frequency of business if mobile payments capability were present,” according to the CMB survey.

Whether it’s through an app connected to your customer’s bank account, one specific to a retailer, or a mobile point-of-sale app, mobile payments offer the same benefits for smaller business that they do for the larger businesses like Starbucks and Subway that have embraced them, says Richard Crone of Crone Consulting, a payment-systems consulting firm.

There are three main types of mobile payments, Crone says: person-to-person payments like PayPal or Square Cash, where a smartphone app or mobile site is used to send payments directly from one person to another; mobile point-of-sale payments like Square or Stripe that use credit cards; and “mobile wallet” payments like those made with a retailer app (e.g. Starbucks), standalone app (e.g. Android Pay), or bank app that connects to a credit card or bank account.

(Of course, the term “mobile payment” can encompass a variety of systems and solutions—even more traditional point-of-sale systems have mobile options.)

Boost customer loyalty

One key benefit of mobile wallets and other mobile payment options is that they allow businesses to deepen their relationship with customers.

For example, Starbucks recently expanded its “Mobile Order & Pay” program, where customers can pre-order via their smartphone and then skip the line when they go to the store to pick up their drink. All told, Starbucks’ mobile apps are used by 16 million people, and the company processes about 8 million mobile payments every week, amounting to 19% of transactions at its U.S. stores, according to news reports citing a recent earnings conference.

Starbucks also offers reward points when customers pay with their mobile app. Mobile payment allows a business to make customer loyalty a part of every transaction, Crone says, regardless of the size of the payment or the bank or card used to make it. “This loyalty building facet, allowing the retailer to communicate and interact with a known customer, is a big benefit of mobile payment.”

In the CMB survey, 69% of consumers said they would begin using mobile payment methods if merchants offered discounts tied to purchases made with a mobile wallet. The same percentage said they’d be inclined to move to a mobile wallet if that could be integrated with rewards programs to allow for immediate points redemption.

Another bonus of mobile payments: the ability for customers to load pre-paid transactions into a smartphone app—they can use their phone to load money directly from their credit card or bank account, then use the app to pay for purchases. “That’s the best kind of purchase to have,” Crone says. “There’s a lot of data that shows that pre-paid has a higher average ticket.”

Security benefits—and concerns

For some merchants, it may be appealing to offer mobile payment as an alternative to chip card-enabled point-of-sale systems. Businesses are reluctant to replace POS equipment that functions perfectly well, Crone says, which is one barrier to the shift to chip, or EMV, credit cards. Read more about the EMV deadline here (free registration required).

Many mobile payment systems work with an inexpensive piece of equipment that works with smartphones or tablets. Others are run via software that can be used with equipment a business already has, such as a barcode reader.

“Many retailers are just saying, ‘Hey, we’re not even going to worry about EMV and we’re just going straight to mobile payment,’” Crone says. Given that the shift to EMV systems is driven by fraud risk, Crone argues that mobile payments are a possible solution. “You can’t get rid of the risk of fraud until you get rid of the card, and a mobile payment gets rid of the card.”

Still, any payment system will carry some type of risk. Plus, surveys show that consumers have privacy and security concerns around mobile wallet and other mobile payment options. Merchants will need to consider those concerns when investing in any payment system.

For his part, Crone says mobile technology may have advantages over other POS systems. “It’s actually safer than EMV,” Crone says, “because the merchant never sees the card number, and the consumer never has the card number stored on the phone.”

The cloud-based nature of these services may also provide a security benefit. Payment credentials for these transactions aren’t stored on the smartphones or other devices, Crone explains, or given to the merchant. Each transaction is tokenized, which means no account numbers are transported.

A growing market

It’s increasingly affordable and uncomplicated for SMBs to make mobile payments part of their offerings for customers. Person-to-person payments require no special equipment and can often be set up with no up-front costs. And mobile point-of-sale options work on your own tablet or smartphone; some systems make the equipment free upon sign up.

Consumers report that they prefer to use an app from their financial institution for mobile payments, Crone says, so the increasing availability of those options is a boon for businesses. Many of the bank-branded mobile wallets are powered by Paydiant, which also provides branded mobile apps that work for payment, loyalty program, discount offers, and other customer services.

Other mobile payment options can take advantage of software or equipment a business may already use to accept gift cards or loyalty programs, like bar code readers or QR code readers.

“Every small business has a gift-card program, and there are providers today that allow every business to have their own app,” Crone says. “If they have it, if for no other reason than for their own gift card or private label pre-paid account, they’re ahead of the game.”

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