A close look at top 100 US Retailers and Mobile Payments Adoption

You would have heard many 'experts' say that collaboration amongst Banks, Tech eco-system, Carriers, Device makers and Retailers is the key to the Mobile Commerce kingdom (if that will ever be possible). I would, in a way, disagree. I would actually want the focus of the industry (and best minds) on Retailers to see Mobile Commerce really taking off. Some people might not like this but here is why I say so...

Banks are the source of funds, technology firms/Startups the source of innovation to a large extent, Carriers/Device Makers are the source of mobility, but Retailers/Merchants are the source of commerce and the commerce transaction. A close look at Starbucks and few others who have a great mobile commerce process throw a lot of insights to support my argument. Retailer has the key to the Mobile Commerce Kingdom because they have the primary touchpoint with the customer when she is making the purchase.

But most of the activity (and buzz) we saw till 2012 was in the other segments (Tech/Carriers/Startups). The adoption of Mobile Commerce has been slow in the past and this is one of the reasons. Retailer has a huge opportunity to influence the consumer and make mobile payments a part of her commerce experience. Ofcourse, mobility and source of funds are important and so is technology. But in the initial years I think the ball needs to start rolling really from the retailer end. We saw in 2013-14 that once Starbucks demonstrated success (14%+ tranx) and the secret sauce started becoming public, dozens of other foodchains and restaurants started rolling out their Mobile Commerce programs. By the end of this year you would see more.

I looked at all the top 100 US retailers one by one (huff!). I wanted to create the empirical praxis. Considering the market potential, companies from multiple sectors have entered the mobile payment industry with their solutions. Solutions for mobile payments however revolve around several enabling technologies namely, QR codes/Bar codes, NFC/HCE, BLE and others for proximity payments and SMS/USSD/Internet/Apps/Cloud based technology for remote payments. Despite presence of multiple solutions, the mobile payments adoption has not been encouraging.

Apart from NFC (secure element based), QR code/Bar code, a few other enabling technologies are being used at proximity payments with players such as Starbucks deploying a QR-code based solution and MCX going that route. However, with the emergence of HCE in Android kitkat 4.4 and Apple’s iBeacon (BLE) solution in 2013, the market is expected to change dramatically over the next decade.

In the first article of this series, I have analyzed the top 100 US retailers (see below for details) to understand their adoption status (For NFC and BLE) and the trend line in the coming years. Focus has been on the top 100 retailers (Driving ~40% of US retail sales), as these firms are expected to be the primary adopters and would form bulk of market for mobile payments.

Ofcourse having NFC enabled terminals and processing transactions everyday are two different things. But lets get to that level later. As of 2013 year end, 33 major retailers among the top 100 retailers have adopted NFC (Pilot/Initiated roll out) and are serving end consumers through their own solutions or through Mastercard, ISIS, and Google wallet solution. This indicates a preliminary trend towards adopting NFC as a payment technology. At the same time, multiple retailers are lining up to adopt NFC in 2014. The other driver of this mobile payments adoption is expected to be the MCX mobile wallet solution which is being developed by major retailers themselves. MCX has signed up to 20 top retailers for its mobile payment solution which is expected to be launched in 2014. MCX is believed to be driven by QR codes technology initially but MCX has indicated their desire to move to other technology over time.

BLE as a technology has been adopted by Apple in its iBeacon solution. iBeacons, as of now, is focused on location based marketing and doesn’t support payments. Though, it is believed that the Beacon end-to-end solutions would evolve to allow payments as the security concerns over it are addressed satisfactorily. Currently, only Apple has implemented the BLE solution across its US stores among the top 100 retailers. Safeway is in pilot stage and is deploying BLE with help of Inmarket. Similarly, Macy’s has initiated BLE pilot in two of its store. The other major player who is working on BLE is Giant’s Eagle but has joined MCX in 2013. LTP believes the adoption to grow stronger once these pilots and full implementation by Apple show sustainable benefits to retailers.

If MCX is launched as per plan in 2014, it is expected to have the largest penetration among the top 100 US retailers. ISIS and Google are expected to be the distant 2nd and 3rd among the mobile payment solutions provider.

LTP View: LTP believes that adoption among top 100 retailers to be the driving factor for success of proximity mobile payment solutions. NFC has made some inroads and is expected to increase its penetration among top 100 retailers. Though, MCX based solution may gain more steam. BLE once established as a secure payments technology is expected to grow exponentially impacting NFC penetration. LTP also believes that BLE would push the envelope of mobile payments to smaller/marginal retailers because of its lower costs and in-store marketing solutions.

*List of top 10 US Retailers by Revenues

Top 100 US retailers (by revenues, 2012)

Wal-Mart Whole Foods Market GameStop Kroger Bed Bath & Beyond Dick's Sporting Goods Target 7-Eleven PetSmart Costco Aldi QVC The Home Depot Ace Hardware Defence Commissary Agency Walgreen Ross Stores Big Lots CVS Caremark L Brands Save Mart Lowe's Family Dollar Stores Sherwin-Williams Safeway Army Air Force Exchange WinCo Foods McDonald's Wendy's OfficeMax Bi-Lo Alimentation Couche-Tard Best Buy Starbucks Tractor Supply Co. Sears Holdings Burger King Worldwide Chick-fil-A Macy's Menard Harris Teeter Supermarkets Publix Good Neighbor Pharmacy Foot Locker SUPERVALU Darden Restaurants Dell Ahold USA / Royal Ahold Verizon Wireless Neiman Marcus Rite Aid Toys 'R' Us Hy-Vee Apple Stores / iTunes Trader Joe's Brinker International TJX AT&T Wireless Burlington Coat Factory Kohl's Health Mart Systems Michaels Stores Delhaize America Dollar Tree Belk H-E-B Office Depot Bloomin' Brands YUM! Brands AutoZone Williams-Sonoma True Value Giant Eagle IKEA North America Dollar General Wegmans Food Markets Roundy's Supermarkets Meijer Dunkin' Brands Stater Bros. Holdings Wakefern / ShopRite Barnes & Noble Sonic J.C. Penney DineEquity Albertsons BJ's Wholesale Club Dillard's Price Chopper Supermarkets Staples A&P RadioShack Subway O'Reilly Automotive Ingles Markets Gap Advance Auto Parts The Sports Authority Nordstrom