April 2009

Mobile devices and mobile commerce
Revolutionizing how we make payments and
market to consumers By Barry McCarthy

According to a recent IDC Canada report, nearly three million mobile units shipped during the third quarter of 2008, representing an increase of 30.5 percent over the same period in 2007. In line with this growth, recent technological advancements have created great opportunities for mobile payments to emerge as the way to pay for goods and services. There is also vast potential to use mobile devices as a new marketing medium that really creates unique customer experiences with a very refined one-to-one approach.

Let’s first look at how payments would work on a typical day in a mobile commerce world:
When you arrive at the train station in the morning on your way to work, you simply wave your phone at the turnstile’s electronic reader and dash down the platform to make your train. The train pulls into your stop, and as you step off, you see an ad for a smoothie. The ad has a logo signifying it’s a smart ad – an advertisement that transfers information to your phone when you tap it on the logo.

You tap the smart ad and your phone displays the nearest restaurant location: right outside the train station. You step around the corner, order your smoothie and pay for it by tapping your phone at the checkout. Due to your enrollment in a loyalty program, you also downloaded a ten percent discount coupon when you tapped the smart ad. That amount was automatically deducted from the price of the smoothie.

So, what was so special about this transaction? First, it was fast – there was no need for the merchant or you, the consumer, to handle coupons, cash, or credit cards. Nor did the merchant ask the consumer for a coupon or other form of customer loyalty incentive.

Second, just before swiping your phone near the reader, you entered a short personal security code that enabled the transaction. The phone’s purchasing capability automatically locked as soon as the transaction was complete. This means that if you lost your phone, nobody could use the device to make unauthorized purchases. This provides a markedly higher level of security compared to other payment methods.

Another important note about this transaction: Commerce-enabled mobile devices can manage multiple accounts. This capability puts merchant sponsored loyalty prepayment incentive programs on exactly the same footing as major credit and debit cards – or cash – from the customer’s usability perspective. And that opens a whole new world of opportunity for merchants to build customer loyalty.

Mobile commerce goes live in the US
Before moving into additional reasons this payment method is beneficial to merchants and consumers, let’s take a closer look at a real life example of how this all worked during a pilot program in San Francisco last year.

Beginning in January 2008, First Data conducted a four-month trial with the San Francisco Bay Area Rapid Transit (BART) system, to demonstrate the potential and power of mobile commerce. Selected BART riders received NFC- enabled mobile phones, which allowed them to pay for their fares at the turnstiles and purchase meals at local Jack in the Box® restaurants. They were also able to view and manage balances in their food and transit accounts via the phones.

These commuters could also tap their phones on “smart advertisement” posters displayed in BART stations and receive directions to nearby Jack in the Box restaurants. Once in the restaurant, the phones acted as JackCa$h® prepaid accounts, enabling trial participants to pay for their meals by tapping the phones on contactless readers at the checkout.

For the transit portion of the trial, BART riders registered for a stored value of $48 that was loaded into a prepaid account on their phones. By tapping the mobile phones on top of the turnstiles, trial participants’ payments were automatically registered and debited from their BART fare accounts. Data from the trial shows that participants took nearly 9,000 trips using the phones—an average of 50 trips per individual over the four-month trial. In addition, participants reloaded their BART accounts more than 800 times using the over-the-air feature in the phone, which equates to an average of five BART fare reloads per trial participant.

How mobile marketing will change the marketing landscape
Mobile devices not only act as a payment method, they also act as marketing tool, and they are about to change the way we think of marketing.

A mobile device is a different marketing medium in two fundamental ways:
First, it enables 1:1 communications with a consumer; it’s a medium that can effectively reduce the size of a market segment to one.

Second, it enables consumers to talk back and provide information about the kind of messages they want to receive; consumers will tell you in advance what they are likely to respond to. Also, they have the choice to opt in or out of your messaging, which means that the consumers who choose to receive your messages are telling you in advance that they are predisposed to act on messages you send them.

When consumers use their mobile devices to enroll in services that provide them with targeted messages, they voluntarily give information about themselves and the messages they want to receive. In doing so, they self-select into statistically definable “clusters” of consumers with common interests, wants and preferences.

All marketers know that target marketing is key. Developing highly focused messages for the right audience will lead to much higher response rates than reaching out to as many people as possible without focused messaging.

Conclusion
What many people today do not realize is that the technologies and infrastructure needed to support mobile payments and marketing, including those used in the BART trial, are already available in certain areas of the world. Both NFC-enabled mobile devices and NFC readers are available, and they are penetrating the market and almost reaching the critical mass needed to make mobile commerce a reality.

Mobile devices are changing people's daily lives in ways never imagined. Technologies have come such a long way since the advent of mobile phones to the point where consumers no longer need their physical wallet to make payments. They have also redefined the rules of marketing, enabling sustained relationships and direct dialogues between marketers and their customers in ways previously unavailable.

Barry McCarthy is general manager, Mobile Commerce and Point of Sale at First Data. There, he has responsibility for commercializing all First Data assets globally for use in mobile commerce. In this role, he works with a variety of industry partners, from the largest wireless carriers to young start-ups, financial institutions, technology provider and terminal manufacturers. Previously, McCarthy led Global Product and Business Development for First Data and before that, product development for the Commercial Services business unit. Previously, he was vice president and general manager of VeriSign’s Internet Payments & Risk Management business unit. First Data powers the global economy by making it easy, fast and secure for people and businesses around the world to buy goods and services using virtually any form of payment. Serving millions of merchant locations and thousands of card issuers, we have the expertise and insight to help you accelerate your business. To access First Data white papers, please visit: http://www.firstdata.com/about/whitepapers/WP_mCommerceMktg.pdf.