It just seems like everyone is trying to make an impact in the mobile payments world. On one side there are closed-loop payment systems like PayPal, iTunes and Amazon. On another side there are upstarts like Square and Stripe. And on yet another side there are carriers, banks and incumbent processors. Right in the middle of all this fray is a confused consumer who just wants to buy what they want when they want it and not have to worry if their payment system will or won’t be accepted.
As you can see, this is a highly contested area of mobile and rightly so. The riches could be incredible but so could the implications if it is done wrong. Payments, the act of handing over money for a good, is but one of hundreds of steps the consumer takes between deciding to buy and actually buying. Technology should not get in the way. Competing systems should not get in the way. One more decision for the consumer should not get in the way.
So what do you do? How do you navigate this confusing and sometimes business-breaking-but-small-in-relative-terms problem?
One of the key messages that haunts this episode is that it is obvious accepting payments via mobile is simply a transaction with incredible impact. The implications of this simple thing – accepting payments wherever and whenever – to things like checkout counters, waiting in line to buy produce, standing in an aisle or even just window browsing is undoing 75 years of retail psychology and practices. Tell me again why you aren’t exploring this? Now?
Key takeaways from this episode. Click on the link and the video will take you to that clip
Rob: Hello everybody and welcome to Untether.tv. I’m your host and your founder, Rob Woodbridge. Mobile Payments. My goodness. It seems like every time you turn around if you’re in this industry, every time you turn around there is somebody else getting into the mobile payment space. There are opportunities to be a part of this from carriers, from banks, from independent guys like Square, or even Shopify, got into it. There’s just everybody is doing mobile payments and it is confusing. So, here to help alleviate that confusion and also talk about the best ways for small and medium-sized enterprises to be able to get into the space and not to be left behind and then what that might lead to in terms of engagement and customer loyalty and convenience.
I got Mark Castortini [SP], who is the VP Product Management for a company called Merchant Warehouse coming in. Mark, thank you for doing this. I appreciate your time.
Mark: Absolutely. Thank you for having me and certainly Merchant Warehouse is always happy to share what we’ve been learning in the marketplace. So this is a great opportunity to do that.
Rob: Well, we appreciated that. A while back we did an episode of this week in location. Mixed marketing, we used one of your infographics which was the QR code versus NFC. It got us talking, started to think about what we could do and all of a sudden here we are talking about mobile payments. But before we get into the meat of this, I have to give you a little bit of time to talk about this company.
Merchant Warehouse has been around almost like, in the electronic payment space since 1998 and I made a joke before we started that that’s like at the dawn of ePayment world in 1998. So, what do you guys do?
Mark: So, sure and that’s a great intro because yeah, we’ve been in this space for a long time. We’ve been, basically, a merchant acquirer, an ISO if you will but really what it comes down to is we’ve been enabling merchants to accept credit cards all along the way. What’s discouraging is there’s really been very little change in the space but what’s exciting is today you know, we’re talking about this disruption and we’re going to talk about a bunch of that later on and we didn’t do much of a transition or a transformation but we’re still basically enabling merchants to accept payments. We’re going to see that that actually blends a little bit into the customer engagement piece as well, because really, what we can do is connect that counter top to the merchant, the consumer.
Rob: It is so important, right, that every company participate in this one way, shape or form. But it is so confusing and in the end, do you think that any independent consortium or small business or square like company who is out there doing these kind of mobile payments can really beat out the real credit card companies that have the reach and the depth and the security parameters and everything that is in place already from actually doing credit card transactions?
Mark: That’s a great question that we even debate internally.
Mark: Clearly our strategies all go around that. Are we spending our time in the right areas? What’s really interesting about that is we haven’t seen much change in that space because no one could break into the networks, right? It was basically everybody’s tied to Visa or Mastercard, American Express and basically the network was all the power because basically your transactions are getting routed and payment mediums are on plastic. What’s really neat and interesting about the mobile phone and sort of the Cloud based technology we’re seeing is we’re finding ways around the networks. So, certainly the payments are still leveraging the networks in the back end but now there’s a whole burst of innovation around adding value to that experience and that’s where they’re staying in the loop, right? Visa, Mastercard and the like in some cases but we’re bringing out to the front end a lot more opportunity.
Rob: It’s kind of like payments as a service. That’s what these guys are getting into. They’ve always been that way, but this is more of a way for them to play in it and offer that security and authentication layer and let everybody else innovate on top of their offerings.
Mark: Yeah, that’s exactly right. So, what you’re seeing is when you look at companies like Level Up and even Square, they seem to be extending the payment network into a little more opportunity and it’s just classic product, right? Let’s do something a little better. We’ll use what works and see what we can keep going with.
Rob: Is there anything really different between these guys? Level Up is, I mean, you’re out of Boston, Level Up’s a Boston-based company and Square and, you know, any of these guys who are doing any of these payment technologies now. Is there anything really different?
Mark: What’s interesting is it is small things, but it’s going to be the consumers that really pick and choose what is different about them. So, they each have a bit of uniqueness to them. Level Up versus Square is a perfect example. Square is coming out with a merchant solution for acceptance and they certainly have a wallet which is great because you can pay. But then get into a company like Level Up, which is really a peer wallet-based play, but what they’re doing is combining that loyalty element, right? So, they’re adding a lot of value, not only to the customer, I get my points but also the merchant, let’s get some stickiness and start to put some value there.
So, each one has a unique element, and I think as we keep talking, we’re going to hear that’s really what the consumer choice is going to come down to.
Mark: You know, I always think about this, I went traveling, spent a lot of time abroad and I started doing it when I was in my late teens, early twenties, Southeast Asia, spent a lot of time there. I was instructed to travel with an American Express Card. Don’t leave home without it. It was by far the most widely-accepted credit card internationally, especially in Asia. They had these offices across Asia where I could go and pickup packages and I could go and get these things called traveler’s checks, that’s how old I am, where you’d travel with traveler’s checks.
But one of the things I realized was that credit cards were not accepted everywhere. Like, I was in tiny islands in Thailand and they didn’t accept credit cards, it was cash. But as credit cards became pervasive, and now we see them accepted everywhere. Up here in Canada, Interac [SP] and debit machines are everywhere as compared to the US. We really attacked this cashless society very well. Getting to the questions here, it’s a long-
My assumption is that the winner here, if there is going to be a winner in payment technology, is it’s going to be the one that is most widely accepted. Right now, you have Square, which is in every Starbucks, and you have Square which is kind of pervasive, or the darling, but it is not accepted in every store. So, is that what is going to win here? Is everybody is going to default to the one that is accepted most locations?
B: You know, that is an interesting question that everybody’s torn with right now because we talk about technologies and we’ll touch the different technologies and we’ll talk about acceptance cause at the end of the day payment mediums are no good if the merchant can’t accept it, right? Square gets traction, and certainly they’re in those Starbucks, like you said. It’s an interesting question in that, we’re thinking rather than a winner, necessarily, it will certainly be driven by acceptance, which comes back to consumer choice for a bit because, you know, it is chicken and egg, if you will.
What we’re seeing is that everybody is talking about a winner right now, because nothing’s taken off. And we certainly think somebody will take off but this is really an open medium for innovation. Our position is that it’s probably best to be agnostic. Why not accept everything that we possibly can, you know, certainly we’ll have some leaders. We want to prefer those as acceptance, or prioritize them. But what’s most interesting, when you talk about the winner, is that we don’t see that, necessarily, a winner will stick for very long.
B: Clearly, one might emerge, right? Ala, credit card payments have, but don’t forget we have innovation here. Even if something like Google Wallet took off and people started using it in wide breadth today, we expect some young and new up-comer is going to basically take that platform, extend it a little more to make it a little more interesting for me and then adoption might sway into their platform. A lot of it is just preparing for that disruption rather than picking a winner or gambling on a path.
Mark: I really like that approach. I think that what you guys do is payments. You’re not making a bet on any of these platforms, you’re just saying, “We’re going to enable the payment.” And what comes in underneath those payments, you will adapt, but your customers accept payments and regardless of what’s underneath it, or who’s the winner and I really appreciate that approach because you’re right, this is turmoil. I think that we, in the industry, make such a big deal about it but really, when you look at credit card transactions and electronic transactions, still the majority of all of those are coming through the big brands right now by far, right?
Mark: That’s the point to make here. Although there has been a dent, a small dent that’s been made by all these other payment technologies, it’s still is a Visa, MasterCard world, isn’t it?
B: Right. And that’s where it gets carried in the back-end. And that’s where, you know, we saw some interesting paths. When you looked at someone like Google Wallet come out early with that [FC], if you really look at it, they were trying emulate that EMB [SP], or contact-less type payment through the phone and, obviously, this year with postcard emulation, they pulled out the secure elements and they’re saying, “Wait, this doesn’t need to be a card. It just needs to be able to transmit the data that needs to be received.” You know, I think people are starting to break that mold a little, they’re trying to get outside those restrictions. What’s great is that’s what really blossoming the innovation we’re seeing around the world here.
Mark: Yeah, there was, I can’t remember what it was, it just kind of flared up and everybody asked for $50 and there was this one card that enabled you to load all of your cards onto it and then you could, actually it was just a blank card, and then you could choose which credit card you wanted to do. It was just a payment vehicle. You start to see these people, kind of like, you know, like ants around sugar. They attack this industry and then they hold up this darling for a little while then they go off to meet to the next.
So, when you survey this landscape of, you know, kind of payment technologies that are up there right now and I want to talk about how we can bring this into the retailer but before we do like, is there you know, are there any out there that you look at and think this is going to be the one. I know a lot of people think square is it, but I can’t imagine that this is a very profitable business for them. They must have taken a bath when they went into Starbuck’s because they’re not charging them anything or you know, any transaction fees.
So I look at that and think, I don’t know man. I don’t have a lot of faith that that company will survive this. They may be the pioneers, but I always hate to be the one out in front getting shot at all the time.
Mark: Yeah and Square’s definitely taken interesting approach. They have a neat opportunity where they’re trying to own the entire loop, right? They want the merchant to have Square register. They want the consumers all to have Square Wallet and obviously that doesn’t cater to consumer choice well and who knows where they’re going to evolve because one of their challenges is now they need to do mass distribution among all retailers. So, they need to be everything to everyone.
So, you know, it’s interesting. They’re out front. They get some great concepts out there. I think we’ll talk about it but they proved QR codes work pretty well if you want to start to think about those as a payment medium. So, you know, again, it’s every technology that comes out. What’s interesting in Square and even Level Up had some challenges around this as well. Is with innovation, they don’t have the experience the payment industry has.
Mark: So, some of the challenges they run into are security or even merchant acceptance on the counter top and we may talk about a company like PayPal soon and they’re the beast in the eCommerce world, but integrating them into POS or putting that into stand alone terminals is a massive effort that they need some help with.
Rob: I’m so happy you brought that up. I’m from Ottawa and we have a company, Shopify here who’s getting into the POS system world as well and I always think that you know, you’re absolutely right. The last thing on earth I want is my inventory screen right here and then my payment screen right next to it and them not being connected. So, this is a huge challenge to own that entire ecosystem and to be able to then give an opportunity for these companies to use this technology without the pain that is associated with you know, managing inventory and I think you know, so I definitely want to get into this because it’s, it is a, I think it’s greenfield right now but you’ve got these two Lords you know, in the two big credit card companies.
Then up here in Canada we’ve got our biggest carrier which is Roger’s just was granted Canadian bank status. So now they can be a bank and accept payments as well right on, right from the phone. So, this is getting interesting because just like in the media world you know, where newspapers were newspapers at one point and television stations were TV stations and radio stations were radio stations. Now they’re all each other’s business. I think that you start to see that with carriers and banks and credit card companies and little merchant payment technologies like Square and Level Up and then there’s PayPal which is the big behemoth. So, like what a landscape.
This must be interesting for you guys to be in this, in the middle of this space but it is, is it as confusing from your perspective when clients to you and trying to figure out what decision to make on their behalf or is it just cut and dry? Do you guys point in the right direction and follow your gut and . . .
Mark: It’s, what’s really interesting is that we took a step back and looked at our messaging from a few years ago, right? Merchants came to us and they said, “Hey, how do I take something besides cash?” right?
Mark: The answer was always credit cards but then as we had that conversation a little deeper we said, “well, wait a minute. It was never was just credit cards because debit cards have been around.” Merchants never had to really choose or make big heavy decisions on credit versus debit. We just offered the solution and where applicable do your people come in with debit cards, do you think they will? Let’s put a solution on your counter top. So, you have the option in case it comes around.
So, the message isn’t changing too much more from that perspective. We still want to basically put a payment agnostic solution on the counter top hopefully with some value ads in there so the merchant can take advantage of it and you know, the same things, you want to provide great service and help them with support and installation. But, what’s confusing everybody is all the noise and disruption around innovations. Recently, we had to help our sales team understand the differences of products like PayPal here or Google Wallet from a sort of peer to peer or just a person to person money exchange and you know, that confuses people because they quickly attribute it to Square or something similar.
Square obviously also has a peer-to-peer payment app and you know, as we get into it we need to help people understand there’s a very big difference between me transferring money to you back and forth versus a B to C transaction, basically me paying a business. Interestingly, and I think it was Square’s terms and conditions on the peer-to-peer payment, it says this is not to be used for commercial use. So, when we have that conversation, you know, from an SMB perspective, the answer is, you’re really not allowed to use that, maybe we’ll keep our eye on it, maybe they’ll change it, but you should be looking at Square Register, as an acceptance. If that’s what you think you want. You know, and then the other thing is really differentiation, because someone says why wouldn’t I use Square as opposed to the old school card terminal, or, you know, and then we can explain the differences, of you need your consumers to register if you want to start getting into that wallet. Versus, you know, legacy systems. So there’s a lot of conversation to be had, certainly, we don’t see it as grey, but every time there’s a News announcement, you know, it’s our teams jobs to get in and understand, which element, which realm, which products fly in what area, so there’s a lot to be talked about.
Rob: And when you talk to them, is it, -do people come to you leading with the technology? And then you have to kind of walk them off the ledge and say, like, look, I need Square, and then, you have to back them up, and say Okay, what you need is, what? And then what’s the appropriate technology, is that your approach?
Mark: Yes, generally that’s the conversation and people lead more in their realm and expertise. So what’s interesting is when we have a business that’s been in play for a while, may have been using credit cards, they’re a lot less likely to come in and inquire about Square at all.
Mark: You know, they have a sophisticated point of sale, that does either scheduling, or inventory, as you mentioned, and the like. Or they’re using some stand alone options and they don’t want to necessarily move to that mobile based light weight solution. They want something more robust, with more value. On the other hand, you know, we service up and down the charts.
We certainly have those entry-level merchants and they don’t know what Acceptance means, and they’ve heard of Square, so they come in and inquire about it. So that’s where we do lay out the options, and let them know, from more of a consulted perspective, look at a grow with me strategy, here’s your best entry level, and it may be Square in some cases it may be a different product. But certainly understand the path you can take and the benefits it would show you.
Rob: Well let’s talk about those, you know, certainly there are some benefits to businesses that are looking at this technology, or maybe they’re on the fence and they’re trying to figure it out. They’re saying like, why, why would I do this? I heard once it was described to me, that said, like, you know, I have to go up to my executive levels, or my CEO, or, you know, the Director, or the owner of the store, and say listen, what we need to do, is we need to spend a lot of money, on infrastructure to take, to accept mobile payments, and what I mean by that, is, because mobile payments is one portion of it. It’s also that you have to consider what the mobile experience is like. Your mobile website, your application integration, and all that kind of stuff, and then, then of course, customers want inventory management, or an understanding of what’s in your store, so there’s that, if you don’t have that layer, and you have to mobilize that so it’s on the device, and then there’s also the in-store stuff, with low-energy Bluetooth, and Paypal, Beacon, and iBeacon. So imagine, you know, you have to up and convince somebody to say, “Okay, we have to spend a whole lot of money so that we can accept, we can accept payments from this new device, and the net benefit might be nothing except that we can accept payments.”
Rob: Most people just say, no, no I’m not putting any money into this. We’re retail, our margins are this, or whatever it might be. So what are some of the benefits that people are missing out by not incorporating some sort of mobile payment into their, into their product mix?
Mark: Yes, and that’s the fantastic question of the last couple of years. Because at least there’s a new message, there’s some new value coming out, there’s actually some exciting things. You know, pricing is old, we don’t want to talk about, you know, the interest rate being marginalized and how many pennies are you going to save at the end of the day. And it really has very little impact.
Mark: But what’s really exciting now, and a lot of it is conceptual, still. Because you’re looking at the possibilities of the mobile players that are out there, and they might not apply to you or your area. But at least it breeds an understanding of where the opportunities can go. Level Up’s a great example, you know, bringing loyalty into the store, in a single payment.
So I have to do nothing else, so that means I don’t have to carry a plastic card, I don’t have to pull it out to make sure I remember to use it, and I sure as heck don’t have to remember to redeem it, it’s all a seamless transaction. I pay, I collect loyalty, I pay, and if I have points, they get automatically redeemed, a nice seamless system. But what it… So that’s a nice value add for people, I mean I know I’m going to get loyalty dollars back, you can be sure, I’m going to go to that restaurant, or quick serve restaurant, a lot more.
But what a lot of people don’t understand is, now there’s even more value in that app, because it’s an application. So you see a company like, Level Up, and others, a lot of people are doing this now, can show you the registered merchants in the ecosystem, so you know. I am tired of that place I go to breakfast to, every single day, I want to try something new. I like the benefits of Level Up, and granted they even incent people to show up for the first time, which is great for me, get a few bucks. I can use that Level Up app on my phone, on the way to work, to locate a different merchant.
So what’s interesting is that merchant’s selected Level Up to get people sticky, to get people to come back, and to, you know, have that sort of, more of a relationship experience. But for me as a first time user, it literally walked me into their store and that has tremendous value. So you know, we see that’s kind of the upfront, that’s what we’re seeing today, but now, and as we talk more about technologies like your Beacons and your Check-ins and your history, you know, they can offer, now we can talk about offers and coupons and you know, more value getting driven to the customer to drag them into the store or just simply to promote themselves. So, slippery slope, yes. We’ll see how that all pans out. But these are all the neat exciting things that you’re literally driving more business into the merchants so that’s some exciting stuff.
Rob: You know, I spent some time with Mike Hagen who’s the, one of the co-
founders of Level Up last August and so a year ago this August. If you’re interested, you can go and take a look at that on Antenna.tv and watch that episode because he talks about their value and their benefit to… and how they drive new traffic to each one of their locations and you’re right. So, loyalty programs obviously play a part of it. I think that the catalyst happens with the payment, doesn’t it?
Mark: Yeah and that’s because that’s your first chance to interact and it’s really the, it is the engagement piece, right? That’s what we’re all used to today and though it’s based on the payment today I’ll be interested to see where it goes.
Mark: I think your point is valid because that’s all we’re used to doing as consumers. So from an educational perspective we’re not really sure how to you know, engage with a company besides showing up and paying and it’s great that people are putting value behind that, but it would be also better if we can all learn how to actually engage with the business you know, from a needs basis or an opportunity basis, and do that a little differently. Why not let’s put payments in the back? That’s the necessity.
Rob: Yes, yes.
Mark: That’s not exciting. Let’s do everything else first.
Rob: Yeah. I’ve, I spent a lot of time with author Chuck Martin and he talks about that you know, the path to purchase and that’s what we’re ultimately talking about here. Is that influencing the path to purchase, the path to purchase is you know, seven, eight steps and in each one of those steps there’s all these distractions that can move you away from your original purchase intent and the transaction is the outcome of all of that, right? It’s the last piece. It’s the least important piece not, I mean, it’s important to your business. I understand that, but from a consumer standpoint it’s like a throwaway. Of course I can pay with mobile here, right? That’s the perception that we’re starting to move into, right?
Mark: Yeah, absolutely and it’s, you know it’s, and people are even leery to go towards a mobile payment route because it’s not, it really doesn’t do much more. I’m still carrying my wallet. I’m not going to leave it at home although I’ve tried that a few times and it does work. You can certainly do it, but you know, it’s just the safety and security, it’s confidence. It is still technology, right? So, there’s certainly some issues around that, but you know, hopefully we can move onto a better place.
Rob: What’s it going to take? I think that you know, the number one most portable currency ever, the most mobile currency right now today on the planet is the American dollar, right?
Rob: It is. So, what is it going to take for this kind of payment systems or these payment technologies to really take route and change our behaviors and let me leave my wallet with confidence behind?
Mark: Yeah and I think that answer isn’t there yet, right? But we’re hearing some of the beginning of it. It is the loyalty. It is the offers and the coupons and the engagement, but it’s really going to be up to businesses and some innovative developers essentially to start really connecting the two of them, right? We should, we do interact with a lot of businesses on a recurring basis and it’s funny because we do interact with people behind the counter. You see familiar faces in the places you go to.
Mark: So, you know, how do we create that experience? It’s part customer basically education, right? What, a lot of people don’t know the value they can get out of some of these engagements and hopefully it will be more than just dollars at the end of the day. Yeah, we do all want to save a buck and offers and everything will be great, but hopefully there’s going to be a little more to the experience. So, it’s going to be a little bit customer education, but I think we definitely need to see a little more innovation. We need some compelling reasons for both businesses and consumers to use the technologies.
Rob: Yeah and couldn’t, I couldn’t agree more with you. I think about the poor retailer sitting in the you know, a dark corner, you know, dark, dark, dark, dark corner of their business huddling, crying, weeping because nobody’s walking in their stores and you know, I’ve heard so many people talk about that look, you know, the retail has to change the experience so when they walk in the experience happens. So that’s when we talk about these sensors and you know, certainly PayPal’s play into low energy Bluetooth with Beacon and Apple, so iBeacon but it’s true.
If you, if I paid for something in your store, that is as pretty much as close to the greatest relationship that we can ever have is a merchant consumer relationship, right? Is that I’ve actually entrusted you. I’ve given you money. You’ve sold me product. So now it’s about trying to bring me back into the store to have that experience again so that I can sell more and everybody knows getting people into the store, they buy more, right?
Rob: That’s just, it’s just that way. It’s not as pinpoint as online nor is as mobile. So, I mean, have you been working, have you worked with companies that understand this and that are getting this that have come up with some good ideas that are, that drive people into the store as a result of this one thing which is just, yes I’ll pay.
Mark: Yeah. Yeah and what’s interesting is we do work with many companies like that and if you look at PayPal you know, for example, they made it very public very quick that they’re going to improve the shopping experience.
Mark: So, what they’re going to do is have these payment options you know, check in and the like. But what they’re trying to do is get into the POS systems to say when someone returns let’s see what they bought. Let’s show them the alternative color of the shirt they loved and rated up at some point. Let’s show them shoes that other people have bought that are like the last ones they bought and so you know, it’s great that you mention the payment experience because when work with a company like that and just talk about opportunity you know, we see the path you’re laying out. We’re saying that’s a great experience. We don’t know when consumers are going to be ready for that but they’ll probably be exploring payment options earlier.
So, you know, if you’re looking at a path of getting integrated and getting consumers used to just using a product and this goes across many companies. Although we don’t hope it sticks with payment and that’s kind of we hope it goes in the back, it’s probably the best way to get introduced, a little familiarity and just get people to start feeling what opportunities there are.
Rob: Yeah and lowest hanging fruit and I think you’re right. It’s probably the closest to the ground for a lot of us. It’s something that we do everyday which is pay with debit, credit or cash everyday so it’s a natural evolution. I just, I always have that, it’s a hurdle for me, right? Is that I’m in the mobile space. I am an advocate for this industry. I talk about it all around the world and the last thing I think like, you know what? I haven’t been convinced that the mobile wallet is at a point now where consumers are ready for this to give up everything else and the convenience of everything else and you know, because I don’t want to carry nine mobile wallets, right?
I think that that comes down to it. Is that you know, right now there are so many different technologies and you as a consumer and you as a merchant can’t bank on one, but I don’t want to carry nine and it’s expensive for merchants to carry nine. So, how is that? What technologies make sense for these kind of retailers? Is there, are there segments like Square fits here and you know, PayPal fits here? Any advice there?
Mark: That’s a tough one and it does come down to their threshold of paying, right, because people think you know, basically you need to line up all these solutions and we talked about integration a little bit and that’s a huge one because at the end of the day there’s no way the merchant’s going to put [inaudible 00:02:38] on equipment or you saw different tablets in some cases. They’re not going to have seven tablets down the counter top. So, some of them is just a you know, a symptom of how do we get it all pulled in and integrated but you know, really what merchants should be looking for now and some of them we’re certainly hearing the conversation. They’re not going down the path yet, but what they should be looking for is a payment partner like a Merchant Warehouse where someone that’s been offering them services for payments that will take all of that away.
Mark: So, really what the industry needs to be doing is providing the merchant an agnostic platform. They don’t need to care. They should be able to pick PayPal or Google Wallet and Isis today and you know what? If that whole thing changes in three months, they should be able to shut all those off and turn all on the Level Up and the Square. So, it’s important that the model sort of remains that both POS developers and merchants can start to work with companies that are going to solve that problem for them. They shouldn’t be spending their hard earned dollars or effort or time picking up the path when everybody agrees there’s really not a clean path to pick.
Rob: You know what? But doesn’t that go against kind of Square’s mentral
[SP]? Square wants to be a household name, don’t they? They’re a consumer product or a consumer facing product. They don’t want to be like, powered by Square in the background do they or like, just one plug-in. They want to be the platform, don’t they?
Mark: Yeah. They have an interesting position in that they’re driving innovation. They’re doing a lot of cool things but what you see is you start to move up market, right? You get into tier three even. Not even tier two or tier one merchants. Is that they’re threshold for innovation is pretty light. They like their standard systems. There’s a reason that you still see the electronic cash register around and that’s a tough name for you know, an old school machine but you know, that does everything they need it to. The risk is very low. So, what they need to continue to do is basically accept it on that platform or make wholesale switches into a very robust commercialized solution.
So, it’ll be interesting to see where Square goes and certainly they are building the platform because the pieces are working. To date they’ve kept it pretty closed loop, but I don’t think they’ve really shown us what they want to do in the future. So, there may be an opportunity where you know, Macy’s or these other big retailers are powered by Square. We just don’t know if that’s their strategy.
Rob: You walk into a Sears and it is old school, right? Not only do they have like, salespeople on the floor that are like, 68 or 75 years old, right, and the style is from the 1980s. However, you go up and you buy something, and there’s a cash register. Even at the bay here, there’s a cash register, an electronic cash register where it’s a big thing and they type in SKUs. Do you think that mobile and mobile payments is an opportunity for them to say, “OK, that’s our in-store experience, and our mobile experience is going to be completely different from that.” We’re going to try to modernize our mobile experience by doing mobile payments and doing transactions in a different way, but they tie into the back end through an interface as opposed to ripping out those cash registers. Is there an opportunity there for business?
Mark: There is, and we’re hearing about a lot of businesses going down that path. Certainly high-end retailers, even. We work very closely, public knowledge, with a company called Retail Pro. Retail Pro International is a great retail product for that high-end retail specialty product in the mall. You probably have used many of the stores at the mall that do it, and what’s unique about that kind of platform is that they’ve built opportunities. Not only to have the legacy classic experience, in new and exciting ways by the way, they are a progressive company, but they allow the hooks to start getting integrated from in-aisle checkout. There’s partners, and products now, that you can basically do line busting, and things like that. We haven’t talked a lot about this omni channel experience. They even have opportunities where you can tie the shopping cart into basically the same system. Certainly merchants are thinking about those hooks, you are going to see news from your Targets and your Wal-Marts that they do their own thing, but they’ll be developing it all on top of the platform. As you get down into that SMB market, there’s going to be a ton of developers that can move up and down the channels as well. They’ll know where they need to go, they see their competitors lurking around, like Square. They’re trying to develop their own solutions, which certainly works in some cases, or they’re going to partners that can build those mobile type solutions and hook them right into the platforms that are being used today.
Rob: Well, talk about that omni approach here. You know, I don’t like the term, and this is probably the first time that it’s come out of my mouth on this podcast. But, we were talking about the fact that the shopping experience starts with a browse on the desktop, and it’ll end up with price comparison on the rack in a store. The whole idea is that at some point, maybe all I want to do is pick out the product, buy it from my device, and walk out the door without a line. Is that how you would describe this multi-
Mark: Yeah, it’s really kind of combining all these methods to buy something. It’s been around for a while, although it’s getting a little more press recently. You’ve always had that retail experience, and then you’ve had that online e-commerce experience. Certainly in some cases they’ve blended, but at the end of the day it was two numbers. What’s interesting is you start to bring mobile commerce in, and we’ll define mobile commerce as you buying something on your phone. It’s basically the e-
commerce experience on a small device. What’s happening is, it’s happening in the store, so why wouldn’t I walk out with the product, right? We haven’t seen a lot of consumer self-service mobile commerce yet, but we are seeing merchant staff, in-aisle checkout buying, people are experimenting with those things. They’ll talk about the disconnected countertop. You look at the Apple store model, which is a little bit niche, right? That’s a specialty product, high value. It’s going to be harder for me to walk into a Wal-Mart with a carriage full of stuff, and basically walk out with the carriage as someone has checked me out at the door. But it’s certainly feasible, and look at it by going and getting a TV at Wal-Mart. Why do I need to do anything but pass one person and pay?
Rob: It’s funny, because based on the way that you pay at an Apple store, it goes against all of the science and psychology at shopping at a store. There’s a reason why a grocery store is laid out the way a grocery store is laid out, right? Most people turn right, and you go around a loop, and then there’s impulse buys at the cash register. The pop, and chocolate bars, and gums, and all those kind of things. Now they’ve gone upmarket a little bit with Mach 3 razors for 25 bucks, right at the cash. I think that by enabling payments anywhere, I think that there’s a lot of fear as a result of that, simply because these industries have grown on science, based on getting someone to the cash register. Now you’re talking about taking the cash registers out, and what happens to the retail industry as a result of mobile payment technologies?
Mark: Yeah, and that’s one of the really interesting balances that we’re seeing happen. Literally three years ago, you looked at Black Friday. It started becoming a [hotbed] four or five years ago, if you will. They built all this stanchioning, just ropes for the counters and the lines and all of that, because they had to manage the lines. And now you walk into a Best Buy, and what do you see?
You see three new isles of things to go through as you go to the checkout counter. It’s all temporary, because they’re going to move it all back into the store later. So merchants can certainly see an aspect where they might lose that opportunity in revenue. But what’s interesting is now they’re considering that people are losing their appetite for waiting in line. I might just stay home and buy it online, which is concerning because I’m probably going to price shop from the comfort of my home. And certainly people walk into the store today and price shop on their phone, so that’s a consideration. But now the people are sitting in a long line at the store, and even though all these small elements are up on the counters, and you know, it’s candy bars and in some cases, a video game, but that’s giving me an opportunity to do something else on my phone.
You can be sure I’m going to look straight down and maybe take a second look at that product in my hand, and use one of those great applications that’s going to shop locally in the area. So you know I think it’s up to the merchants to really think hard about improving the experience. That includes not just the line, but also that in-aisle experience, right? If, as a merchant, you can’t provide me an opportunity to get a better shopping experience, even while I’m looking at a product, I might be using one of those third-party apps to do it. And you can be sure that if a third party app is helping me shop, there’s going to be some incentives from other retailers to pull me out of the store. Now that might come in the form of a discount or things like that. So they have as many interesting challenges as they do opportunities.
B: Yeah, and maybe the catalyst is that first purchase. As in location based marketing, when you’re in the store I think there’s a huge opportunity. If you and I have a relationship already, and I’m having those second thoughts, you should be very proactive with me while I’m standing in line, or give me some incentive so I don’t stand in line. Because you’re right, the impact is detrimental to those organizations. But while you’re in the store, how about fighting for my business? Just because I’m in there doesn’t mean you’ve won. And I think that’s the big lesson that a lot are learning.
B: So one more question, then I want to do a little future gazing, if you will. What about the closed loop payment system? Square is one that’s trying to do this, right? But I’m really talking about what Amazon is doing by emulating Apple with iTunes. You’ve got hundreds of millions of credit cards on file, and you’ve got one touch by with Amazon, and one touch by with Apple.
And even Pay Pal is in these closed-loop systems where the credit card is obfuscated, right? Where if anything accepts Pay Pal all you need is a user name and a password and some validation and you’re done. And the same thing now with Apple and iTunes, with a thumb print or a finger print. Does that kind of take everything and blow it up? Because the credit cards are somewhere else in a trusted source, and all I have to do is type in an email address or a Twitter user ID or put my thumb on a pad?
Mark: It certainly is a good question, because it raise a lot of additional questions. It’s definitely something that’s going to need to be considered, because as we expand the opportunity to simply accept payments on a counter top, those are going to come into play. And I think it’s a little bit to be determined about how people are going to react, and what’s going to have to change. I think you’ll see the card companies are certainly going to have to figure out some ways to stay relevant, if you will.
By the way, we’ve got to consider EMV in that play. Because if EMV is capable at a merchant the card companies can really drive some kind of pricing and fraud concerns. And that’s where they still have a little bit of power, because in the back end systems you have Amazon cash and Pay Pal cash. But you’re still going to be tied to the card system. Hopefully you can get more direct to the bank account, which is kind of an exciting opportunity. But you can be sure they’re not just going to let all that go by the wayside and not go down fighting.
So I think you’re going to see excitement when the technology comes out, but you get back to security and regulation, and certainly defense. It will be interesting to see how those play.
B: I hate to use Square as a poster child here, but I just think that our margins are so razor thin here. But you know they’ve raised four or five million dollars total. The credit card companies who are managing this entire infrastructure have been around for 55 years and have invested billions of dollars. And not only that, they have peace of mind on the consumer side about transaction safety and transactions. And I know I’m not going to get robbed. If I use my phone in Montreal, and I never do that, I know that within a minute I get a call from somebody saying, “Hey, did you use your credit card in Montreal?” That exists today with these guys and they’re not going to let it go, and that’s what I want to bring up. What does this look like going forward? Because I love that you obfuscate this.
You just take payments. That’s what we offer. We’re going to do this. Mobile payments and whatever comes and goes, you’re going to be able to accept payments through a mobile device. That is amazing. But this industry is going through such turmoil, what does this look like? For the next year, over the next two, you see Isus [SP] and then partners dropping out. What is going on? What’s going to happen?
B: Yeah, I think it’s going to be hard for a while. It’s going to be a rough road, essentially. Without any clear cut winners coming and because there aren’t any at this point, I think it’s going to be hard that someone’s going to just show up and consumer option’s going to go wild. I mean, think about how long it took people just to use their debit cards in the US. It was years before people actually started using them. So to think that they’re going to pick up their phone and start paying, that’s a tough kind of pill to swallow. But it’s not a bad thing because I think we’re going to see a lot of upstarts. Square come up. They were a successful brilliant marketing strategy they got out there. You know, we’ve seen the level up. Basically they had a compelling value proposition. They got up there.
So I think what we’re going to see is a lot of active players. It will be interesting to see what the big box retailers do. People have been leaning in a little to say “What’s Wal-Mart going to do?” and it’s going to
[profligate]. But I think what we’re missing or a lot of people might not be considering deep enough is that companies like those big box tier one retailers, they want to own the whole experience, so it’s likely they’re going to have, and you’ve seen some of this in Target and Wal-Mart’s conversations, they’re going to have a Wal-Mart payment system.
They don’t want a universal one because they want you to always come to Wal-
Mart so that might not even drive the opportunity there. But what is real liquid is that with this technology in mobile payments is that we can start to re-terminalize the small and mid-size businesses and when we do that, one will be able to get them into NFC and EMB and that’s just good from a pay your safe. You can take payments if nothing changes. But, two, it’s actually going to be able to bring that big box experience down to those businesses so they can talk about coupons and offers and royalty and more.
So we’re going to see a lot of chaos. There’s going to be a lot of disruption. We expect a lot of players as mentioned earlier to come in and out, so every couple of months, there’ll be a new player. It will be exciting. They’ll get into some traction. But again, they’re bringing new opportunities to the merchants so it’s going to take some piloting and proof of concepting to see how it’s received, right? You’ve seen a company, and we keep going back to Level Up a lot but they’ve transitioned in and out with some neat opportunities, and you talk about some interchange plays and all of these things and they need to figure out the merchant appetite. Because at the end of the day, the merchant’s going to decide what they want to do and they’re going to gravitate toward the best solution for them. However, the best solution might also be driven by the consumer option so that’s another one. How are they going to react to what we’re walking into the store with?
Mark: Oh my God. Now this is why it’s so confusing. And this is why you’re right, while this is going on, you need somebody to just handle that for you and say “Yes. All they have to do is this with their phone and we’ll handle what happens in the background.” I’m interested to know, these companies are huge that we’re talking about. These retail behemoths. The tier one. Wal-Mart. Target just moved up here into Canada after many, many, many years of people wanting it up here. And in a way, I think there’s 70 stores that they opened in Canada all within a month of that.
Ottawa’s a town of a million people and we have three Targets that opened up and that’s a lot. But when you start to think about those guys and you start to think about Amazon, Amazon is going to be the largest retailer on the planet. It is going to be the biggest company just simply because of what they’re doing in drones and stuff. They capture the imagination a little bit but do you see them, you said it earlier on, they want to own that ecosystem so they’re going to build their own system inside of their store. But do you see them as being payment technologies that they’ll license that technology out to other merchants? Do you think they can get into this space?
B: I think it’s a good idea. Certainly they should. Again, their challenge is getting on the counter-top, right? Because ecommerce, it’s rampant. They’re huge. They’re massive. But how do they move that experience to the counter-top. PayPal was an interesting example because everybody said,
“Well, why don’t you just put PayPal on the counter-top?I mean, I have a username and a password, and I use it every day.” And then you think about those experiences you have at the counter-top, and you try to press the stupid cash back and you’re sitting there with the pencil and it just won’t press.
So obviously, me typing in my email address and password, I’d be there literally for fifteen minutes and it wouldn’t be a good experience. Similarly, you see them trying new things. They went into Home Depot and they’re using basically your phone number. The number and pin opportunity and that’s a great opportunity as well. So I certainly expect they’ll be coming and that’s where when we talk about the technology aspect, there’s nothing preventing them from leveraging some of these mobile payment technologies, such as NFC, or QR codes, or PIN numbers, or things like that.
They could certainly approach the countertop like that. Their challenge is as big as anybody, in that even though you’ve seen QR codes work with, say, Level Up, those merchants are only configured to accept a Level Up transaction QR code. They still haven’t found a way to get to the countertop, and again that’s where companies like us need to play on that multi-sided model. It’s great if we can enable a merchant, but we’ve got to get plugged into the providers as well.
The other opportunity we see from those guys is, can they start partnering with the merchants? We saw some interesting plays for some big people. They were doing online ordering, 1 hour delivery, for anything you needed. What they were doing is basically, and you might have seen this in the New York City area, working with the merchants, down below, to say, “Hey, you’ve got the products we need to distribute, so why don’t we just be this information resource, this transaction processing platform, and you get it to the store.” Drone-like, but with people.
Bob: People drones! And they’re a lot safer, they’re not going to get shot down. No pellet guns are shot at people drones. Wow. All I know is, that this industry, we are in the middle of this, I don’t like using the term, this innovation phase around payments. I think that the key thing that I would echo from this conversation is that nobody knows, really, where this is. I think we’re starting to see inklings of value created from mobile payments, but it ultimately has to be a far greater experience than our existing payment mechanism, or else it doesn’t work. It won’t get pick up the way that cash did.
Debit cards, the reason they got pick-up was because I could access my bank account without going to a bank by 3:30 on a Friday and withdrawing the money that I need for the whole weekend, which is what we used to do, kids! Or write checks. So there was an immediate value felt through debit, through bank machines and then through debit payments. Canada jumped onto the debit system completely. I think that the biggest challenge, above all technology, any kind of these mobile payment technologies, is that the consumer behavior has to be affected by something of value. That’s what everybody is searching for right now. Is that a good way to summarize that?
Marc: Absolutely. The value gets put out there, and then consumers can start to choose it, so that’s going to be a massive component. You mentioned adoption, to driving what the merchants use. The problem is, that’s quicksand. We’re fickle people. We use what’s the thing of the day, and we’ll start to use something that has value, but if we see a little more somewhere else, we’re going to move to it. That’s where the merchants need to be prepared to basically adjust on the fly.
Bob: That’s where you start to get into these multiple different types of currencies. Facebook played with currencies, I know Twitter is playing with payments, then you’ve got Bitcoin as a way. I think that the advice here is, listen. Talk to a company like Merchant Warehouse. Talk to somebody who’s providing you these services to be the buffer between you, because you don’t care about the technology. You just care about receiving the payment if you’re a merchant, right? And you, the consumer, don’t care about anything other than, “I want to be able to use whatever mechanism I have to be able to pay for that service or that product.” So, you’ve got to talk to somebody like Merchant Warehouse, or somebody who is in that business of obfuscating that payment process.
Marc: That’s absolutely the case. We can all take guesses, and say, “Google Wallet has all the money, Paypal has all the money, and those are the solutions we should go down.” But every time a merchant or a POS developer goes down that path, there’s certain risks there. And the way I see it, it’s completely unnecessary risk. You’re better off taking yourself out of the payments ecosystem, let someone else handle it, let someone else deal with the interaction.
Certainly, we may look for a deeper integration, when looks at improving that [experience], but let’s get the payments out of the question. Get rid of that disruption, just give you a solution that’s going to work for the future going forward. Again, we’re all talking mobile, but we’ve got to keep considering EMV, because that’s coming to the US down here. We’ve got to get that. Just take that out of the equation, let’s talk about pure opportunity. What are the things we can add, extend beyond the payment, once we get that question answered?
Bob: Yes, and that’s where the value is had. Marc, this has been great. This has been a good primer. I’d love to have you back on as we go through this. Maybe we can do this on a quarterly, or every two quarters, to get an update on how things are going. Would you be in for that?
Marc: Absolutely. I mean, you’ve said it. The news is changing and shifting, and that’s where we find our most important role, educating people on what we’re seeing. It’s basically weeding through all the stuff, and unfortunately a lot of it’s market buzz, so let’s try to see what we’re seeing applied, and actually hitting the market today, and what real people are asking about. We’d love to share that information.
Bob: In the meantime, where should we send people to go find more information about you guys?
Mark: Yeah, so if you have any questions on what we’re talking about with this agnostic solutions, certainly MerchantWarehouse.com. Specifically, we have a product called Genius, that actually allows either a standalone or a point of sale integrated payment solution that’s completely agnostic to the platform. Merchants will literally be able to go into the portal and turn things off and turn things on as the ecosystem changes.
What’s really exciting is as we talk about all these opportunities for big data, and advertising, and customer acquisition, that’s all on that platform too. We’re really trying to bring the value down to them. People don’t know what to ask for yet, so we’re trying to feed them these opportunities and see what works for them. It’s really an a la carte deal, where let’s see what works. If it doesn’t, let’s try something else, or let us be that partner that can help you through it.
Bob: If you’re asking that question, or if your statement is, “I need mobile payments,” go to MerchantWarehouse.com. If that’s the question, if you’re saying, “we need to accept mobile payments,” and you’re not going after a specific technology, this is probably the best solution. MerchantWarehouse.com. Marc, thank you for doing this. I really appreciate your time.
Marc: Hey Bob, had a great time.
Bob: We have been speaking with Marc Castrechini, who is the VP of product management at Merchant Warehouse. Go to MerchantWarehouse.com to find out a little bit more about them. They’ve got some great literature on there, it’s got some deep insight into this mobile payment world. We’ll have Marc back on to give us an update on how things are turning and twisting in this ever-changing world of mobile payment technologies. We thank Marc, thank you Marc.
Marc: Take care now.
Bob: We’ll see you guys later on Untether.tv.