Mobile Payment Brawl: POS Players Vs. Reader Vendors

The battle for control of mobile payments is now pitting the POS players against the reader vendors, with large retail chains squeezed uncomfortably in the middle. It hasn't taken long for vendor infighting to kick in following the industry's first serious mobile payment play, from Google late last month. But the real fight—a standardization effort so retailers need only accept one mobile payment system—is still months away.

There are two elements to mobile payment that need that standardization: payment card security and other payment data. The retail need for consistency of payment security will be handled cleanly by the PCI Security Council, whenever it gets around to it, most likely before the end of this year. The more critical area, though, is all of the data involved, whether it's CRM, giftcards, coupons or anything else.

And a later stage of the data mess will be two-way near field communication (NFC), which is when things will get both interesting and ludicrously complex. If there are multiple competing wallets—say from Google, Apple and ISIS—how easily will it be to deal with all of that data in a homogeneous fashion?

Another couple of crucial retail considerations will be "who does the work?" and "who pays for the work?" Some vendors—eager to prove their value and to make the process as easy as possible for merchants—will push a plan where they will do almost everything and they will do it all outside of the retailer's environment. But as tempting as that might be, the wisest course for most chains may be to opt to do most of the work themselves.

Two reasons: First, on the security side, the chains will be blamed and held accountable for any breaches, regardless of what contract paperwork says. If you're going to be blamed because customers' data is breached after they walk into your store and beam their card information into equipment displaying your brand's logo, you might as well at least control the operation.

Second, there is the matter of handling the data. This raises the soon-to-be-redefined question of "When is a customer a Retail Brand Customer as opposed to a Mobile Payment Alliance customer?" Google and the others are arguing that they are bringing huge value to retail chains in the form of new revenue. In other words, Google will talk about all of the mobile customers using their phones and their carrier partners that Google delivered to the merchant. Who's to say that customer wouldn't have shopped at Wal-Mart or Macy's anyway?

Either way, how will the chains feel about letting Google have access to tons of customer CRM information? Will that data find its way to the systems of a chain's most direct rival, even in aggregate or anonymous form? That won't be preventable. But the more integration work the chain does directly, the more of a feeling of control its executives will have. (In general, Google has a high level of consumer and retail trust, compared with telcos. But the exception is data privacy. Google's reputation there is not admirable.)

In the Google alliance, the POS versus reader battle is illustrated by the ongoing lack-of-love between POS giant Verifone and contactless payment and contactless reader king Vivotech, which licensed its reader and single-tap technology to Google. In what could be seen as undermining its own consortium, Verifone executives have been telling reporters how difficult the Google integration will be for retailers, despite Google's arguments that the integrations will be fast and easy.In what could be seen as undermining its own consortium, Verifone executives have been telling reporters how difficult the Google integration will be for retailers, despite Google's arguments that the integrations will be fast and easy. Much of that involves Verifone's efforts to justify fees it wants to charge for such integrations. (What's the reality? Like most things, it's somewhere in the middle, being harder than Google said but easier than Verifone suggests. But y'all knew that already, no?)

According to players in the mobile payment space, the key wildcard in these efforts is Apple. The ISIS mobile carrier (AT&T, Verizon and T-Mobile) alliance is not seen as viable long term, and PayPal has already said it will not directly compete with Google. Apple has not officially said that it will compete against Google, although its plans for incorporating NFC capabilities in an upcoming iPhone and iPad are well known.

If Apple cuts a deal with Google and takes the Google cash (and it would be worth a huge amount of money to Google to ink that deal), Google will likely run the mobile payment table: Instant interoperability, and Google would have its package across all iPhones and Android phones. Whatever is left of BlackBerry at that point would likely fall in line.

If Apple and Google do not cut a deal, things are likely to get quite messy. Apple's recent history suggests that it would resist standardization efforts and opt for an especially proprietary approach. Given its healthy marketshare in the smartphone space and its marketing sway with consumers, that could be bad news for retailers hoping for a relatively quick and painless mobile integration. Disjointed payments are trivial and won't be much of a problem, but different approaches to data could be disastrous.

Other players are on the sidelines, but there are no meaningful indicators that any would have the funding or relationships to challenge the Google group. (An interesting comment was made about the mobile differences between Google and Microsoft. Google, it was said, is very fond of creating solutions for which there is no problem, while Microsoft's preference is to create problems for which there is no solution.)

The problem with other vendors trying to move in is that, as many startups are now discovering, it involves two success-killing realities. First, it will often involve selling to both the retailer and the consumer, which throws the vendor into a difficult chicken-egg problem. (Retailers won't buy until lots of their customers have, and customers won't buy until several of their favorite retailers do.) Second, this requires software to be installed within the POS and, specifically, in an area that interacts with sensitive card data. You can't get much more invasive than that, and few chains—if any—will permit a startup to get even close to their card data.

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