Mobile payments have not taken hold among average consumers, but as Eileen Serra sees it, Starbucks' model of tying rewards and mobile together is crucial to getting people to see their phones as extensions of their wallets.
"The reason to use mobile payments has to be more than hitting 'pay,'" said Serra, who is the chief executive of Chase Card Services at JPMorgan Chase. "Starbucks has been the most successful mobile payment model because they have integrated loyalty and rewards. That's how you drive adoption. You give [consumers] a reason to use it."
Her comments came in an interview late Monday, after JPMorgan announced its own play in the world of mobile wallets. The product, Chase Pay, is set to launch in mid-2016 and the company has partnered with Merchant Customer Exchange, which includes several major retailers including Walmart, Target and Best Buy, to tie loyalty and rewards programs to the mobile wallet.
Several days earlier JPMorgan said it would replace Square as the processor of nonmobile payments at Starbucks stores. First Data Corp. services mobile transactions for the coffee shop. JPMorgan joins a growing field of banks developing their own mobile wallets to make sure they remain relevant in a landscape that has several nonbanks, such as Apple, Android and Samsung, vying for pieces of the action.
With 94 million cards, 22 million active mobile banking users and its Chase Paymentech unit, JPMorgan is uniquely positioned to either be an innovator or suffer a serious fall should mobile payments take off the way industry players have long predicted. The move to create Chase Pay is a clear example of the company trying to protect its future.
"When you look at our capabilities, we have a huge number of debit cards, a huge number of credit cards, we have a wholly-owned acquirer – who better to drive the future of mobile payments than Chase?" Serra said.
Analysts who follow the company applauded the move, even though it is unclear what Chase Pay will mean for the company's bottom line.
"Why shouldn't JPM be a major contender in the digital wallet wars? The banks have the cards, they have the credit risk, and they have the legacy of creating the industry," said Mike Mayo, an analyst of CLSA, and one who is often critical of the company. "They are looking to benefit from existing leadership in the payments space where a handful of nonbanks have made inroads."
Still, Mayo said the news was not enough for him to revise earnings estimates, mostly because he does not know how to quantify the impact yet.
Betsy Graseck, an analyst at Morgan Stanley, said in a research note that it will take time for Chase Pay to show through in the company's earnings. She left her estimates unchanged for now, too, but said that there will likely be earnings-per-share benefits "post 2018."
In a response to a question about the economics of Chase Pay, Serra said it was better to focus on the possibilities.
"We think we have the ability to gain market share and share of wallet with Chase Pay," she said. "We look at this as a growth opportunity."
Observers say that is part of a bigger conversation about experience. Essentially, JPMorgan's long game is creating an environment where its customers are there because it behooves them to be there.
"If they get [Chase Pay] right, this could be one more reason to be a Chase customer," Mayo said.
Building that kind of experience could add long-term value.
"Part of this is beyond the initial payments revenue and has more to do with keeping customers engaged on mobile for better retention," said Sam Kilmer, senior director of Cornerstone Advisors.
Kilmer added that even if Chase Pay changes the way the bank makes money on transactions, it is part of a larger push into digitization.
"If you look at what Chase has reported publicly about mobile (digital users 15% less likely to leave and they have been able to reduce branch staff 23% in the last 3 years), they appear to be redirecting resources from one area like legacy branch delivery to testing-and-learning in other places like mobile payments," he said in an email. "Even if there are revenue impacts of new initiatives, they seem to find the resources elsewhere."
Besides the lack of details around the pricing structure, Mayo said there is the "Field of Dreams risk," a reference to the famous movie line: "If you build it they will come."
"Even if the merchants have an economic incentive to go with Chase Pay, what is going to cause me to want to use it or any of the other digital wallets?" Mayo said. "Are the reward incentives going to be enough truly to influence my behavior?"
The company is gambling that despite the slow pace of today, mobile payments will be a major trend in the future.
"As we look at the evolution of mobile payments, there is still low adoption because the act of taking your card out is not that complicated or hard," Serra said. "That is all going to change and we are positioning ourselves for that change."
Serra said the change will be influenced by at least two things – the first is the inclusion of rewards and loyalty programs into mobile payments. If the incentives are good enough, people will use it. The other, she said, is the rise of the millennial generation.
"The thing they always have with them is their phone," she said. "So there is a natural change."