Bridging the gap between plastic and mobile payments
Mobile payments have hoarded technology headlines for the past few weeks.
Samsung, Google, and PayPal during that time have all made acquisitions to bolster their respective mobile plans.
But what might get lost in the recent hoopla is the fact that plastic still plays a significant role in payments. Consumers in the U.S. are experiencing the transition to EMV as chip cards arrive in the mail. Gift card malls still litter supermarkets and pharmacies. The U.S. Treasury and the Social Security Administration urge consumers to receive their benefits in an account linked to a MasterCard prepaid debit card.
At this point, the payments industry is trying to figure out the best ways to combine plastic and the smartphone to create a harmonious relationship.
Mobile and plastic: Partners in crime
First Data is one of several companies at the forefront of this change.
The Atlanta-based payments processor first supported digital gift cards over a decade ago, but the company admits the transition from plastic to electronic has been less than a perfect experience for consumers.
“There’s always been a breakdown somewhere in that chain in terms of delivery and fulfillment,” Michael Hursta, vice president of First Data’s prepaid category, recently told Mobile Payments Today. “The tech is really starting to emerge. We really do believe there is an inflection point happening right now. We think we can set some standards for the industry to follow.
“In addition to that, we have a lot of clients coming to us to help them enable tech so that they can go out with their own apps and their own brands and create great experiences that are unique and customized.”
Hursta made this comment in Las Vegas at the February 2015 All Payments Expo, a trade conference that recently changed its focus thanks to an evolving payments market. Once known as the Prepaid Expo, the show’s organizers changed the name to better align with the current reality that banks, card networks, merchants, processors and others are increasingly focused on mobile devices while maintaining plastic’s current demand from consumers.
“I think plastic is going to be a partner with [mobile]” Mark Putnam, senior vice president of First Data prepaid solutions, told Mobile Payments Today at the conference. “[Plastic] could be a starting point where you can scan a QR code on the card and upload it into [an app]. We think there’s an opportunity for a good marriage.”
First Data last year boosted its digital gifting efforts when it acquired Gyft, a mobile app that enables consumers to purchase and store gift cards as well as send them to friends and family.
Putnam said the Gyft acquisition accelerated First Data’s digital gifting efforts by about two years. He believes the app can help make distribution easier, especially when companies use gift cards as an incentive in marketing efforts or as a reward in the workplace.
“One of the ideas we’re excited about is the idea of taking a big gift card mall and virtualizing it, and Gyft helps us provide that capability,” Hursta said. “It’s good for the incentive play. The best incentives have been the ones that provide the best flexibility of choice for the recipient, and we think there’s a lot of opportunity with Gyft.”
But before these kinds of opportunities can become a consistent revenue generator for gift card providers, consumers need to be made aware of their digital options when it comes to payment methods such as gift cards.
Consumers still prefer plastic over digital, at least as far as gift cards are concerned. The Retail Gift Card Association (RGCA) said the majority of shoppers still prefer to give physical gift cards for special occasions and the most common denomination is between $25 and $50. Digital awareness, however, is on the rise.
Before the last holiday shopping season, RGCA released survey results finding that 75 percent of shoppers were aware of digital gift cards. This compares with just 42 percent of shoppers just months previously, before summer began.
It’s probably safe to assume that the proliferation of mobile wallet technology over that period had at least a little bit to do with increased consumer awareness of digital gift cards.
“There’s a developing comfort level for consumers on the electronic side of things,” Mike Pennington, interim director for the RGCA, told Mobile Payments Today at the All Payments Expo. “Consumers and our retailers are still heavily dominant in plastic. It’s becoming more mobile, obviously, as people become more comfortable with technology, but plastic is still the dominant force.”
And it still will be one for some time. For as much as the card networks like to say that cash is their enemy, people are still using it by the billions. We can apply the same thinking to the plastic in our wallet. While no one is suggesting that plastic needs to be eliminated, mobile payment ubiquity is still at least five years away — perhaps even longer.
“The technology has to catch up to the market,” Mark Tepper, president of prepaid provider 1to1 Card, told Mobile Payments Today at the conference. “Just because I have the card information in my phone doesn’t mean I have all these places to go tap and pay.”
These places, however, are increasing. Apple said during its Spring Forward event on March 9, 2015 that some 700,000 locations now accept Apple Pay. The current transition to EMV probably helped increase Apple Pay acceptance points since the new terminals required for chip cards come with contactless functionality. Merchants do have the ability to switch off contactless, though. And that plays into Tepper’s argument.
Of course, mobile payments can also be made via QR codes and Bluetooth technology. Samsung’s new mobile wallet features a technology that can communicate with the magnetic stripe reader of a POS terminal. But that feature will only be available with the two new Galaxy phones. Plastic still is a viable option in a fragmented mobile wallet market.
“Until someone gives me the ability to use [mobile payments consistently], the plastic card functions just fine,” Tepper said. “There are still a lot of things you can do with a plastic card from a marketing perspective and I just don’t think that’s going to go away that quickly.”