[Dave Birch] The initial response to the new European payments regulatory environment has been mainly from mobile operators, transit companies and so on. But I think that the competition engendered in that environment might not assume item its final form until retailers enter the fray.

Andrew Higginson (Chief Executive of Retailing Services and Group Strategy Director, Tesco PLC) also during the “Consumer 2020: What Lies Ahead for the Retail Industry?” panel brought up Tesco’s credit card product, stating one in nine transactions in the UK at Tesco is now done on a Tesco card.

[From Why Bankers Might Not Be Fond of the Tesco Credit Card – pymnts.com]

This is why, in a couple of previous posts, I’ve suggested that a plausible, logical step for retailers will be to abandon the antiquated infrastructure of payment cards—issuing and acceptance, interchange and rules—for new, retail-centric payment mechanisms. Starbucks provides more evidence that consumers are perfectly willing to adopt new payment technologies (pre-paid cards specific to a retailers, mobile payments). It also provides evidence, as an aside, that designing new payment systems is hard and demands a level of security that is not necessary in loyalty schemes and such like. The very popular Starbucks mobile payment system is based on the use of a 2D barcode.

Sam Odio, a serial entrepreneur who previously sold his photo startup Divvyshot to Facebook, has manipulated Jonathan Stark’s now-famous communal Starbucks Card to transfer $625 of the balance to his own Starbucks Card.

[From Starbucks Card Social Experiment Hacked by Entrepreneur]

So it turns out that the barcode displayed on a mobile phone screen isn’t quite the same thing as the tamper-resistant secure element inside a handset, on the UICC, in an SD or wherever. Anyone can copy a barcode. This is one of the reasons why I think that in the long run NFC will take over these functions, even though it makes sense to experiment with barcodes. This is an interesting debate at present, of course, because (broadly speaking) barcodes exist and NFC handsets don’t.

Air France did address this somewhat in the release. They said “compared with 2-D barcode mobile boarding passes, NFC-enabled mobile phones can even be switched-off or out of battery when communicating with a reader.” That’s it. That’s the ONLY advantage they claim over mobile barcodes.

[From Air France reveals the name of its NFC mobile boarding solution – Pass and Fly | GoMo News]

Well, as I think that as the Starbucks case shows, there are one or two other advantages. However, that wasn’t the point I wanted to make, which was that organisations such as Starbucks and Tesco can bring innovative new payments into the market whereas, in some cases, banks might find it difficult to introduce innovative solutions that are not based on existing infrastructure, sunk costs and fixed thinking. Therefore, to pick on a very current example, the fact that banks have found a new technology (e.g., contactless) to be a difficult proposition to sell to consumers and merchants does not mean that other organisations might not be able to find a way to exploit the technology more effectively. Retailers must be in pole position to take advantage of this because, as discussed many times before, the value-added services that they want (such as electronic coupons) are worth more than the margin on payments.

How might they do this? To take the example mentioned above, one can imagine that the “Tesco Credit Card” will, in time, disintegrate into the “Credit” part (a banking business), the “Tesco” part (a retail business) and the “Card” part that will vanish into mobile phones (a payments business). Now, who will run that payments business? Surely Tesco will get their banking business to set up a subsidiary with a Payment Institution (PI) licence to do the processing and an Electronic Money Institution (ELMI) licence to do the prepaid and “turbo Christmas Club” stuff. Incidentally, note that Tesco Mobile already has a couple of million subscribers, thus making the integrated mobile-based payment, rewards and loyalty offers straightforward. It’s going to be hard to compete with that. At least if you’re a “conventional” payments operator. Remember this?

Google also is working with 16 retailers, including American Eagle Outfitters Inc., Walgreen Co., Macy’s and Subway, to develop its own point-of-sale service, called SingleTap. Under this system, consumers will be able to pay with credit accounts stored on the phone, redeem promotions and earn loyalty points.

[From Mobile Banking Gets Riskier – WSJ.com]

Only a few months later and customers are already using Google Wallet in retailers right now. How long would it take a bank to get something like this together? I probably shouldn’t enjoy pointing out that a couple of years ago I worked on a feasibility study for a European stakeholder putting forward this service scenario and it was shelved by them as having no business case. Saying that makes me a bad person, but we should all be allowed a few “I told you so” moments as long as they’re not too frequent. I’m not an entrepreneur – I have no idea how to start or run as business, and I take my hat off to the people who do – but thanks to the kind of work we get involved in at Consult Hyperion, I do have a reasonable view of the retail transaction roadmap, and that’s what it looks like: retailer-centric, because the value-added services around the payment are where the money is.

This opens up a vision of the retail POS that is based on APIs and authentication, not cards and contactless interfaces. When you look at what people are already doing with the PayPal X.Commerce platform, you can see how retailers might build their own solutions on top of payment APIs. See, for example, the Toys ‘R Us case study unveiled earlier this year.

Betsy Poirier, director of digital at Toys R Us takes the stage. She’s talking about in-store toy pick-up. Using X.commerce customers can order online and quickly pick-up products on their way home. For conversions, customers can get orders fast in store.

[From Live From eBay’s X.Commerce And PayPal Access Launch; Facebook Partnership – Forbes]

Here’s a vision then: my Tesco Wallet on my Tesco Mobile contains my Tesco Xmas Club and Tesco Money pre-paid accounts as well as my bank-issued cards (that auto-load the Tesco Money account with electronic cash from Tesco Electronic Money Institution, or T-PESA as we call it, since it allows person-to-person payments). At the POS, the Tesco Payment Institution processes the payments while the Clubcard scheme and Tesco Coupons execute automatically. Far fetched? I don’t think so. I’m not, incidentally, saying that retailers in general or Tesco in particular are visionaries and infallible in their projections.

Barry Grange, a Tesco director who heads the British Retail Consortium’s committee that has talked to the banks, has still to be convinced of the usefulness of [debit cards]. But he acknowledges it could bring some advantages to stores. It oculd reduce the volume of cash that retails have to deal with.

That comes from Will Britain buy electronic shopping? in New Scientist magazine from April 29th, 1984. A long game indeed.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers


  1. I understand that some retailer likes having their own pre-paid cards so that customers can use them to purchase things and gain loyalty points. This phenomenon will only become more popular, and would consumers one day be forced to carry around a wallet that is filled with cards from different retailers?

    Julian – http://www.mediasnap.co.uk

  2. I don’t think this is a problem. Your mobile phone can store a million cards from a million retailers.

Leave a Reply

Subscribe to our newsletter

You have successfully subscribed to the newsletter

There was an error while trying to send your request. Please try again.

By accepting the Terms, you consent to Consult Hyperion communicating with you regarding our events, reports and services through our regular newsletter. You can unsubscribe anytime through our newsletters or by emailing us.
Verified by MonsterInsights