retail news in context, analysis with attitude

Bloomberg reports that a number of retailers hope that the use of payment apps, similar to those implemented by Starbucks and Walmart, will help them “escape the clutches of the credit-card companies, which this year will levy more than $90 billion in swipe fees on an industry already struggling to navigate the shift online.”

Here’s how the story frames the issue:

“While shoppers have largely shunned mobile payments offered by third-party providers like Apple Inc., retailers are trying to persuade customers to embrace the technology by dangling discounts and other perks. Several chains, including Walmart Inc., Starbucks Corp. and Kohl’s Corp., have had some success by baking the apps into their loyalty programs - and more than half of companies surveyed recently by the National Retail Federation said they’ve implemented ‘branded digital wallets’ or are considering it.

“Besides cutting out the credit-card companies, in-house payment systems enable retailers to collect more data on their customers.”

And here’s how it works:

“Retailers are increasingly bypassing Visa and Mastercard by tapping into the Automated Clearing House network, which was set up by U.S. banks more than 40 years ago to replace checks and send money electronically between bank accounts around the country. Consumers and businesses now send nearly $50 trillion each year over the network, compared with the roughly $15 trillion sent over Visa’s and Mastercard’s networks … In other cases, retailers still rely on Visa and Mastercard’s networks but find ways to minimize the swipe fees. Starbucks’s mobile app encourages users to load funds onto a prepaid gift card. That means Starbucks only has to pay swipe fees when users send the funds to the card, not each time they buy a cup of coffee. The payment app now represents 14 percent of the coffee chain’s transactions.”
KC's View:
If feasible, it always makes sense to circumvent the banks and create more direct and frictionless paths between the shopper and the store. I wouldn’t suggest copying it, but I think it cold be argued that the Starbucks cards is the best example of the form and maybe that company’s greatest asset.