Mobile payments is becoming a pretty messy space. One might argue that it’s been a hot mess ever since the massive proliferation of mobile payments schemes began a few years ago, targeted mainly to convert mobile phone-toting consumers into mobile phone-paying consumers at the physical point of sale.
But the steady drumbeat of announcements so far this year, I think just underscores how the digital payments landscape has evolved and is lining up – to shake out.
The mobile payments landscape appears to be dividing itself into three camps – what I am calling Buy Buttons, General Purpose Buy Buttons and Digital Wallets. Each camp has payment enablement as its common core, but that’s where the similarities end. How each is used – and where – and the value delivered to merchants and consumers are all quite different.
Mobile payments is becoming a pretty messy space. One might argue that it’s been a hot mess ever since the massive proliferation of mobile payments schemes began a few years ago, targeted mainly to convert mobile phone-toting consumers into mobile phone-paying consumers at the physical point of sale.
But the steady drumbeat of announcements so far this year, I think just underscores how the digital payments landscape has evolved and is lining up – to shake out.
The mobile payments landscape appears to be dividing itself into three camps – what I am calling Buy Buttons, General Purpose Buy Buttons and Digital Wallets. Each camp has payment enablement as its common core, but that’s where the similarities end. How each is used – and where – and the value delivered to merchants and consumers are all quite different.
It’s those differences that will determine how – and if – they get scale and ignition.
Buy Buttons, as the name implies, enable a consumer to register payments and account credentials in order to enable easy and efficient purchasing on a particular site. We’ve seen a ton of activity in the “buy button” space this year.
Pinterest announced a few weeks ago that it would enable buyable pins, thereby introducing its own “Buy Button” for use on its social-bookmarking-site-cum-marketplace. Facebook launched its Buy Button a couple of months back, too, so that visitors can buy from ads presented to them in their News Feed (I’ve done it – it’s pretty slick). Twitter’s Buy Button launched in September of 2014 in an attempt to capture impulse sales from brand followers.
The “buy button” pitch to consumers is pretty obvious: Here’s an easy way to pay if you happen to see stuff on a site you’ve come to, hang out to check out someone else’s board, see what your friends are doing and catch up on what the people you follow have tweeted out. The pitch to merchants is along the lines of, what do you have to lose — we’re just extending your reach and giving consumers an easy way to buy something if they are so inclined.
Pretty much a no-brainer win-win, especially since players like Stripe and PayPal/Braintree make “buy buttons” easier than ever for merchants and marketplaces to enable. I suspect it’s why we’re starting to see a lot of them pop up. (I have another theory though which I’ll discuss in next week’s column…) But most buy buttons have the obvious limitation – they can only be used on the site that is enabling it. Consumers can’t checkout using their Pinterest or Facebook Buy Button outside of their proprietary walled gardens — yet.
Allowing consumers to easily buy when on Facebook and Pinterest is a means to another end, though — and that end is to keep the eyeballs engaged and to draw more eyeballs to those sites that can be monetized through ad revenue. The goal of buy buttons, is, of course, easy and efficient payment on those sites and converting a browser to a buyer, but monetizing that conversion directly doesn’t appear to be how either plans to make money, at least for now. These Buy buttons work on any site where consumers are going to use them enough to invest the few minutes in setting up an account and putting in a card number. After that, friction is gone on those sites, and it really doesn’t matter whether consumers can use them elsewhere or not. They’re happy campers.
General purpose “buy buttons” are all eliminating friction too, but solving a bigger problem. That bigger problem is checkout in a digital world and friction is eliminated when consumers with registered credentials are able to shop in one click at sites that display those buy buttons on merchant checkout pages.
These buy buttons are really digital acceptance marks. In the physical world, acceptance marks cue consumers to whip out the payments products bearing the logos of those acceptance marks for use at all of the merchants that accept it. Online and in mobile apps, they cue consumers to checkout using the credentials that they have stored with those digital marks.
We’re seeing a lot of those emerge too.
American Express launched Express Checkout, its general purpose buy button, last week. Express Checkout has been characterized by the media as Amex’s “challenge to PayPal.” Amex users can register their Amex cards (and only their Amex cards) to their Express Checkout account and use it at merchants that accept it.
Visa’s general purpose buy button, Visa Checkout, launched about a year ago (July 16) and was also described at the time as a “PayPal” alternative. Unlike Express Checkout, Visa Checkout allows consumers to register any network branded card to their Checkout account and to use it online and in-app. During Visa’s last earnings call, CEO Charlie Scharf said that 4 million consumers had registered credentials to Visa Checkout, and its roster of merchants, including Neiman Marcus and Williams-Sonoma, was growing.
MasterPass was launched in February of 2013 to enable on and offline transacting with MasterCard-branded products. MasterPass in the physical world enables MasterCard-branded products, including digital wallets that leverage NFC technology such as Apple Pay and Android Pay. It’s also available online to enable checkout at merchant sites such as J. Crew. The Masters of Code global hackathon is intended to inspire developers to use the MasterPass API as part of the commerce solutions they are developing – baking it into a variety of digital and offline applications.
Then there are the “buy buttons” that started life and/or ignited in “walled gardens” but that have expanded beyond them to gain acceptance as buy buttons across merchants.
PayPal may have started life 17 years ago as a P2P money transfer platform, but it ignited when it was brought inside of eBay to become its buy button. After building a critical mass of account holders, PayPal began to expand outside of eBay in the mid-2000s, and then to a physical world in 2012 with its Discover network partnership. PayPal, which one week from today will be its own independent entity, has ~160 million registered account holders, and is accepted on more than 70 percent of leading online merchants. Offline is a different story; there, PayPal has admitted that it has struggled to gain momentum and its acquisition of Paydiant is expected to improve its standing there.
ShopRunner is an acceptance mark used both in its own digital retail mall – now with more than 100 merchants – as well as on selected merchant sites – Brooks Brothers, Neiman Marcus, Stuart Weitzman, to name a few. Pegged at launch in 2010 as an “Amazon competitor,” ShopRunner offers free shipping along with one-click checkout in and outside of its digital marketplace.
And, speaking of Amazon, it is, of course, the granddaddy of all buy buttons. Its whole purpose in life was 20 years ago when it launched and is today, to eliminate barriers to checking out online, and more specifically on Amazon’s site. Amazon’s strategy for the first 18 or so of those years, was to amass more inventory inside of its own marketplace so that consumers didn’t have to go anywhere else to checkout. Moving off of Amazon to become a more “general purpose buy button” has been a more recent ambition of Amazon’s starting with its relationship with GoGo (the airline Wi-Fi app) and then a select handful of merchants since then. It’s been a slow burn.
Amazon, of course, would very much like to make its “Pay With Amazon” logo the “VIP Pass” to shopping on the Internet and is pitching merchants conversion (20x higher, it says, than typical online conversions) by virtue of its familiarity and ease of use on Amazon for the last 20 years. Merchants, who don’t necessarily view Amazon as their friend, appear to need more convincing.
Like buy buttons, the general purpose buy button pitch is all about conversion – but about solving the conversion problem on their own sites where conversion gets worse the more consumers rely on mobile devices to shop and to buy. For consumers, it’s the same pitch: here’s a simple way to eliminate having to key in a million pieces of information to buy the thing you want to buy when you see an email notice of a sale at your favorite merchant while commuting to work in the morning. That’s why general purpose buy buttons are, in the first instance, all about simplifying checkout by removing a real and a known friction that costs merchants a sale.
But there’s one other thing that they also simplify that helps conversion and consumer interest: They simplify the organization of special deals that their registered account holders can take advantage of while shopping on sites that bear their digital acceptance mark.
So, rather than pushing the burden onto consumers to have to keep track all of the various offers and promotions available to them, these offers are simply applied at checkout when consumers shop at sites and use these general purpose buy buttons to check out. Those offers can come in the form of merchant specific collaborations with merchants tied to the use of branded payments methods – MasterPass and KrisShop (Duty Free Shopping). Or promotions that are enabled by the acceptance mark on behalf of account holders regardless of what method of payment is used – like what PayPal does for its account holders. A consumer can go to her PayPal “shop” tab and “save” the promotions that they want to use – free shipping at Nordstrom or Home Depot or Victoria’s Secret, $5 off at Target, for example, to have those applied automatically at checkout. Visa Checkout and Williams-Sonoma are offering a promotion of $10 off when Visa Checkout is used there, ShopRunner gives its members 24-hour advance notices of special sales at its participating merchants.
Of course the big problem with general purpose buy buttons is the problem they can create because they are general purpose buy buttons. As such, they join the ranks of becoming those two-sided platforms that are the siren song of payments but the bane of many an innovators’ existence. They much have to convince merchants AND consumers that it’s worth the trouble to, in the case of merchants, enable acceptance regardless of how simple it might be and, in the case of consumers, register a card and use it. And, the competition for general purpose buy buttons is one of the oldest buy buttons in the digital world – card on file accounts at merchants. Say what you will about consumers being freaked out about security and merchants holding card credentials – they almost don’t really care that much since they know that their bank has their back if something goes wrong. So, unless it’s obvious that consumers can use these general purpose buy button accounts at a bunch of places, they’ll stick with their good old card on file solution and/or use the mark that they see everywhere (and increasingly so) – which is PayPal today.
LevelUp is a general purpose buy button of sorts that got around this two-sided problem by getting merchants to sign up their customers to use the LevelUp app at their stores with benefits that accrue to that merchant. Consumers can use their LevelUp accounts across any LevelUp merchant (branded or white labeled) and merchants can offer their own directed loyalty programs that LevelUp powers for them – both of which gives consumers an incentive to sign on. LevelUp develops offers and campaigns that these merchants can enable and push out to their customers. LevelUp applies those promotions, offers and discounts when consumers checkout at those merchants.
Digital wallets are another, more complicated animal altogether, which could explain their tough slog to ignition.
As they are designed today, digital wallets are apps that consumers use to register a variety of payments credentials, as well as their coupons, offers and loyalty memberships. They are positioned as virtual containers that organize the commerce assets that consumers accumulate and then can use for shopping on and offline.
Apple, Android and Samsung are the three “Pays” that are in market (or will be soon in the case of Samsung) to garner the attention of the consumer. Their starting point is the mobile device and their pitch to consumers is to be the “shopping utility app” accessed via the mobile phone and used when shopping in app and in physical stores.
The pitch to the consumer is compelling – in theory: We’re going to give you a container to dump all of the stuff that you want to organize and use when shopping across your physical and digital channels – all of your payments methods, offers, coupons, loyalty memberships, gift cards, VIP statuses, shopping lists, preferences, transaction histories, etc.
As long as the consumer is willing to make the investment it requires to organize their digital wallet to function in that way.
Asking a consumer to do that today, across all of the merchants that consumers shop, when usage is so limited offline seems like a hard sell, unless, of course, that whole process is made invisible and frictionless to the consumer.
Or unless these digital wallets solve another problem that consumers and merchants have.
• Enabling incremental sales by allowing consumers to buy inside a walled garden
• Converting online and mobile sales by eliminating friction at checkout
• Making acceptance offline as pervasive in the majority of the stores that consumers chose to shop in today
And that’s where digital wallets run into a few problems.
Pinterest will enable Apple Pay but only for iPhone 6 users. We estimate that there are fewer than 1 million of them today.
The “Three Pays” don’t work in mobile browsers or online, which is still where the bulk of purchasing happens online, where general purpose buy buttons are investing like crazy to gain acceptance, where merchants and consumers have a real problem, and where consumers can use them to shop across a ton of merchants, all digital channels and all devices.
Cards work really well today in physical stores.
That’s not to say that the digital wallet space is hopeless. But, as with a lot of things in payments, what’s more valuable depends on who — and where — you are.
If you’re a site like Amazon with 175 million visitors every day, having a buy button is extraordinarily valuable, even if it that buy button never ends up on any other site other than those powered by Amazon. Amazon’s site generates tons of traffic and delivers lots of eyeballs which convert to paying customers. Of course, initiatives like Dash buttons and Amazon Fresh take consumers “off Amazon” in very different ways, enabling the Amazon experience and one click shopping utility under the auspices of Amazon but outside of the traditional Amazon marketplace. Amazon’s buy button also comes with a lot of data, an extraordinarily powerful commerce asset in its own right.
It remains to be seen whether Pinterest will have the same pull. It gets a fraction of the traffic – about 46 million a day as of April 2015. But only 9 percent of visitors punch through to a shopping site after getting there and only 18 percent to a brand or product site, according to a 2014 study of Pinterest users and then some fraction of that convert to a buyer. Amazon Prime members, by comparison, covert to a sale 74 percent of the time. That said, if Pinterest increasingly becomes a place where people go hunting for ideas that inform buying, the buy button could become very powerful on that platform.
Facebook, in contrast, isn’t where people go with the intention of browsing or shopping, but rather stalking their friends. Commerce has alluded Facebook, so a buy button on its platform remains something of a wild card.
General purpose buy buttons are valuable insofar as they have enough acceptance to make it worth the consumer’s time to establish an account. It’s also where PayPal has a running head start with both merchant acceptance and consumers with registered accounts. For others to have a valuable “buy button,” they’ll need to overcome the merchant acceptance hurdle, which will be a function of how many consumers merchants feel they can deliver.
Digital wallets are staring down the barrel of a couple of issues. They currently have constraints on both sides of their platforms – consumers that have to have specific devices and operating systems, merchants with specific hardware and lack of a critical mass of acceptance on any shopping channel – physical, online and in app. That makes the case for the problems they solve for consumers and merchants tricky, and how they solve for that will require being a whole lot more than an app on a phone that promises secure and easy payment.
Which makes the real winners, at least for now, the card networks which enable pretty much all of it.
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