Mobile Wallets: A Primer for Retailers

Mobile Wallets: A Primer for Retailers

This booming technology promises to make paying easier. But figuring it out can be a challenge.

By JAVIER ESPINOZA

Mobile wallets can make things a lot simpler for shoppers. But they can leave retailers confused.

The idea: Shoppers download software to their mobile gadget that links the device to a credit or debit card. Then, when they get to the checkout line in a store, they can use their phone to complete the sale, often by tapping it against a scanner.

The trouble for retailers is that there are dozens of different mobile wallets out there, and no clear market leader. So, merchants who want to cover all their bases will have to support multiple wallets. And that means installing lots of different software on their sales terminals, and possibly getting new hardware, too.

For merchants who already have their hands full, figuring out all those details can seem like a lot of work. But some experts say that mobile wallets offer big advantages—from winning over customers to collecting valuable data about who buys what.

Here's a look at the basics of this emerging (but still fragmented) technology.

How do mobile wallets work?

Just as there are many different providers of mobile wallets, there are a number of different technologies that make them work.

Mercury News/Zuma Press

Mobile wallets like Google's (above) let customers pay with a phone at checkout.

Some mobile wallets require additional hardware at checkout. Google Inc.'s Google Wallet app, for instance, uses a technology called Near Field Communication that requires customers to tap their phone on a special reader to make a transaction. And services like SCVNGR Inc.'s LevelUp use a QR code—those familiar squares that look something like bar codes—on the customer's phone that needs to be scanned by the checkout clerk with a special reader.

Other wallets don't need any additional gadgets, just new software on existing sales terminals. Services like Paydiant Inc., for instance, create a QR code on the retailer's screen at point of service. Customers choose which payment card they want to use to complete the transaction, then scan the QR code with their phone to get charged.

Similarly, there's a technology called geofencing that taps into a smartphone's GPS or Wi-Fi and creates a secure connection with a retailer's sales terminal. The customer's name and photo appear on the retailer's screen, and the clerk taps the screen to complete the sale.

Although this technology works with regular checkout terminals, one of the most popular versions of it, Square Inc.'s Square Wallet, is aimed at retailers who use smartphones or tablets to ring up sales.

In most cases, retailers can have multiple wallet apps installed on their point-of-sale terminals at once, so they can support different providers at the same time. Similarly, the same piece of hardware will generally work with different wallets that use the technology.

How much do they cost?

There are two issues to think about here. One is the cost—if any—of setting up the service. In most cases, it's free to download mobile-wallet software to a point-of-sale terminal. If a mobile wallet requires extra hardware, it can often run around $200 for a QR-code reader and $100 for an add-on to an existing terminal for Near Field Communication, says Chris Gardner, co-founder of Paydiant.

The second issue: processing fees for transactions. "Some wallets simply run a transaction using the retailer's existing payment processor and don't charge the retailer anything additional," Mr. Gardner says.

Paydiant, Google and others fall into this category. Others act as the payment processor and bill the retailer directly for the transaction. In some of these cases, experts say, wallet providers can offer slightly cheaper rates than bigger processors.

What else can you do with them?

In some cases, wallet providers offer extra services to retailers. For a fee, some wallet providers will let retailers access customer data, such as how many times a particular shopper has purchased an item or what the best-selling item of the week was. Some will also let stores set up coupon services or loyalty programs for customers who make purchases with the wallet.

"This is an exceptional opportunity for a small business: getting to know their customers," says Richard Crone, chief executive officer of payments-consulting firm Crone Consulting LLC.

Other wallet providers, such as Paydiant, let stores create mobile wallets with their own brand on them. So, customers wouldn't use, say, Paydiant's app at checkout, they would use one with the store's name on it and assign any card they wanted to it. Stores can then collect data about customers' transactions with the wallet, send them coupons and set up loyalty programs and other deals.