The most powerful technology trends rarely move in isolation. They are more like cyclists who cluster in a peloton, working as teams to reduce air resistance, outwit competitors and reach the finish line first.
Sometimes a big crash throttles the peloton and gives a few riders a chance to breakaway. In 2016, that is what we will see in the world of mobile payments. As EMV and Loyalty 1.0 eat the pavement, they will enable mobile payments, Loyalty 2.0 and new Uber-style apps to separate from the pack.
EMV is a gift for mobile payments.Chip-and-PIN technology has been a colossal failure in the United States. Under payment processing rules laid down by Europay, MasterCard and Visa (a.k.a. EMV), all U.S. merchants were supposed to install chip-ready POS systems by October 1, 2015. And although virtually all national retail brands have installed chip readers, according to a ConsumerWorld.org survey, three quarters still do not let consumers ‘dip’ their cards.
EMV is unpopular for a host of reasons that vary from industry to industry. In the restaurant world, for instance, chip readers don’t allow preauthorization or added tip. They’re completely impractical. However, merchants that don’t use chip readers are now liable for fraudulent transactions.
So, to minimize fraud exposure without suffering chip technology, merchants will turn to mobile payment apps, which tokenize payment card information before sending it to the POS system.
Mobile Payments Will Support Loyalty 2.0. Through Groupon, LivingSocial and similar websites, business have outsourced loyalty. It’s not going well. Essentially, these websites reward opportunism, not loyalty. The businesses don’t profit from these visits, nor do they receive any data about these customers. Do they ever return? What do these “Loyalty 1.0” customers spend over time?
The death of EMV and rise of mobile payments will facilitate “Loyalty 2.0.” Rather than outsource loyalty, businesses will use mobile payment to a) automatically record new customers and transactions in a CRM, and b) send their own deals and discounts direct to mobile devices.
By linking mobile payments with loyalty, businesses will gather data about when customers visit, what they buy and how often. They can then run personalized loyalty programs without sacrificing their margins to third parties.
The Uber effect on payments and loyalty. Although some brands have launched their own mobile payment and loyalty apps (e.g. Starbucks), most can’t do it. The costs in development, cybersecurity, IT infrastructure, etc., are too steep. Plus, consumers don’t want to enter credit information into dozens of different apps, one for each business they frequent.
That is why we’re going to see demand for an Uber-style ‘app of apps’ that can facilitate one-tap transactions for multiple businesses. These collective payment platforms will be industry-specific since an app of apps for a clothing retailer versus a restaurant would demand different tools and features. They will handle both payments and Loyalty 2.0.
In sum, the disappointment of EMV and Loyalty 1.0 will help mobile payments break away from the peloton. Loyalty 2.0 will draft behind mobile payments, and an Uber-style app of apps will catch up to lead the trio.
Alex Broeker is CEO of TabbedOut