Big Retailers Plan A Mobile-Payments Network To Fight High Card Fees

September 4th, 2012 by Trefis Team
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Wal-Mart (NYSE:WMT), together with other large brick and mortal retailers including Target (NYSE:TGT) and Best Buy (NYSE:BBY), is developing a mobile application that will be compatible with most smartphones and payment channels. With this application, the retailers are trying to grab a share of the growing mobile payments industry, which has come to prominence with increased use of smartphones and is expected to see tremendous growth in the coming years. According to research firm Gartner, the mobile payments market has the potential to reach $617 billion by 2016, up from $171.5 billion in 2012. ((See: Mobile pay war: Wal-Mart and others vs. Google, CNNMoney))

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Increasing Penetration of Smartphones

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The adoption of smartphones is increasing rapidly and they are playing a key role in the final purchase decisions made by customers today. According to research by the Pew American & Internet Life Project, approximately 52% of adult cell phone owners use their devices while at a store to get help with their purchase decisions. According to another estimate by research firm Nielsen, about 66% of Americans in age group 24-35 own a smartphone. [1]

Mobile Payments Network

Several retailers including Wal-Mart, Target and Best Buy recently came together to form Merchant Customer Exchange (MCX), a company that is focused on developing a mobile commerce application which will help users pay for goods at the retailers with their smartphones. The application will also allow the retailers to offer promotional coupons and offers to their customers through this channel. The application, if launched successfully, has the potential to become a game changer as it will be adopted by the biggest retail chains in the U.S.

Retailers have been voicing their concerns about the high credit-card swipe fees, which average about 2% of each transaction. This app will give the retailers an upper edge to get better swipe fees from the credit card networks. According to the National Retail Federation, the credit card swipe fees cost retailers about $20 billion per year. [2]

Large retailers such as Wal-Mart and Target can successfully leverage their customer networks, wide reach and existing business models to increase adoption rates for the upcoming mobile payments platform.

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Notes:
  1. See: Mobile Commerce Statistics, Digby [↩]
  2. See: Legal settlement will allow retailers to charge customers more for using credit cards, The Commercial Appeal [↩]