What Will Make Merchants Move On Mobile Wallets? Money

Google's (NASDAQ:GOOG) decision to cut support for loyalty and gift cards from Google Wallet says a lot about how far that project has fallen. Both loyalty programs and prepaid gift cards are very important to retailers, and if that part of the in-store mobile wallet isn't working, not much else is either.

But Google's move is also a reminder that the biggest thing standing in the way of mobile wallets is the retailer—and retailers aren't budging.

The usual excuse retailers give for not wanting to commit to anything besides mag-stripe plastic cards is that there's no customer demand for anything else. When we see demand, we'll jump on the bandwagon, merchants say. Actually, there is demand. But in most stores, any customer who asks exactly how to use a contactless card will get a blank stare from the cashier, followed by a suggestion that he just swipe the mag stripe.

The same thing happens when Canadian or European customers in the U.S. try to put their cards in the chip-and-PIN slot that's on the PINpads at most major chain stores. The cashier explains that the slot isn't turned on, and they need to swipe the mag stripe.

The reality is that demand isn't really demand unless a retailer loses business for not supporting contactless or chip cards or mobile wallets. Until customers start walking out, why should the merchant spend the money to retrain cashiers and incent them to push customer use of mobile wallets the way they've been trained and incented to push loyalty signups?

There are a few good reasons, but none of them are the ones that Google, PayPal (NASDAQ:EBAY) and Isis have suggested. ("Leave your wallet at home"? Good luck when the cop pulls you over and asks you to please remove the driver's license from your mobile wallet.)

For example, eliminating interchange fees. That's a solid dollars-and-cents reason. Google and Isis both originally planned to do that, but the idea quickly evaporated when they couldn't figure out how to work around Visa (NYSE:V) and MasterCard (NYSE:MA).

Or linking mobile payments to loyalty programs. That might have brought merchants on board, except the customer information that makes a loyalty program so valuable to a retailer is also part of the value proposition to Google and PayPal. And instead of letting retailers and card issuers get deep into extra CRM data, the mobile wallet makers got stingy with it.

Some people find Starbucks' (NASDAQ:SBUX) incredibly successful mobile payments system to be a head-scratcher. More than 10 percent of Starbucks transactions are now done by mobile, and all it does is speed up the caffeine-buying process. A little. Maybe. Why did Starbucks build its own mobile payment system just for a tiny productivity boost?

Because it didn't. In practice, Starbucks collects loyalty data every time a customer makes a mobile payment. And those payments are the mobile version of prepaid, closed-loop gift cards, so there's no interchange. Even better, customers actually have to pay Starbucks days or weeks in advance to use the system so they can maybe save a few seconds and look trendy in the process. Ka-ching!

No wonder Starbucks made the commitment, incented its baristas and pushed the program. And no wonder the Walmart-led MCX is looking a lot like that Starbucks scheme—and not a lot like the mobile payments that Google rolled out just two years ago. The biggest lesson of those two years may be that if you want merchants to budge on mobile wallets, you don't do it with great technology, or even just loyalty data. You do it with dollars and cents.