Consumer

Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

Stop me if you've heard this one: A lumbering, old-school consumer company tries to adapt to the digital age, but ultimately gets outsmarted by a Silicon Valley swashbuckler, either in the form of a wunderkind startup or a giant such as Amazon.com Inc.

It's a story that has played out again and again in recent years. But there's at least one ongoing battle that doesn't quite seem to fit the pattern: the race to win at mobile payments.

Bloomberg News reported this week that Walmart Pay, the payments app from Wal-Mart Stores Inc., is on track to have more active users in the U.S. than Apple Pay by the end of 2018. Starbucks Corp. has had well-documented success getting people to pay for lattes and cappuccinos this way. In the latest quarter, for example, mobile order and pay accounted for 10 percent of transactions at its U.S. company-operated stores.

Meanwhile, Apple Pay, Alphabet Inc.'s Android Pay, and Samsung Pay haven't exactly taken consumers by storm. 

Far From Widespread
In the latest quarter, the share of shoppers who used mobile payments from major tech companies was tiny
Source: PYMNTS.com

So how are big retailers managing to give these tech titans a run for their money? In fact, it has little to do with the technology itself, and everything to do with how it's couched for shoppers.

Walmart Pay is part of an app customers can use to do things like hunt for deals on Christmas gifts. Starbucks's app can save you time by letting you skip the line to retrieve your drink. In contrast, the value proposition of a payments-only app is less clear to customers.

What's the Point?
In a 2016 survey of consumers, a significant share of respondents across age groups said they "don't understand the benefits" of mobile payments
Source: The Pew Charitable Trusts

Meanwhile, the tech giants missed some major opportunities to spell out the benefits of mobile payment. The switch to chip credit cards should have been a key moment for them to play to your impatient streak. Chip technology -- as you've surely noticed when trying to high-tail it out of the drugstore -- is typically slower than magnetic-stripe technology, albeit more secure.

In 2015, when many retailers were racing to roll out chip readers to avoid shouldering certain fraud liability costs, tech giants should have shouted from the rooftops that mobile payment is speedier than chip technology. It was a ripe moment to change customer behavior. They didn't seize it.

Also, while industry analysts say mobile payment systems are plenty secure, customers don't seem to believe it. In fact, this appears to be a bigger roadblock to adoption than even their struggle to understand the convenience factor.

Spooked About Safety
When asked in a 2016 survey why they might not use mobile payments, security issues were the top concern across age groups
Source: The Pew Charitable Trusts

Why does it matter for technology companies that digital payments haven't been a runaway success in the U.S.? Because they are a gateway to win more loyalty. In China, where digital payments are widely used, companies that control popular payments systems use them as a glue for many aspects of daily life. People can use Tencent's WeChat, for example, to pay for dinner, but also to find parking, make dates, donate to charity and make appointments with doctors.

In America, technology companies haven't had the same luck, but they sense the possibilities. For companies like Apple Inc., Google, Samsung and Amazon, becoming somebody's default wallet is a way to capture more of that person's money and time. Spending more with Apple Pay or Amazon Pay gives those technology owners more insights into what people are doing and purchasing, which could be valuable in myriad ways.

The retail industry shouldn't get too cocky about the status quo of the payments battle, though. For one, not every store is likely to replicate the success Walmart and Starbucks have had by going their own way. As Michelle Evans, a payment industry analyst at Euromonitor International, points out, it's really tough to get consumers to add new apps to their phones these days.

On an App Diet
Most smartphone users don't download any apps in a month; so it will be hard for many retailers to get shoppers to download their app and use it for payments
Source: ComScore MobiLens

People will download the Walmart or Starbucks app because those are loyalty-driven, high-frequency businesses. Apparel chains or home-goods stores aren't likely to get the same uptake.

And it's reasonable to assume that, while adoption of the offerings from technology giants has been slower than many expected, they will eventually get better traction. Think about all the things we've already tossed in favor of our smartphones -- maps, MP3 players, airline boarding passes. Surely plastic credit cards can't be far behind.

It's up to retailers and technology companies to figure out how to hurry that process along. 

--With assistance from Shira Ovide.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Sarah Halzack in Washington at shalzack@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net