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Retailers’ customer relationships are coveted prize in race to mobile payments

March 20, 2012

A few retailers are readying mobile payments for their store credit cards

While Google, ISIS and credit card networks have been a big focus of early mobile payments discussions, retailers are taking steps to ensure their critical relationships with customers are not marginalized as the race toward mobile payments continues.

One of retailers’ primary concerns regarding third-party mobile payments solutions is the potential to lose control of the data they collect about their customers’ shopping and purchasing habits. Not happy with the idea of inviting Google or wireless carriers into their relationship with customers, some retailers are planning to add mobile payments capabilities to their branded applications for customers of their private label credit cards.

“We did not feel that our retailers needed to wait for a wallet solution in order for them to start interacting with their customers on their mobile devices and allowing them to pay using their preferred tender, their in-store credit card or through the mobile device,” said Scott Gamble, vice president of digital solutions for Alliance Data, Plano, TX.

“To consider that there might be a wallet solution that might demote their control of this customer base is very concerning to retailers,” he said. “We, as a trusted partner, have built a solution that will allow them to maintain that control.”

Store cards growing
Retailers’ jealously guard their customer data, which can them determine product selection and promotional calendars. This data is also be very valuable to marketers, something that Google and ISIS could have in mind with their mobile wallet plans, as they would then also access to customers purchasing behavior.

One way that retailers collect data about their customers is via private label credit card programs, which many large and mid-sized retailers offer.

Alliance Data, which issues private label credit cards for Victoria’s Secret, J. Crew, Williams-Sonoma and others, has built a stand-alone retailer solution for acquiring credit card customers and enabling payments via a mobile app or Web site. Retail customers can use it to access their account in a bricks-and-mortar store without having to go through a third-party app.

Currently, approximately 40 retailers are enabling customers to acquire one of their credit cards via mobile. In most cases, the credit card service is offered as part of a retailer’s branded mobile app and is intended to enable a customer to open a store credit card on the floor without having to wait online at checkout.

Some of these offerings also include engagement tools such as the ability to send text messaging campaigns and to access account service information.

In late spring or early summer, a number of these national retailers already working with Alliance Data on a mobile credit card acquisition strategy will enhance these offerings to enable mobile payments.

In addition to not wanting to hand over important customer data to third-party mobile wallets, retailers are also looking for a way to be able to take advantage of the growth in mobile payments as soon as possible. Significant adoption of mobile wallets may still be a year or two off as there currently are not a lot of handsets in the market that are capable of NFC-enabled mobile transactions.

Focusing a mobile payments solution for store credit cards makes sense for retailers as typically a significant number of a retailer’s loyal customers use them.

“Retailers’ store cards have been experiencing double-digit year-over-year growth for the last ten years,” Mr. Gamble said. “Many have an in-store penetration rate of 40 percent, meaning four out of every 10 customers making an in-store transaction is using the retailers’ private label credit card.”

Initial results also show that bringing mobile capabilities to store credit cards is good for business.

For example, mobile credit card acquisitions can speed up the checkout process for customers, per Mr. Gamble.

There are other benefits, as well.

“We learned that when we get the credit approval decision for consumers while they are out in the store and still shopping, we are able to influence behavior and they buy more,” Mr. Gamble said.

“Some of our retailers have had basket size increases of greater than 25 percent for that initial purchase [after receiving credit approval] compared with those that signed up via the traditional method,” he said.

Service partners such as Alliance Data are likely to continue to help retailers manage their store credit card programs even as mobile becomes a bigger part of the equation. Additionally, Google Wallet and ISIS have not shown much interest in including store credit cards in their offerings.

“Retailers will be keenly interested in how they can continue to maintain the independence of their credit card programs even when mobile wallets are fully deployed,” Mr. Gamble said.

This means that for the near future, there are likely to be two models for retail mobile payments – one for retailers’ in-store credit card customers and a second offered by a third-party player such as Google or ISIS for mobile customers more broadly.

“There may be consolidation down the road but retailers are very keen that this very important customer base does not get marginalized in the process,” Mr. Gamble said.

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