At a time when most mobile payment apps use virtual cards, QR codes or contactless payments, Dairy Queen is testing the more experimental location-based approach employed by Square and PayPal.

The appeal of mobile payments in a restaurant setting is clear. Starbucks, an investor in Square, reports 10% of its U.S. payments are made with its mobile app.

"As Starbucks and everyone else moves to mobile payments, it's becoming table stakes," says Todd Michaud, founder and CEO of Power Thinking Media, a consultant hired by Dairy Queen to manage its mobile payments project.  "Mobile pay will speed up the line and users will see a difference there."

Dairy Queen plans to use a location-based system that detects when a consumer has "checked in" to a particular restaurant through the mobile app. Square and PayPal have similar systems in place, requiring customers to upload a photo that the cashier uses to identify the patron for authentication.

Rather than present a QR code or tap the phone against a contactless terminal, "the consumer will simply say 'I want to make a mobile payment,' and the service rep will process the payment through the tablet," says Charlie Wiggs, senior vice president of Mozido's retail and quick service restaurant business.

Mozido will develop, host and maintain Dairy Queen's first mobile payments platform. The technology will include location-targeted marketing, mobile promotions and loyalty programs with mobile ordering slated for a future version of the program.

Dairy Queen plans to test the mobile payments system this year, with a broad rollout scheduled for 2014. The Minneapolis-based Dairy Queen, which is part of Berkshire Hathaway, has about 6,100 locations.

"Dairy Queen has a long and good brand relationship with its consumers, they have done well in digital channels, they have millions of subscribers on email lists and likes on Facebook," Michaud says. "Mobile payments is a natural progress of that relationship."

The DQ mobile app, powered by Mozido, will be free and initially available on iOS and Android smartphones. Mozido will also provide tablets at Dairy Queen locations for staff use.

The location-based approach to mobile payments is still unproven. Although PayPal recently expanded its use of this technology to the U.K., it reported lower-than-expected use at a test last year in New York.

"The concept of 'check in vs. check out' for mobile payments will be interesting going forward. A lot of companies will be experimenting with it," says Zil Bareisis, a senior analyst with Celent. "'Check in' mobile payments can be a way to enable people to pay as they are leaving a restaurant without a lot of interaction or waiting."

Dairy Queen also anticipates lower costs for serving users of its mobile app, Michaud says. "There will still be costs because most people will use a credit card to load the cards, but mobile stored value will still be less costly," he says.

The cloud model is also cost-effective for Dairy Queen because a hardware-based approach to mobile payments would be expensive considering its stores have more than 100 point of sale configurations, Michaud says.

Other fast food restaurants have made headway in mobile payments.  Dunkin Donuts recently reported its mobile payment app was downloaded by more than three million customers though the second quarter of 2013. KFC this year debuted mobile payments in the U.K. and Wendy's recently added payment functions to its nutritional mobile app. McDonald's is testing mobile payments in Canada, Sweden, Ireland and Kuwait.

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