Is Starbucks’ approach to mobile payments right for all merchants?

September 27, 2012

Given Starbucks’ significant success with its mobile payments application and the growing options for merchants to integrate payments into their own apps, when does it make sense for a merchant to offer a branded payments solution?

Recently, companies such as LevelUp and Tabbedout have released SDKs that give merchants a relatively easy way to integrate mobile payments into their existing apps or create their own mobile payments/loyalty apps. These solutions join an increasingly dizzying array of mobile payments options before merchants, making it difficult to know which one to choose.

“Interest in mobile payment solutions from merchants is growing partly due to adoption by leading brands such as Starbucks, Dunkin Donuts and T.G.I. Friday’s,” said Arturo Coto, vice president of sales and marketing at Tabbedout, Austin, TX.

“Technology from state-of-the-art bar code scanners to iPads at restaurant tables and even POS integrated mobile payment applications– such as Tabbedout – has also helped increase the awareness of mobile payment solutions,” he said.

“Merchants are learning that payment is a highly valued customer touchpoint and that making payment secure, transparent and convenient via a mobile device can only impact their business positively through increased efficiency and even higher sales.”

Custom payments apps
One method of mobile payments that is experiencing a lot of interest right now is an app that enables shoppers to display a 2D bar code on their mobile screen. The bar code is scanned at checkout to authenticate a payment and the purchase funded by a user’s credit card.

One of the most successful examples of this kind of mobile payments app comes from Starbucks’ mobile payments app, which has processed more than 42 million payments since its launch.

The SDKs from LevelUp and Tabbedout promise an easier way for merchants to offer similar functionality in their own branded apps.

The T.G.I. Friday’s mobile payments solution

LevelUp offers two solutions. The company can either build a custom mobile payment app for merchants in a few weeks or merchants can use LevelUp’s SDK to build an app themselves or integrate the functionality into an existing app.

“Merchants need to keep in mind that mobile payments, while super cool, easy and fast, aren’t the real draw,” said Seth Priebatsch, chief ninja of LevelUp. “The real value in mobile payments comes from the data, added security, and ability to do creative things, like run campaigns. So, the question shouldn’t be whether or not to use mobile payments, but rather which mobile payment solution will provide the most value, both to the business and the customers.”

Tabbedout is also making a mobile SDK available so restaurants can follow in the footsteps of T.G.I. Friday’s, which integrated the mobile payments platform’s technology into its own app. Tabbedout enables users to open a tab at a restaurant on their phone and pay with a stored credit card.

Enhancing customer relationships
A custom mobile payments solution may not make sense for a lot of retailers because of the significant resources involved. Interest level is likely to be strongest among larger, multi-unit chains.

“The cost to build and support a good mobile application is high, regardless of the simplicity of the SDK – for many merchants, a custom app is just overkill,” said Drew Sievers, CEO of mFoundry, Larkspur, CA.

“Big merchants can justify having their own mobile application,” he said. “Smaller merchants may not have the scale and required level of engagement to justify one.

A branded mobile payments solution can make sense for merchants who are looking beyond simply adding payments to how mobile can enhance their relationship with customers.

While merchants may want to own the payments interaction, one drawback of too many merchants coming out with their own mobile payments apps is the confusion this is likely to cause for consumers.

“As merchants seek and evaluate mobile payment solution providers, they should also ask how the mobile payment solution will help them enhance the guest experience – such as customer information management, feedback management and loyalty programs that the merchant can control,” Tabbedout’s Mr. Coto said.

Numerous options
There are other options for retailers to enhance the payments experience via mobile.

With LevelUp and Tabbedout offering their own third-party apps that merchants can integrate with, this can provide an easy way for users to discover new local businesses and drive new customer acquisition for merchants.

There are also growing options for retailers to leverage mobile technology at the point-of-sale that do not include payments.

“Before a merchant thinks about mobile payments, they really should ask themselves what problem they are trying to solve,” mFoundry’s Mr. Sievers said. “Mobile payments are just one option for a merchant in the full mix of mobile solutions like loyalty, offers, advertising and location.”

“Solutions like Apple’s Passbook can act as a cost-effective solution for merchants who don’t want the ongoing cost of a full-blown app, but still want to leverage mobile technology at the point-of-sale,” he said.

It is likely that branded mobile payments apps will make the most sense for merchants with a loyal customer base who return on a regular basis, which is one reason for Starbucks’ success here.

In the end, the decision of which way to go on mobile payments for merchants could come down to revenue and which strategy costs the least.

“It’s all about the transaction percent,” said Wilson Kerr, vice president of business development and sales at Unbound Commerce, Boston. “If the while label solution allows them to both control the branding of the mobile payment interaction and save money on transactions, this could be a very popular option.”