Turning mobile wallet economics on its head (mobilepaymentstoday.com)

Mobile wallets are an expensive proposition requiring a broad range of investments – point of sale, handset, distribution, and user incentives, just to name a few.

Each member of the ecosystem (banks, retailers, carriers) is required to spend significant resources to bring mobile wallets to fruition, often with payoffs that are uncertain and in the distant future. As a result, everyone has their hands out – and not without reason – seeking to be compensated for making these investments. I would argue that there is another route.

Consumer packaged goods (CPG) companies represent the best chance for mobile payments. According to estimates from Inmar Coupon Clearinghouse, U.S. consumers redeemed approximately $3.7 billion of coupons from CPG companies last year. The coupon industry suffers from several major problems: coupons are fraught with fraud, they are untargeted, and it is increasingly hard to reach consumers as newspaper circulation continues to dwindle. Even if mobile payments saved the industry only 10 percent of that total would generate annual savings of $370 million.

The biggest challenge for mobile coupons is implementing solutions in grocery stores where most consumer packaged goods coupons are redeemed. There are currently some 37,500 major grocery stores in the United States. If the average grocery store had 20 lanes and the cost of implementing readers were $250 per lane (conservatively speaking), the total cost of implementing a solution in the U.S. would be $187.5 million. In other words, the investment could pay itself back in just over six months (arguably one of the fastest return investments in the consumer packaged goods industry today).

For wallet developers, developing a solution that solves for this dilemma represents the best chance for mobile payments where adoption at the POS is the biggest challenge. This has several implications for wallet developers:

• Resolve not only coupon redemption, but loyalty card presentment as well. Most major supermarkets have already developed couponing solutions using an “attach to loyalty card” infrastructure. This approach addresses several of the inherent problems such as coupon stacking and reduces friction with existing POS equipment and third party providers. This is not as easy as it may sound. Flatbed scanners are still by and large unable to read barcodes off cell phones. There are several options – such as upgrading the scanner or translating the barcode into light signals on the phones – but all will require a technical solution.
• Establish partnerships with key coupon distributors and publishers. Companies such as Coupons.com have exclusivity with certain CPG companies. Accessing those offers requires wallet developers to work directly with these publishers.
• Create economic frameworks with the right incentives to drive merchant adoption at the point of sale. This is particular important as grocery stores try to keep CPG companies at arm’s length when it comes to payments in order to preserve their balance of power.

So instead of trying to maximize their own positions, wallet developers should be looking to those with the most to gain – CPG and other manufacturers. These players are often overlooked because they do not play directly in the value chain. Yet, they represent the best chance at transforming the industry.