Reports this week that Target Corp. and Wal-Mart Stores Inc. are involved in an initiative with several other retailers to create their own digital wallet threw a spotlight on the merchants' stake in the emerging world of mobile payments.
The retailers themselves won't offer their reasons for creating their own mobile wallet, but observers offered a range of possible motives, from an interest in moving mobile payments forward to the need to find out more about their brick-and-mortar customers.
"This concept has been in the works for some time, and it basically is the retailers saying they don't want to see mobile-wallet technology die," says Steve Mott, principal of BetterBuyDesign, a Stamford, Conn.-based consulting firm working with the retailers on development of the digital-wallet system. "This is the first chance in 40 years to create a safer, more private and usable payment system that benefits everyone."
Retailers also seek to eliminate the security problems of traditional credit cards and "to get rid of the Payment Card Industry Data Security Standard" compliance costs, Mott says.
The retailers want other mobile-wallet providers to view the initiative as an open door to join in and create a system that benefits everyone while allowing merchants access to more consumer data, Mott notes.
The retailers view all mobile-wallet technologies as viable, Mott says. They listen to all overtures and ideas from technology companies, he adds. They will consider all of the underlying technologies, including near-field communication, radio frequency identification, and software or cloud-based programs.
But they believe they can develop something more secure and easier for consumers to use, and keep control over consumer data, Mott adds. He contends the retailers expect to create something that all their peers can embrace, and no one retailer is going to strike out on its own with a digital wallet. "This is set up like a United Nations business model, with everyone having a say and everyone welcome to join in," he says.
Big-box retailers are in a position to implement mobile wallets, says Joe Randazza, founder and chief executive of National Payment Card Association. Randazza has trumpeted the efforts of merchants moving into payments with decoupled debit cards since his Coconut Creek, Fla.-based organization launched in 2004.
"Target can pull this off. Walmart can pull this off. But that's not where PayPal and Google are going," Randazza says. "They are going to go more widespread."
Merchants are going to take the bank-account information they already collect for decoupled debit cards, which link a consumer's checking account to a card not associated with that institution, and move those transactions to the chip-enabled smart phones, Randazza says.
Merchants also will take advantage of updated terminals that some payment networks already subsidize to accept mobile payments, he adds.
Randy Vanderhoof, executive of the Smart Card Alliance, was blunt in his view on the initiative.
"This action reflects the disruptive nature of mobile payments on the retail payments industry," Vanderhoof suggests in an email statement. "The mobile operators and financial institutions are trying to build on the existing infrastructure, and merchants are looking at mobile as a chance to reshape the market under more favorable terms for themselves."
Gil Luria, an analyst with Los Angeles-based Wedbush Securities, says retailers need their own initiative so they can compete with online retailers such as Amazon.com Inc. in what amounts to a data-control war.
"The online retailers know everything about the customer, but the brick-and-mortar retailers have no idea who you are when you slide your credit card through the reader for a purchase," Luria says. "There is a huge need for them to figure out who their customers are and how to get them into the store to actually buy in that store."
Sean Sposito, Reporter, American Banker