Banks, restaurants, and retailers of all kinds have a plan to sell you everything from your next meal to your next mortgage, all from the comfort of your cell phone. McKinsey's Dave Edelman and Jack Stephenson, head of mobile marketing and e-commerce at JPMorgan Chase, recently sat down to talk about the future of mobile marketing.
PART I: WHO NEEDS A MOBILE WALLET, ANYWAY?
Dave Edelman: So Jack, Google Wallet is getting a lot of publicity. Is this something that everybody's going to use over time?
Jack Stephenson: Well, you have to break that question down because the fact is, mobile devices are already used a lot for payments. If you take digital goods like music, ringtones, and videos games, that's a big market. I think it's about $7 billion in the US and growing. Mobile commerce --buying goods off the Internet from your phone -- will top $10 or $12 billion this year. People are paying for these things on their phones right now. They may be billed to a credit card or a phone bill, but it's happening today.
Edelman: So how fast is that market growing?
Stephenson: When I was at PayPal in 2008, I think we did $25 million of volume. This year, they're going to do $3 billion of mobile volume. The adoption rate has been extraordinary. It took, probably, a decade to get mass consumers comfortable putting a credit card on their computer to buy things. On the phone, that behavior happens almost instantly.
With cash, credit cards, and checks, are virtual wallets a solution looking for a problem ...
The question really comes when you talk about payments at the point of sale. And I think there, we're in the very, very, very early stages of seeing whether or not that will happen in this country. Payments are not really a problem in the physical world. People can use cash. Credit cards work very well. Checks work in some places. So you're not really solving a customer problem by turning your phone into a payment device. People always say, "Gee, what if I could leave my wallet at home." But you could just tape a credit card to the back of your phone right now and you would have essentially the same thing--a mobile-payment device. So I think a lot of the rationale for why people are going to use phones instead of cards in physical stores is pure fantasy.
PART II: THE GAME CHANGER: "NFC"
Edelman: So what will make the difference for mobile commerce? Will it ever be more than just a credit card taped to the phone?
Stephenson: My view is that near field communication (NFC) is going to be embedded in phones and that it will be a game changer. More and more smartphones are going to have this technology, which lets you transmit data over short distances, like to a cash register, by "tapping" your phone on a reader. But I don't think payment is going to be the use case that actually gets people tapping, initially. That may be part of it. But it actually will be things like "Hey, I'm going to tap to share music or content with somebody else." We'll tap phones, and then that'll be a very quick way to exchange that content, whether it's payment information or something else.
We'll have NFC chips in posters, and the posters will have some kind of offer embedded. So say I want to get this offer. I tap the poster, and the offer is stored in my digital wallet instantly. It could be a coupon, it could be a song, it could be a video. If mobile payments take hold, they'll evolve from these kinds of activities.
Edelman: Let's talk about these loyalty programs. One reason to pay with a phone is the ability to manage all the coupons and offers, and all of the other things that give the consumer more of a bonus at the moment of payment.
Stephenson: Getting the coupons and offers right is essential if we're ever going to see real mobile payments. It's going to cost merchants a bundle to change their point-of-sales systems, and that's a hurdle. So you've got to have something that not only has a lot more value to a customer than a credit card does, it also has to have real value to the merchant. I think if mobile payments take hold, it will be because of things like NFC and something we haven't talked about, location-based offers. If I know you happen to be in San Francisco today and you're out looking for lunch, and I happen to have seats at my restaurant, I could give you an offer to come into my restaurant right now. That's value-added for the merchant because it's delivering real business to him when he needs it.
The mobile phone is a device people have with them literally 24/7. I think 60 or 70 percent of people sleep with their phones. It has your contact information and it knows where you are. It has a lot of personal stuff on it. If you know how to use that stuff to market, that could be pretty compelling. Stores could offer you discounts exactly when you want to use them. Banks could offer you a mortgage just when you're out house hunting. We can market credit card offers in real time-- "Use your Chase Freedom Card to take your friends to dinner and we'll give you 5 percent cash back on the spot." Traditional retailers adapted to e-commerce. They now need to do a similar type of adaptation to mobile commerce.
... or is mobile tech really set to change the way we shop?
Edelman: Right. But one of the things I see as a challenge is being able to design a loyalty scheme that really works. It's going to take a pretty major upgrade for retailers in terms of their analytic capabilities and in rethinking the relationships they're going to have with consumers once they start throwing more kinds of offers at them.