Why Walmart Is Entering the Mobile Payments Business

Walmart gets to capture all that customer data and the profit that comes from being a financial intermediary. This on top of its already extensive commanding position as the largest retailer in the world. Given that its clash of the titans battle with Amazon is going to be very expensive, any strategic advantage gained now will pay for itself later. JL

Hiroko Tabuchi reports in the New York Times:

Walmart Pay acts more like a gateway to a variety of payment options, including credit cards and even other mobile payment systems.Walmart’s decision to start a service that allowed for credit card payments meant that it had probably negotiated better fees with the card companies.

Walmart is jumping into the crowded mobile payments business with a service called Walmart Pay, the retailer’s bid to gain the upper hand from the tech giants Apple, Samsung and Google in the next generation of consumer convenience.

The company said it would start accepting Walmart Pay, which will be integrated into its existing smartphone app, this month at stores in its home market around Bentonville, Ark. A rollout at its 4,600 stores nationwide is to follow early next year.

“Soon, customers can leave only with their keys and smartphone to shop at their local Walmart,” said Neil Ashe, Walmart’s e-commerce chief. “It’s fast, easy and secure.”

Based on QR code technology, Walmart’s new payment system is meant to allow for a smoother trek through checkout lines, and to bridge the retailer’s e-commerce and in-store shopping experience.

Walmart Pay also presents a fresh challenge to front-runners in mobile payments, none of which have gained overwhelming traction with users so far. One obstacle has been the slow growth in the number of merchants that support near-field communication technology, or N.F.C., on which systems like Apple Pay and Google’s Android Pay are based.

Both Apple and Google have found that persuading shoppers to switch from using physical credit cards or cash is tough. A survey released by the consumer data firm InfoScout found Apple Pay use to be at its lowest rate since the firm started tracking its usage. Shoppers used it this past Black Friday for only 2.7 percent of eligible transactions.

“When Apple released Apple Pay, the idea was that we’re now moving forward with N.F.C., and that’s the way all mobile payments will be transacted,” said James Wester, a global payments expert at IDC Financial Insights.

“But now, we’re beginning to see that no, that’s probably not the way it’s going to develop, and it’s not something we’re just going to give over to Apple or Google,” Mr. Wester said. “Nobody’s won yet. There’s just been no overwhelming support for anybody. So at this point, it’s still anybody’s game.”

Walmart Pay comes after years of efforts by the retailer to create a mobile payment system for its stores, which do not accept existing options like Apple Pay or Samsung Pay.

Walmart has been a primary member of the Merchant Customer Exchange, or M.C.X., a consortium of retailers that vowed to develop a payment system that would compete with credit cards and reduce the fees retailers pay to card companies.

But those efforts, begun in 2012, have been overtaken by Apple and others that have teamed up with the credit card companies to get a jump-start on mobile payment. In the meantime, M.C.X.’s payment app, CurrentC, remains in the testing phase.

Walmart’s new payment system will be a further blow to MCX, which also involves Target, CVS and 7-Eleven. Mr. Ashe said Walmart remained committed to the project but declined to give any updates on when CurrentC might become widely available.

And in a change of strategy for Walmart, its new payment app does not seek to bypass credit card companies. Walmart Pay instead acts more like a gateway to a variety of payment options, including credit cards and even other mobile payment systems. Analysts said that Walmart’s decision to start a service that allowed for credit card payments meant that it had probably negotiated better fees with the card companies. (Walmart declined to disclose the transaction fees it pays.)

Daniel Eckert, senior vice president for services at Walmart U.S., said Walmart Pay’s compatibility was its strength. Apple Pay, in comparison, works only on the iPhone 6 and models issued afterward, while Samsung Pay works only

on the Samsung Galaxy S6 smartphone.

“When you look at these things, the customer has constraints put upon them, and that creates frictions and seams in the shopping experience,” Mr. Eckert said. “But Walmart Pay works with any smartphone and almost any payment type.”

To use Walmart Pay, shoppers will first need to download the Walmart app and register one payment method — a credit card, for example, or a Walmart gift card. The 22 million active users of Walmart’s app can simply start using Walmart Pay without re-entering their payment details, the retailer said.

At the cash register, Mr. Eckert said, shoppers open the Walmart app on their smartphones and activate the camera function from within the app. With the camera, they scan a QR code displayed at the register, which connects their phones to the baskets they are about to check out.

“And once that happens, literally, the customer is done,” he said. “They can put their phone away. Once the transaction’s complete, we total up the register, and the customer can leave.”

Walmart Pay’s success, said Mr. Wester, the IDC global payments expert, will hinge on whether shoppers find the new system worth their while to activate for every purchase. To entice shoppers to pay digitally, Walmart is linking the payment service with the its app’s other functions, like its popular price comparison tool.

There are also concerns over security. QR code technology is relatively secure, because Walmart Pay does not store payment information on shoppers’ smartphones, and that information is not transmitted at the cash register. But of course, the retailer stores such data on its servers.

“How easy is it for a consumer to use something that is basically replacing a credit card, which is still very easy to use?” he said. “The consumer experience — that’s where these systems all live or die.”