Why the biggest retailers still reject contactless payments

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Large U.S. banks and merchants are finally working together to support contactless payments. But two of retail's biggest players aren't on board, and for good reason.

No. 1 retailer Walmart and supermarket giant Kroger remain conspicuous holdouts against NFC, while major banks, pharmacy and quick-service restaurant chains — and even mega-retailers like Target — ultimately got on board with contactless.

Both Walmart and Kroger are betting on a different approach to in-store mobile payments, relying on a proprietary QR code-based app. It means customers that haven't downloaded the app will be forced to pay with cash or the somewhat slower EMV contact card payment. Amazon also is relying purely on a QR code-based app for access to its expanding number of Amazon Go cashierless stores.
Amazon, Walmart and Kroger are taking pains to route consumers to their apps because doing so generates a rich streams of data about purchases and behavior that can be used for everything from customizing offers to more precise inventory management.

NFC options such as contactless cards and Apple Pay may be easier for consumers, but they also make it harder for retailers to collect valuable data on their customers' shopping habits. Starbucks, for example, has had great success with a mobile payment system based on bar codes, and has said it leans heavily on data to determine future strategies and to cross-sell to loyal customers.

But Starbucks—which supports multiple payment approaches including NFC—could use its popular rewards program targeting a largely upscale audience to build momentum for its mobile app, which isn't an option for lower-margin supermarket retailers.

By refusing NFC, Walmart and Kroger hope to nudge millions of consumers into habitually paying with their proprietary apps, making them more competitive over the long run against Amazon and other e-commerce juggernauts.


Walmart has had a negative stance on NFC for years, and designed its Walmart Pay QR code app for navigating between the in-store and online experience, as the company steadily attacks Amazon's e-commerce clout. This month Walmart stepped up the pressure by introducing a $98 annual subscription for unlimited grocery delivery, versus Amazon's $119 Prime unlimited-shipping service.

Bentonville, Ark.-based Walmart's commitment to app-based payment runs deep, dating back to its role as a core stakeholder in MCX, a mobile payments joint venture with Target, CVS, Kohl’s and many others.

The MCX consortium in 2012 announced development of a universal digital wallet that could help merchants save on card processing fees by enabling consumers to link their bank accounts and pay via ACH. The app, called CurrentC, never moved out of the pilot stage and folded in 2016.

Walmart Pay rolled out in late 2015. To drive usage, Walmart introduced an incentive called Savings Catcher, giving customers a cash refund for the difference between Walmart’s price and any lower advertised price if they paid with Walmart Pay.

The concept was a wild success. Over the last four years, more than 58 million consumers have downloaded Walmart Pay, according to an estimate by Cornerstone Advisors and StrategyCorps.

Last month Walmart shut down Savings Catcher, declaring it no longer necessary.

Consumers who use Walmart Pay to check out in stores receive messages encouraging them to shop online and use the company's rapidly expanding in-store pickup and home delivery services. Consumers may access the same services directly through the store’s website.

Kroger and Albertsons

Grocery giant Kroger was one of the few large U.S. retailers that never joined MCX — while also steadfastly refusing to enable NFC as it developed its own proprietary payment app.

The Cincinnati-based company this year rolled out the Kroger Pay QR code-based payment approach attached to each of its store chain’s branded mobile apps. Kroger will complete its national rollout of Kroger Pay this week at about 3,000 stores including Ralphs, Fry’s and QFC, the company said.

Connecting in-store shopping to e-commerce is a key goal for Kroger Pay and Wall Street is watching. Kroger today reported disappointing quarterly sales of $37.3 billion for the period ended May 25, down 1% over the same period a year ago. CEO Rodney McMullen told analysts the upside is that Kroger's digital sales are soaring, up 42% over the same period a year ago, and on track to nearly double.

"Since 2014 we've gone from no digital sales dollars to to a 2018 annual run rate of about $5 billion, which will trend toward a $9 billion sales run rate in the future," McMullen said.
Kroger also has radically expanded its pick-up and delivery services over the last year. "This means 93% of customers who shop Kroger at a brick-and-mortar store also can shop for pickup and delivery and by the end of this year everyone [in the U.S.] will have that ability," McMillan said.

Kroger's aggressive growth in grocery home-delivery vision is a linchpin in the company's turnaround plan, and it continues to pour investment into expanding digital shopping tools. in major cities including Houston and the Phoenix area, Kroger is piloting self-driving cars for grocery delivery, and this week Kroger began testing Kroger Rush, promising 30-minute grocery deliveries near its headquarters in Cincinnati.

Unlike Walmart, Kroger’s apps puts discounts and coupons available for store and manufacturer brands in the foreground. Kroger Pay also enables customers to earn, track and redeem loyalty points within the app. Consumers that begin their orders and pay within Kroger's store app may access special discounts, such $5 off their total order and 10% off chicken with each purchase of at least $15 for pickup or delivery.

In contrast, Kroger rival Albertsons, with 2,300 stores in 35 states, has a proprietary app and has supported NFC since 2017. A new feature in its app enables consumers track a grocery delivery driver’s progress on the app through technology from Glympse.

Early this year Boise, Idaho-based Albertsons introduced the One Touch Fuel app at its stores, with geofencing technology enabling consumers to activate the pump and pay — with the option to apply rewards — through the app.

Interestingly, most large retailers aren’t pushing ACH as an alternative to card payments within proprietary apps, which was a key goal of MCX’s CurrentC endeavor.

Walmart Pay, Kroger Pay and Albertsons accept only credit and debit cards within their store apps, with no option to link a bank account, suggesting that e-commerce growth is a bigger priority for now than card-processing fees.

It's also a sign that the anti-NFC crowd could warm to contactless payments once their own mobile apps have built up a large enough audience.

“Over the long haul, I think NFC will win the war as the dominant in-store checkout approaching North America, and even these big merchants will have to adopt it," said Wei Ke, managing partner for North America financial services, at Simon-Kucher & Partners, a consumer marketing firm.


Amazon's latest plan for brick-and-mortar stores bypasses the need for NFC by eliminating physical payments altogether. Its cashierless Amazon Go stores use sensors and cameras to register what consumers purchase for a seamless shopping journey that’s widely admired.

Now Standard Cognition and other tech vendors are developing cashierless platforms for other types of retailers, and the concept is gathering momentum, according to Richard Crone, managing partner with Crone Consulting LLC.

"Amazon Go has pioneered a superior experience that's a blueprint for every other large retailer,” he said. “Every retailer should be watching Amazon by now, figuring out how to integrate their own app to enhance the in-store experience."

So far Amazon has only applied its cashierless concept to small-footprint convenience stores, but the same technology eventually could work in other, larger types of shopping environments, Crone said.

“Merchant apps will become central to everything the consumer does in a store, with voice commands becoming the next frontier of personalizing shopping,” Crone predicts.

NFC's next phase

Though the incentive for consumers to use contactless cards is primarily because it's faster than swiping or dipping a physical card, NFC technology originally promised more than simply tapping to pay for quicker checkout.

NFC mobile payments offer a secure two-way exchange of information for powering loyalty and rewards programs, and though relatively few consumers are using their devices to pay, some merchants are awakening to new NFC capabilities.
Apple recently disclosed it's working closely with several quick-service restaurants including Panera, Jimmy John’s Gourmet Sandwiches and Dairy Queen to enhance their promotions and loyalty offers through Apple Pay’s VAS service.

The first time a customer pays with an NFC-enabled mobile device at participating stores, they may click “yes” to join the loyalty program without having to manually fill in any details or download the company’s app. Google offers a similar NFC-based feature through its Smart Tap service.

VAS and Smart Tap became available in 2014, but merchants only recently began to leverage these technology features for promotions and loyalty, said Conrad Caplin, co-founder and head of product at Pronto, an Arlington, Va.-based payments technology provider that works closely with Apple and Google on marketing-related services through NFC.

“These other NFC capabilities have been around for a while, but relatively few companies were leveraging them widely because the contactless card infrastructure wasn’t there,” Caplin said.

With major banks including Chase, Wells Fargo and BofA rolling out millions of contactless cards this year and major transit agencies across the U.S. adding open-loop NFC, Caplin expects to see more merchants creating incentives for mobile payment services.

“Companies can deliver marketing messages to the lock screen of their loyalty program members’ phones, or trigger events based on the consumer’s proximity using beacons and GPS locations,” he said.

Both NFC and proprietary merchant app will likely coexist, but consumer ultimately will pick the winners, Simon-Kucher’s Ke predicts.

“Consumers stick to habits, and when the muscle memory for tapping with a card or a device kicks in, that will become the default, that will be the top-of-wallet behavior consumers will adopt,” he said.

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Retailers Contactless payments NFC Walmart Kroger