Embedded Loyalty Needed to Spur Mobile Payment Adoption

Mobile wallets have failed to gain steam in the marketplace due to a number of reasons, including consumer fears around privacy and security, an uninformed consumer base, an absence of the needed infrastructure to execute such payments and the convenience of already established payment methods. The nagging question for many in the payments industry remains what it will take to convince consumers to use a mobile phone to regularly execute payments.

Ultimately, mobile payments must be as cheap, safe and easy to use as traditional payment methods to even be considered a viable option. Merely making mobile payment infrastructure ubiquitous likely won't be enough to entice a broad consumer base. Regardless of the payment options available, most consumers will choose the one that provides the greatest value. In order to encourage wider adoption and ensure high usage, mobile payment players will have to provide a value add, which could come in many forms, including monetary savings, improved security, ease of use or increased loyalty. Of all these potential benefits, mobile-driven loyalty may be the greatest factor with the potential to drive consumer adoption of mobile payments.

One early study by Accenture indicates that consumers can be incentivized into using mobile payments. The majority of the U.S. and Canadian consumers were resistant to mobile payments up until they attempted them and realized the benefits, the survey showed. Consumers, who reported not having made an mobile payment, said they had security and privacy concerns or believed there were more convenient payment methods. Even these individuals, however, would reconsider, if enticed.

The study found that merchants should incentivize consumers through value-added tools to encourage adoption, as well as attract more valuable customers. The same study also found that 60% of consumers, who already make mobile payments, said they would probably do so more often if they received instant coupons, while some 36% said they would hand over personal information in exchange for such rewards. Nearly half said they would increase their mobile payments usage, if offered short-term, location-based coupons.

Although still very much in the early days, the integration of mobile wallets with value-added services has become almost a prerequisite for the success of any mobile payment app, especially in more developed markets. One of the more successful mobile wallets to date comes from the coffeehouse giant, Starbucks Corp., which integrates its popular My Starbucks Rewards program with its prefunded QR-code based mobile app.

The Starbucks app, which launched in early 2011, now has eight million users. Starbucks now processes 4.5 million mobile payments weekly, up from 2 million at the end of 2012. In fact, a third of Starbucks' North American sales are funded by one of the company's prepaid cards, with the mobile app itself processing 10% of it.

Starbucks found immense success because it has an extremely loyal smartphone-totting customer base that visits repeatedly — often several times a week. Its consumer base is known for its loyalty to the brand, its frequency of visits and its affluent status. Undoubtedly, the integration of Starbucks' popular loyalty program within the mobile app has been a big factor in driving usage and elevating Starbucks to its status as the poster child for mobile payments.

Another real-world example of a loyalty-led mobile payment app is the telecom-led mobile platform Isis. Although still in the early days of nationwide deployment in the U.S., early results have shown greater adoption for those that signed up for the attached loyalty programs. Isis — the joint venture between T-Mobile, AT&T and Verizon — enables users to make payments, collect loyalty points and redeem coupons using NFC-based smartphones at POS terminals. Isis began with a yearlong trial in Salt Lake City and Austin in October 2012 and now has 10,000 locations where consumers can tap and pay. Those trials have indicated that Isis users tap their device to pay for goods an average of 10 times per month. Most interestingly, those that signed up for loyalty schemes were found to tap their devices nearly twice as often as those that did not. Two-thirds of users had opted to receive offers and messages from the participating brands with the average user choosing to receive this type of information from seven different brands.

Loyalty has shown to be an important factor in driving consumer payment choice in the past when it comes to card payments, and will be just as an important in the mobile revolution. The future consumer adoption of mobile payments is directly related to the value add that consumers receive from using their mobile phone. Although an embedded loyalty scheme could provide a compelling reason to try mobile payments, it is important to note that loyalty as we know it is in need of reinvention. Not only are consumers enrolling in programs that they know nothing about, but today's consumers are demanding an increasingly more personalized experience. Thanks to the increased availability of smartphones, the rise of location-based technologies and the emergence of big data, it is now feasible for companies to deliver a more personalized loyalty offering than has ever been possible and to do so in real time.

The loyalty that will drive mobile payment adoption will be about more than just points or miles or free hotel nights, however. Moving forward, loyalty driven mobile payment initiatives will be about one-to-one customer engagement and the individual consumer experience that today's shoppers want and expect. Although mass marketing may still have its place in terms of elevating a consumer brand or drawing consumers into a store in the first place, individualized marketing is what will be needed to acquire and encourage a desired consumer behavior, which also would include driving mobile wallet adoption.

Mobile devices will be central to the mission of providing consumers with a highly individualized experience because such devices are able to determine the context and relevancy needed to provide a consumer with a more gratifying experience. Ultimately, mobile payments will be as much about the exchange of payments as it is the consumer relationship around the payment transaction.

Michelle Evans is an analyst covering financial cards and the payments industry at Euromonitor International. Follow her on Twitter @mevans14.