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Welcome to episode 7 of the Mobile Payments Today podcast. I am your host, Will Hernandez. So what I’m going to do this week is keep the intro short for this episode for a couple of reasons. Instead of having an editor segment this week, I thought it would be a good idea to recap our CONNECT: The Mobile CX Summit from last week in Chicago. I reviewed a couple of trending news items with this week’s, Jordan Mckee of 451 Research. We discussed the current situation with Kroger and Visa as well as Costco, accepting contactless payments, but what a catch that is unique to that brand.

Q&A – Jordan McKee, 451 Research

Will: I am here with my guest this week, Jordan McKee. He is the Research Director for Customer Experience and Commerce at 451 Research. Jordan, thanks for joining us this week. I appreciate it.

Jordan: Thanks for having me.

Will: You had posted a photo last month on Twitter and I thought it was really interesting. Because it showed 10 different tablets that this sushi restaurant was using in the DC area for order ahead. And I thought it was an amazing photo and when you look at that picture and look at that scenario in terms of what’s going on with mobile ordering and how it’s become so popular, that picture looks like it presents some challenges. The challenges are on the merchant. And so, so what challenges do you think are going to start coming with mobile ordering?

Jordan: It was quite a sight. Well, I mean I walked into this Sushi restaurant and went up to host. He had a small podium where I think I actually counted about a dozen tablets and smartphones hooked up to the various order ahead platforms. From Postmates to EADS to GrubHub. Again, just all the major ones that you could think of. And in the tweet I referred to this host as a switchboard operator because that’s effectively what he was doing. He was waiting for orders to come in through these various different order ahead platforms. He was manually entering those orders into the point of sale system and then generating a ticket for the kitchen. So from an operational standpoint, you know, order ahead is starting to create some real challenges again, having to have a dedicated employee just to monitor incoming orders and then repopulate them into the point of sale system is, is no small task, especially during a busy time. Think about the evening rush hour for a restaurant.

I mean think about the process of having to update your menu across multiple platforms. If you’re hooked into a dozen or so order ahead services, you need to make sure your menu is updated across each and every one of them. You need to manage delivery drivers. If you have a customer that calls in and wants to know where their food is and you’ve got to sort of track down, okay, where did this order actually come in from? And then where is that driver that’s supposed to be delivering it? So there’s, there’s some real challenges from an operational standpoint and then kind of drilling down into the aspect that I think is most interesting in the payments world is just the challenges that this will create from a reconciliation standpoint. I mean it’s a nightmare for a bookkeeper to start to manage all of these payouts right from the different order ahead platforms and ensure that they’re accurately recorded in the books.

You’re getting payouts again from all sorts of different processors more than likely. So it’s a really messy payment situation and I guess it kind of speaks to just the challenge that you see in the point of sales space right now where there are all these new up and coming startups that are providing restaurant focused services but they haven’t focused on integrating into existing point of sale environments and so you’re left again with that scenario I mentioned where you have to have an employee that’s effectively taking orders that are coming in and then repopulating them into the point of sale system. There are very few order platforms out there that have done a good job kind of integrating into the big point of sales systems out there. So it’s just a really fragmented in a messy environment at the moment.

Will: I want to stick with the merchant theme here and move on to something that it’s been discussed a lot this summer, really the past couple of weeks – the whole thing with Kroger and Visa. Basically it’s over interchange fees. I don’t think anyone is kidding themselves. When we talk about this particular topic, and this is something that’s been happening for a long time. For longer than you and I have been covering the business just in terms of what happens between the retailers and the card networks over interchange fees and my question to you is this; is this particular one any different than what we’ve seen in the past? Then do you think this will change anything between the retailers and the card networks going forward?

Jordan: It’s certainly an interesting development and you’re right, it’s not dissimilar to some of the events that we’ve seen in the past as it relates to large merchants trying to flex their muscle to push back against the cost of acceptance. It points to a real challenge in the space, and this is an area that we did a bit of survey work around earlier this year where actually we went out and knocked on the doors of a bunch of different retailers and kind of targeted the treasury function within the retailer and we asked about challenges that are facing their organization when it comes to accepting payments. We asked about things like decreasing fraud and chargebacks, upgrading your software, integrating new payment options, a whole host of different things. And the number one challenge was lowering payment acceptance costs and fees. Over half of respondents that we surveyed pointed to the fact that they want to push back against the cost of acceptance.

I think that the challenges that retailers for many, many years have have always looked at payments as, as a cost of doing business. There are a cost center, you know, in some ways a commodity. It’s something that eats up margin. So there’s always going to be this interesting dichotomy between the payments providers and the retailers around the cost of acceptance. And I think this move by Kroger is an interesting one in the sense that they used a smaller chain that they own. Because the smaller chain is associated with the broader Kroger organization. It got a lot of media attention, you know, Kroger is a very big business, over $120 million in revenue last year. So it’s no small sum of money when you look at the broader Kroger organization. But it was interesting that they used a smaller chain to push the narrative around the cost of acceptance.

I think what we’ll see increasingly is, is merchants kind of taking this stuff into their own hands and if they don’t get any sort of relief from their acquiring partners and the networks and so forth, they’re going to increasingly push full steam ahead and kind of creating their own branded a payment experiences, not dissimilar to what we’ve seen Starbucks do. What we’ve seen many different quick service restaurants do where, you know, effectively incentivize the customer to directly link their bank account to this application to make payments in stores and completely sidestep the network. So I think what you will see over the next few years is, is retailers getting really strategic around kind of how they’re architecting their payment strategies and taking some steps to kind of go around the networks where they can. So it’ll be an interesting area to watch. And I think with the onset of mobile and the increase in comfort around using apps in store, there’s a real chance that this could start to eat into some of the volume that the network sees.

Will: One of the big stories that came out this past week was Costco and its decision to accept contactless payments. I thought you brought up a good point on Twitter about the fact that Costco has this co-branded Visa Card. A couple of years ago, whatever it was. But now it’s supporting contactless. Obviously with the “pays” – Apple Pay, Samsung Pay and Google Pay. What do you think this is happening now? Why? Why now is Costco saying, okay, we’re going to accept contactless and there is a caveat for people who don’t know, it’s only Visa since they have this special relationship with Visa card acceptance. So give me an idea. What do you see going on there right now with the whole Costco development?

Jordan: I’ll be honest, I was surprised that they waited this long given to your point that over two years ago now, they started issuing a dual interface co-branded card that would allow you to tap and pay on the terminal for transactions. You know, it’s no small cost to issue a dual interface card, and in some cases it’s going to be about twice the cost of just issuing a contact or a contact only EMV card. So they paid a fair amount of money. They made a fairly significant investment in the payment side of contact listening. They waited two years to start actually accepting it in store. So I found that to be a bit odd, you know, it could be a variety of reasons, they quite possibly could have looked at the market at the time and realize that, you know, consumers broadly speaking, are not using contactess at least two years ago.

Usage rates are fairly low, so they decided to hold off and wait until the market warmed up a little bit. It could have been an IT prioritization issue where, they’ve got a whole bunch of different asks of the IT organization and they kind of put contactless enablement a bit further down on the list and they finally just got to it. Now it’s hard to say why they held off again, especially since they issued that dual interface cards some time ago. But I think what will be interesting is, you know, when you’re in the, in the Costco store, in the big warehouse, to see what extent they’re going to actually promote acceptance of the pays versus acceptance of that contactless. That contactless Costco card, it’ll be interesting to see kind of how that advertising element in store plays out and to your point around it only being Visa. I think you could see some issues at the point of sale where you know, okay, customers are excited, they can use Apple Pay, but they happened to have an Amex or a Mastercard link to Apple Pay.

They go to tap and pay and there’s just all this confusion that results because of that, you know that Visa relationship that they have. So I do foresee some, some potential customer experience issues just because of the fact that you know, you tend to link a card to Apple Pay or Google Pay. You might not even remember which one it is. You just sort of tap your phone and it’s second nature and if it’s not a Visa card, you’re going to have some awkward moments at the point of sale and that that probably will start to happen in the not so distant future.

Will: You were quoted in a USA Today article earlier this month about mobile payments adoption and how it’s basically stalled here in the US. Obviously this is a topic that we talk about here again and again whether it’s the publication Mobile Payments Today or other outlets. What do you think are some of the maybe one or two things that have to happen right now or soon to hasten that adoption?

Jordan: It’s still early days without a doubt. So we just did a big forecast around transaction volume purchase activity across a bunch of different channels and one of the areas that we looked at mobile contactless payments specifically in the US and last year what we concluded is that contactless, mobile payments only accounted for just over one percent of in store transaction volume. So still just a drop in the ocean in terms of the volume that they’re contributing to the payment space. I think that there are a few drivers that we’re looking for and looking at on the horizon. I think one of the really interesting ones is going to be when a couple of very major transit systems upgrade to contactless ticketing. So you’ve got obviously the MTA coming up in a couple of years in New York, Boston with the Mbta around the same timeframe, I think 2020.

So, so those types of scenarios where again, you have an activity going on public transit that many of us do on a daily basis. If you start to familiarize consumers with tapping their phone to pay in that type of environment, now there’s a good chance that consumer will start to have that activity replicated at other merchants that they shop at. So I think contactless and transit will be an important driver and an important, kind of evolutionary aspect of mobile payments here in the US. I think the other thing is probably the more complex challenges is just around the value proposition and it’s something that we always point to in the mobile payment space. You’ve been writing about it forever. I’ve been talking about it forever and it’s the fact that there just isn’t a compelling reason to use mobile payments at the point of sale for the average consumer. Card payments work pretty well.

There’s not a real pain point there. And so that value prop for mobile payment needs to be measurably better than what we have today and what we have today works. So until we really start to see merchants, investing in some of these wallets and what I mean by investing is like, for instance, what Panera is doing with Apple Pay, where you can actually make a transaction and redeem your loyalty points and get points added to your cart. One tap of the device. That’s a pretty interesting value prop. If we start to see that extended into other types of retailers. There could be something there that could be a bit of a catalyst, but broadly speaking, I think it is still going to be a journey. We still haven’t crossed the chasm from the leading indicator type consumers, the early adopters into the mainstream category and that’s going to be a five to ten year journey. There are some events that we’re watching on the horizon, but I think it’s very much going to be a evolutionary rather than revolutionary when it comes to this type of activity becoming commonplace.

Will: Jordan, thanks for taking the time to chat this week.

Jordan: Always appreciate being on and look forward to catching up soon.

I wanted to do a quick recap of Networld Media Group’s CONNECT: The Mobile CX Summit, which took place last week in Chicago. One of the overriding themes from this year’s event was an emphasis on design, whether it’s a mobile app, a loyalty program or delivery options. That was something that kept on coming up consistently, making sure you have the right experience for a consumer, whether it was again, a mobile app, that loyalty program or delivery options and one thing I thought that was kind of surprising about this year show was that I didn’t hear much about Amazon Go. It wasn’t mentioned in any of the keynotes or in the sessions I attended. I didn’t attend every single session since I moderated one and was on a panelist on another and there were other sessions going on as I was sitting in one session, so Amazon Go might’ve been mentioned elsewhere, but it didn’t happen on my watch and I’m not sure exactly what that means.

People are still talking about Amazon Go, but I think we’re at a point where retailers realize that they have to worry about what they have and innovate in other ways. One panel I found particularly interesting was the one on how delivery is having an impact on the restaurant business and the mobile aspect of that is fascinating and something to keep an eye on if you’re a restaurant. The reason I think it’s fascinating is because a restaurant basically loses its branding when it’s on a third party platform like a Postmates or UberEats or a Grub Hub. As one executive said, you need to be on those platforms in order to raise brand awareness for your restaurant. Michelle Adams, who was the senior brand manager for Freshii, said it best when she said during the panel that if you’re not located on these digital food courts as she calls them, then you’re missing out.

As I mentioned earlier, I was on a couple of panels. One about loyalty and one about mobile payments. These two go hand in hand as far as I’m concerned, and the biggest thing that came out of those two panels is that merchants are constantly experimenting with what’s the best experience, particularly with loyalty. What’s going to basically drive consumers to stay engaged and as far as mobile payments is concerned, I just get the sense that most retailers are more than fine with accepting almost anything, particularly the pays and some have showed some good success with their own platforms like Starbucks and a Walmart and others that are out there. One thing to keep an eye on his AliPay and WeChat and that’s something that I’ve mentioned before on the podcast. Those two companies continue to make deals with North American merchants for acceptance since Chinese tourists travel so well, and if you missed it last week, Mall of America just made a deal with Scicon, which is a company based in California that is helping merchants with the acceptance of both Alipay and which again, so that they keep an eye on because we’re seeing that out there more and more.

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