Made for Each Other: Wallets, Loyalty, and Mobile Payments

It’s fair to say the local marketing industry has been a little disappointed by the adoption of mobile payments. The combination of a sluggish hardware upgrade cycle and consumer reluctance appears discouraging. But there are catalysts on the near horizon, including the promise of a virtuous circle where mobile wallet-enabled loyalty programs encourage payments and vice versa.

NFC-enabled smartphones are proliferating, but neither Apple Pay, nor Android Pay, nor Samsung Pay appears to have reached critical mass. Point-of-sale support lags, even as the conversion to chip-based cards in the U.S. drags on. Consumer usage is spotty, attributable to security concerns, overall awareness, and a lack of a compelling utility or killer app.

A recent Wall Street Journal story cited one analyst’s estimate that only 13% of iPhone users had used Apple Pay, and quoted Apple exec Eddy Cue as being indifferent on whether mobile payments would arrive in two, three, or five years. Apple claims that Apple Pay is accepted by about a third of U.S. merchants, but it’s not at Wal-Mart or most of your local merchants.

The supply side is definitely an issue. Without obvious consumer demand, merchants haven’t discovered a compelling reason to support contactless payments and train their sales personnel, other than “they’re a little more convenient than a chip card.” But momentum appears to be building. Street Fight’s 2017 small business survey shows that half of responding local merchants rate mobile payment compatibility their most important feature from a point of sale system, and a similar number are in the market to upgrade or buy a new one within 12-24 months. As I wrote earlier, brands and big retail advertisers could also push payments along: mobile advertising and online-to-offline attribution could both benefit from connecting the dots through payments.

On the consumer demand side, BIA/Kelsey’s Michael Boland suggests that fast food order-ahead programs that use mobile payment for fulfillment could be the missing killer app. He notes that a new program from McDonald’s will be a better mass-market consumer test than Starbucks. Successful adoption will demand store operational response, whether that’s in the form of fast lanes or in-store kiosks, but as retailers compete with online, delivering the best user experience will be a key differentiator. 

A good order-ahead offering could catalyze mobile payments, but I believe loyalty programs, especially cross-merchant points that don’t require a different app for every retailer or brand, will be even more compelling. And that’s where wallets come in.

Urban Airship, a mobile marketing technology and services company, likes to talk about how wallets and loyalty programs work together. It points out key benefits of a wallet-based marketing program – especially compared with an app-based one — include it’s always there, and that reminders can be driven through homescreen alerts. The company did a broad consumer survey last summer where over two-thirds of respondents said they’d be more likely to use a loyalty card if it were on the phone. And mobile wallets solve the two biggest problems with loyalty program participation: forgetting they’re a member (cited by 40%) and forgetting the card itself (43%). 

At a panel I moderated for cashless payment technology provider USA Technologies last week, we talked about how mobile payments and wallets might play out in the self-serve retail business of vending machines and micro markets. The panelists agreed that unattended vending could act as a catalyst for mobile payments, which, in turn, could fuel new business opportunities for their operators.

Greg McCall, sales and marketing SVP for Five Star Food Service, that operates 600 unattended micro markets in company break rooms across the southeast, said mobile payments represent about 5% of  Five Star transactions. He said usage would be driven by millennials, a notion confirmed by the Urban Airship survey. He noted that in moving from cash to credit cards, the average sale went up from $1.05 to $1.50, and he was expecting mobile add another 25% – a pretty compelling reason to upgrade. He was cautiously optimistic about the opportunity for wallet-based loyalty and promotional programs from brands, even for fulfillment at other retailers. It’s not competition if buying a soda at his micro market gets a discount on a six-pack from a nearby grocery store.

McCall conceded the difficulty in promoting loyalty programs without having live salesperson. J&J Vending is using the app-based PayRange system for mobile payments and loyalty points in its micro markets. Director of business development Jennifer Skidmore described how J&J uses a company’s employee events to to introduce programs and sign up members.

Will wallet-enabled loyalty programs be the catalyst that accelerates mobile payment adoption? The signs are pretty positive. A year ago, when Street Fight surveyed enterprise local marketers, mobile wallets were in their top five list of new marketing technologies for exploration. Our 2017 local merchant, small-business survey has them in the top three. And consumers, already familiar with the concept of loyalty points, will likely find them easier to remember and use than card-based programs.

David Card is Street Fight’s director of research.