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Retail mobile apps slow to adopt payment functionality

In recent years, major retailers have embraced the use of “smart” technology in store fronts. From using tablets at the checkout counter to mobile credit applications, retailers are developing creative ways to utilize technology to drive customer engagement.

With over 75% of Americans age 12 to 43 now using a smartphone, mobile applications have emerged as a valuable, and in some cases, necessary customer touch point. The first retailers launched mobile apps in 2008, and since then, they have become prevalent among top retailers. As seen in Figure 1, 34 of the current top 50 retailers have a mobile application, and the penetration rate has been steadily climbing – write Ryan Douglas and Jeff Avery of First Annapolis Consulting.

Figure 1: Top 50 Retailers1 with Mobile Apps
(by launch date, cumulative)
Stores 100 Retail Rankings.
Source: Company press releases, iTunes.com, appannie.com, First Annapolis Consulting primary research.

Given the widely publicized emergence of mobile commerce technology in recent years, the integration of payments functionality within retail mobile apps seems logical. However, despite the rising popularity of mobile apps among top retailers, most still do not offer the ability to pay at the point of sale. First Annapolis researched the 34 retail mobile apps currently available and found that only 32% offer some way for customers to use the application to pay for goods. We categorized three different ways users can pay through the mobile apps: using gift cards, paying with rewards points, and utilizing mobile wallet technology (i.e., storing credit / reloadable prepaid card information on the device).

Figure 2 shows that some retailers such as Starbucks and Burger King offer customers all three payment options, while others such as Best Buy only offer a single option. This list of retailers also encompasses six different retail sectors, but the most represented are quick service restaurants (“QSR”) and department stores.

Figure 2: Mobile Apps with Payment Functionality
(11 unique retailers)
Source: Company press releases, First Annapolis Consulting primary research.

The lag of mobile payment features in retail apps is not too surprising given the slow consumer adoption of mobile wallets and other mobile payment platforms. However, with the use of mobile banking erupting in the U.S., it is only a matter of time before consumers are comfortable using their phones as a form of payment. It is also likely that a number of retailers’ point-of-sale systems do not yet support this functionality. For retailers, the mobile app is a high-quality customer touch point, and as users become more comfortable with mobile payment technology, we expect that more retailers will make investments and their mobile apps will incorporate payment functionality.

A Quick Look at QSR

  • QSR has a particularly high penetration rate, with five out of six top 50 retailers having mobile apps (Subway has not released an app, but they are testing one)
  • Starbucks: since integrating the My Starbucks Card loyalty program into their mobile app in 2011, Starbucks has been the far-and-away success story for mobile payments
    • 10+ MM mobile global active mobile app users, 5 MM transactions per week
    • Mobile app transactions making up 14% of total North American transactions
    • Tech companies and retailers have approached them about white labeling the platform
  • Dunkin’ Donuts: (#61 out of top 100) launched its own mobile loyalty platform, DD Perks, in January 2014 and integrated it into its mobile application
    • 750k members in three months; lofty target of 2.5MM members by the end of 2014
  • Burger King and Wendy’s: re-launched their apps in spring of 2014 with mobile payment features that issue a four and six-digit code to customers (avoiding a need to scan the phone from a drive-through window)
  • Subway: has been testing its mobile ordering app in California since 2012
    • Announced it also is developing a mobile payments feature with Paydiant that would use QR codes, avoiding need to replace POS systems
  • Chipotle: disclosed in Feb. 2014 that it plans to invest $10 MM in Starbucks-like POS readers for store-wide mobile payments

Innovative Features / Technology

  • Apple: launched iBeacon, a Bluetooth technology that delivers tailored messages, such as product information, to in-store customers based on their precise location, in all of its 254 U.S. stores
    • Apple is also rumored to be developing a closed-loop payments system that would rival existing mobile wallets; could leverage its iTunes account user base, estimated at 600MM accounts2
  • Amazon: built upon its success with a new image recognition technology, a feature it calls “Flow,” recently launched within its main iOS app
    • Flow allows a user to point the phone’s camera at an item while shopping (at competing retail stores), and the app will identify the item, prompting the user to purchase the item thorough their Amazon account
  • Walmart: has a pilot for its new Scan & Go mobile app where customers can scan barcodes and add items to their carts, then a store associate simply scans their mobile app to check out at the register

1 Frank N. Magid Associates, 2012 Mobile Study.
2 Estimate from Celent, via Mobile Payments Today.

For more information, please contact Ryan Douglas, Senior Consultant, ryan.douglas@firstannapolis.com or Jeff Avery, Senior Analyst, jeff.avery@firstannapolis.com. Both specialize in Credit Card Issuing.

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