Get Ready for the Mobile Payments Era

This column was written by Evan Schuman, the editor of StorefrontBacktalk, a site that tracks retail technology, e-commerce and security issues. Retail Realities appears every Friday. Evan can be reached at E-mail and on Twitter.

That app, called Starbucks Mobile Card, allows consumers to enter their Starbucks loyalty card number and then to see balances and related information. It also allows consumers to enter a credit/debit card number and to use that payment card to add money to their Starbucks CRM card. Consumers walking into a Starbucks could then show their phone's screen and allow it to be scanned as payment, in lieu of using the actual CRM card.
The new deal extends that presumably successful program to 1,002 Target stores, which already have Starbucks locations inside. The program now includes iPods as well as iPhones (could iPads be far behind?).

The program also integrates CRM functionality, allowing consumers to set up and register a Starbucks Card, check their Starbucks Card balance and reload their Starbucks Card using a payment card. The potential significance of such a large-scale trial-especially given the three powerful players behind it: Target, Starbucks and Apple-to mobile payment can't be overstated. But it will also be far too easy to overanalyze the results.

The initial favorable results from the October Starbucks trial may not prove to be that meaningful. Many of those sales may have been driven by the "gee whiz" novelty aspect, activity that would likely drop sharply over time. That skew is magnified by an order of magnitude because of the high-tech young consumer communities in which the trials were conducted. Seattle, Cupertino, Mountain View, Sunnyvale and San Jose are hardly a diverse representation of American communities.

So, on the plus side, this 1,002-store Target rollout will likely yield much more credible results. If the Target consumers react favorably across the country, that's much more than a large trial. Such diversity means the results-if the trial runs long enough-could be an almost precise predictor of national acceptance.

However, there are some substantial mobile payment hurdles. Retailers are madly in love with the idea of mobile payment because of its efficiency, the potential tonnage of CRM data that a phone could deliver, the almost ubiquitous nature of a mobile device (consumers would suddenly almost always have their loyalty card on them) and the slight possibility of eventually escaping or minimizing interchange costs.

But as has happened so often (think self-checkout and the early ATM rollouts), just because businesses embrace new technology doesn't mean consumers will. Retailers often forget to give consumers a reason to embrace the options. At least with the ATM rollouts, banks quickly adopted their "you'll use it because you have little choice" tone. That seems unlikely to be an effective technique here, though.

Once the novelty wears off-and in the absence of discounts being offered to use the phones-will consumers stick with it? It's hard to say. On the plus side, there are honest-to-goodness advantages for consumers to use mobile payment. On the down side, it is a definite change in behavior, with no concrete advantages. Is mobile really going to be faster than whipping out your MasterCard?

Then there are the security/privacy issues, both real and imagined. To make mobile payment work easily, there should be not only the aforementioned discounts offered to get people comfortable but an aggressive in-store advertising campaign stressing the security features. That approach is 50 times more critical now that the trial has moved away from Seattle and Silicon Valley.

Besides, after Starbucks admitted last year to double-charging one million consumer transactions, more than its assurance that mobile payments are secure may be needed.

By Evan Schuman
Special to CBSNews.com