12/28/2012 3:15 PM ET|
The next big battle for your wallet
Retail and tech companies want you to turn your cellphone into a credit card -- and track what you buy so they can sell to you more effectively.
Attention shoppers: There's a battle shaping up for your wallet in 2013.
This time, it's not about the wallet in your pocket or purse. The battle is for your mobile wallet.
Don't have one yet? By the end of the year, you probably will. In fact, you may have several, as you do credit cards. Multiple mobile wallet providers will be trying hard to get you to use theirs.
By mobile wallets, I mean apps that let consumers use their smartphones or tablet computers to pay for stuff in stores, typically using a credit-card or bank account as a funding source. They're a boon for marketers who want to sell you stuff, and they could be a boon for you -- since retailers will try to lure you in with deals on things they know you want.
But it may seem a little creepy, too, as if a stranger were looking through your real-world wallet. Your mobile wallet will know a lot about your spending habits, and that knowledge is a valuable asset that can be sold to retailers.
Here's how this battle for your new wallet is shaping up.
Finally ready to roll out
The idea of waving a device and paying for things is hardly new. But now, the technology and the incentives to make it happen have advanced far enough that big chains like Wal-Mart Stores (WMT), brash startups, phone companies and credit-card companies will soon be fighting hard to get your mobile-wallet business.
"I think 2013 is going to be the year where mobile payments will happen and there will be a winner, or mobile payments won't ever happen at all," says Seth Priebatsch, , the CEO at LevelUp, a Boston startup with an innovative and potentially game-changing mobile wallet offering.
For consumers, this bears watching because it will change how you spend, and it will be used to try to make you spend more. For investors, this is a battle worth studying because there will major winners and losers.
I'll get to the investment plays in a second. But first, what's this mobile wallet battle really about?
The marketing angle
Let's be clear: This isn't about retailers wanting to give you the cool experience of waving your smartphone to pay for stuff. True, it could be cool -- and convenient. Studies show that smartphones shave 17 seconds off a transaction, says James Anderson, the senior vice president of mobile payments at MasterCard (MA).
But really, this battle boils down to two big goals for mobile-wallet providers and retailers.
Goal No. 1: Make mobile devices a better marketing platform.
Truth is, you may be thinking credit cards and debit cards are convenient enough; why replace them with phones? But you're not thinking of it from the marketer's angle. Retailers, credit card companies and new arrivals to payments like Google (GOOG) and LevelUp want to turn your smartphone or tablet into a better sales platform.
Credit and debit cards don't have display screens, and you don't hold them in your hand while walking down a store aisle or through a parking lot. Phones are close at hand at these times -- prime moments to present deals to shoppers.
Mobile wallet apps also let the issuers gather incredibly specific data about every item you purchase, down to stock-keeping unit or "SKU level" data. The idea is that, armed with this data, your mobile wallet will let sellers target you with the deal most likely to make you spend, at the moment you're ready to spend.
This can sound Big Brother-ish, which is why mobile-wallet providers will likely tread carefully. With LevelUp's mobile wallet, for example, these offers mostly appear when you open its app. That's better than the unsolicited texts or emails that most of us find annoying. (LevelUp also sends out some email offers.)
There can be real pluses to this for consumers. In the early days, like 2013, competitors will be fighting to offer you sweet deals to get you onto their systems. "It will be a bloodbath in 2013," predicts Aaron McPherson, an analyst who follows the mobile-wallet business for IDC, a tech research firm. "A lot of well-financed competitors will be doing whatever they can to get consumers and merchants to adopt their wallets."
Longer term, consumers benefit because moving marketing to their smartphoneswill help retailers push highly targeted deals. You might get a great discount for coming in on a rainy day, or deals on inventory that's piling up that day.
You'll get discounts on stuff you want to buy anyway. And if the privacy angle bothers you, you opt out.
Goal No. 2: Take back the credit card fees.
Retailers resent the roughly 2% of every transaction they have to give up to the credit card companies and banks behind the cards. Retailers notice that card issuers use a lot of that money to fund loyalty programs. Retailers would like to take some, or all, of that money back, to fund their own loyalty programs.
Mobile wallets may eventually lead to new payments systems that help them do this, or at least give them leverage to negotiate down fees. "Retailers pay the fees, but the fees benefit the banks, and this drives retailers crazy," says Jason Benowitz, co-manager of the Roosevelt Multi-Cap Fund (BULLX). "The mobile wallet gives retailers a chance to take this money back."
Of course, it's not clear that's how it will play out. But the possibility of grabbing some or all of the credit card fee is one of the powerful forces driving retailers and others to promote mobile wallets.
The key players
Here are some of the top combatants in this battle, and some of the potential winners and losers for investors.
Google: Google's first shot at the mobile wallet didn't pan out, but don't let that fool you. Targeted marketing based on intelligence about consumers is Google's specialty. And Google has a lot of cash to fund its entry into mobile wallets. "They're the 800-pound gorilla," says McPherson.
Google's potential in mobile wallets is just one more reason to own this stock, which looks cheap right now in the low $700 range. The stock is held back by investor worries about the shift in search and display advertising to mobile, where Google's rates are lower. But that will change as more advertisers move to the mobile platform and bid up the value of ads. A Google mobile wallet is part of this move, and it could ease some of the doubts holding the stock back.
eBay (EBAY): This company's PayPal division has big potential as a mobile-wallet provider since it already has 114 million active user accounts, says Benowitz, of the Roosevelt Multi-Cap Fund. Plus, eBay istrusted among merchants. So far it hasn't rolled out a real mobile-wallet product, but it will. PayPal is already a solid source of growth for eBay, and it’s one of the reasons the company has an attractive moat, something investors look for. A mobile wallet will only make PayPal more valuable to eBay.
VeriFone Systems (PAY) and NXP Semiconductors (NXPI): These are two of the arms merchants in mobile wallets. VeriFone sells the terminals that retailers use to accept cards. It's already looking at a major upgrade cycle, since the credit card companies say U.S. retailers must have terminals with "Europay, MasterCard and Visa" security systems by 2015. A shift to mobile wallets would add another layer to the upgrade cycle.
VeriFone also offers a wireless credit-card terminal that wait staff can take to restaurant tables for payment. If payment by mobile phones takes off, demand for this would kick in, since diners might be reluctant to hand over their phones to a stranger to carry off to complete a transaction, says Benowitz.
NXP provides the chips that help secure and power "near field communication," known as NFC, one of the technologies used by mobile wallets to make transactions in stores. Right now, this is a small portion of the company's revenue. "But it could be meaningful if NFC mobile wallets take off," says Michael Scanlon, an analyst with the John Hancock Balanced Fund (SVBAX).
LevelUp: This promising startup entices retailers to use its mobile wallet by picking up their credit card fees, which LevelUp CEO Priebatsch describes as a "tax that sucks value out of businesses." LevelUp then uses detailed information on consumers to offer targeted promotions, collecting a fee from retailers for the service. It's the purest play here on mobile wallets -- or will be, if and when it goes public.
LevelUp is small, but it's one to watch; Google has funded it, and it is growing fast. The current user base of a half-a-million consumers will double in the second quarter of 2013, the company says. It's a private company now. But watch for the initial public offering.
Wal-Mart andLowe's (LOW): These two retailers helped create a company called Merchant Customer Exchange last summer. MCX will set up a payment platform that participating retailers can customize to offer their own mobile wallets.
The ability to push deals to customers via a mobile wallet plays right into Wal-Mart's core "everyday low prices" strategy and helps it deal with competition from dollar stores, which have been winning over Wal-Mart customers. Lowe's will continue to benefit from strength in the housing sector and efforts to improve merchandising and customer service. The mobile wallet will help Lowe's get deals to price-conscious customers.
Verizon Communications (VZ -0.57%, news) and AT&T (T -0.54%, news): Even if their mobile wallet offering, Isis Mobile Wallet, doesn't work out, these phone companies will benefit from this trend, since they'll make smartphones and data plans even more important to consumers.
The New York Times (NYT), A.H. Belo (AHC), and McClatchy (MNI): Newspaper companies like these have been hammered by the shift toward online, search-related advertising. An increase in personalized marketing on mobile devices will have retailers moving even more ad spending away from newspapers. "The whole business model for mobile wallets is based on shifting dollars away from mass media campaigns that are a waste because they reach the wrong eyes," says Mike Boush, an e-business marketing vice president at Discover Financial Services (DFS).
Again, the key here is the detailed level of intelligence on consumers that mobile wallets provide to retailers. "Unlike a newspaper, where you put an ad out and you have no idea if it attracted new customers, we have analytics that show retailers earn $18 for every new customer they spend $1 attracting," says Priebatsch, of LevelUp.
MasterCard, Visa (V) American Express (AXP) and Discover: Credit card companies will win in the short term because businesses like Square are helping small retailers use mobile devices as credit card terminals. This converts cash payments to credit card transactions, points out McPherson of IDC.
And American Express offers a digital wallet that’s been successful so far. Called Serve, this wallet can link to any credit card, and you can use it for personal banking. American Express has about 3 million people using this service, and 80% of them are new customers, says Joanna Lambert, a senior vice president for strategy at American Express. That's a win.
But long term, credit card companies face the risk that mobile wallets will edge them out of retail transactions, though credit card companies say this won't happen. "We don't look at the mobile wallet as something that is an existential threat," says Anderson of MasterCard. McPherson, at IDC, agrees, noting that bank transfers are cumbersome for retail sales, since they settle overnight. Plus credit card companies play a key role in fraud prevention, which is more difficult with bank transfers, says Jeff Miles, the worldwide vice president for mobile transactions at NXP.
But Priebatsch, at LevelUp, disagrees with the takeaway that credit card companies are safe. "Those are all solvable obstacles," he says. If he's right, mobile wallets may ultimately cut credit card companies out of retail transactions. "Absolutely it's a viable scenario," says Priebatsch. "I think eventually we do get rid of credit cards."
That's still far off, if it happens at all, so I wouldn't short credit card company stocks tomorrow because of mobile wallets. But it's a threat worth watching. After all, credit cards would not be the first old-line business eviscerated by the Internet and innovators on the Web, like Google, a key investor in LevelUp.
On the other hand, what do you buy if you want in on this trend? There may not be a pure play on mobile wallets until LevelUp goes public -- and that could be a good one, depending on how it is priced. But if mobile wallets start to take off in 2013 as I suspect, the trend will definitely help Google, eBay, VeriFone, and NXP; retailers such as Wal-Mart and Lowe's; and longer term, Verizon and AT&T.
At the time of publication, Michael Brush did not own or control shares of any company or fund mentioned in this column.
Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.
VIDEO ON MSN MONEY
Just like cable t.v. in the 1980s people have been conditioned to think smart phones are the norm or a necessity if they would look at the money it's costing them over time they may have the money to pay for the things they bitch about not being able to afford.But never fear,the government will take it from the responsible folks and give it to them so they can all have the things they didn't earn or are not willing to work for.
Under the laws of fractional reserve banking, the money that you have entrusted to a financial institution is no longer yours. It becomes the possession of the institution, that can then leverage the money by a factor of 20 times or more. Since only 10 per cent of that money is on demand at any one time, the other 90 percent of the funds are available to be used at the discretion of the people who are kind enough to manage your money for you.
Hang on, I'll have to ask Barry how much more of my money he expects to confiscate this year.
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