Gartner Group researchers are forecasting the worldwide value of transactions concluded using mobile-payment technologies will nearly quadruple by 2016, but that the platforms businesses use to enable such payments will remain fragmented in the near term. That fragmentation is currently visible in the restaurant industry, where companies are adopting or testing a variety of mobile payment platforms, including Square, the Isis Mobile Wallet and MCX.
Gartner anticipates that the value of worldwide mobile payment transactions will rise by 61.9 percent this year, to $171 billion, and will average 42-percent annual growth between 2011 and 2016. "We are forecasting a market worth $617 billion with 448 million users by 2016," Sandy Shen, the company’s research director, said in a statement earlier this year.
Lee Holman, lead retail analyst for technology research house and consultancy IHL Group of Franklin, Tenn., noted that though there may be some additional security skittishness on the part of consumers involved, the development path and growing use of mobile payments appears to be similar to those of bank ATMs, store self-check-out and in-business kiosks, all of which “started slow, grew steadily and continue strong today.”
The growing number of leading foodservice companies that have attached their names to mobile technology suggests operators are interested in leveraging mobile payment technologies, according to Holman. Starbucks, for example, has partnered with payment technology company Square for mobile payments.
Beginning this month, customers at about 7,000 company-operated Starbucks locations in the U.S. can use software and services from Square on their smartphones to buy coffee, snacks and merchandise — in addition to using Starbucks’ existing iPhone and Android mobile applications. Customers using the Pay With Square mobile app tie the software to one of their credit cards and then pay by passing a barcode on their smartphone in front of a scanner at the register. Back-end tools tie the transaction to the card on account.
Beyond Starbucks, however, other big chains have yet to adopt Square for mobile payments. "I think they have the early mover advantage. One might compare them to Diners Club [versus American Express and Visa], and it remains to be seen how well they can scale and how long they can maintain that position," Holman says of Square's viability in the restaurant industry. "Yes, they are viable for the time being, and yes, they will benefit from Starbuck's system, prestige and money."
"Starbucks is not a typical merchant and its customers are not typical examples of the shopping behavior for other food and beverage providers," noted Randy Vanderhoof, executive director of Princeton Junction, N.J.-based Smart Card Alliance, a nonprofit association working to stimulate the understanding and adoption of smart card payment technology. "I would look closely at what separates the Starbucks example from what underlying benefits other merchants may expect [from this technology]."
Other restaurant industry players, including Tim Hortons and Jamba Juice, are testing or supporting mobile payment platforms that rely on a still limited but growing number of smartphone models equipped with near-field communication (NFC) chips. Those chips help wirelessly transfer payment card information to in-store payment readers.
Gartner said it expects NFC transactions, which require the cooperation of multiple stakeholders, to remain relatively low through 2015, although growth will start to pick up from 2016.
Earlier this month, Oakville, Ontario-based Tim Hortons said the bakery-cafe chain helped make Canadian business history when the first mobile credit card transaction in that country took place at one of its downtown Toronto units. Canadian Olympic triathlete Simon Whitfield purchased a Tim Hortons coffee by tapping an in-store contactless payment card reader with an NFC-equipped BlackBerry smartphone from cellular carrier Rogers that was loaded with Canadian Imperial Bank of Commerce credit card account information.
Tim Hortons said it is ready for such mobile-device payments, as the chain has put payment card reader terminals in approximately 2,300 Canadian locations, to date, and expects to have them in a total of 3,000, or most of its home-market stores, by the end of December. "We are always looking to bring innovative options that offer our guests more convenience and faster ways to pay,” David Clanachan, the company's chief operating officer, said in a statement. He added that the chain believes “Canadians will increasingly embrace the opportunity to make mobile payments.”
Other restaurants are testing NFC mobile payment technology through Isis, a joint venture by AT&T Mobility, T-Mobile USA and Verizon Wireless. Late last month Isis launched pilots for its Mobile Wallet at hundreds of businesses in Salt Lake City and Austin, Texas. To complete transactions, consumers tap a merchant’s contactless payment card reader terminal with their NFC-chip-equipped Android smartphone loaded with security software and credit card information.
The Jamba Juice chain of Emeryville, Calif., has multiple locations accepting Isis virtual wallet payments in the test markets. Janice Duis, senior director of corporate communications for chain parent Jamba Inc., said it is too early in the Isis trial to discuss the number of transactions involved or the technology’s impact on average check or visit frequency, if any. She noted that Jamba Juice’s involvement in the Isis test — as is its testing of Google Wallet and PayPal payment options in other markets — is “about being convenient [to use] and providing options for payments to consumers.”
Though dozens of McDonald’s restaurants were initially included on a list of merchants slated to accept Isis mobile payments in Salt Lake City and Austin, their participation was delayed. “We have not finalized all agreements with Isis regarding our restaurants being a part of their pilot,” said Danya Proud, a representative of chain parent McDonald’s Corp. of Oak Brook, Ill.
“Our restaurants do have technical capabilities related to near-field communications, but we are still working through how mobile payments can easily be integrated into our ordering/payment systems for our customers and our crew,” Proud explained.
"Isis is going to stimulate putting millions of mobile devices with NFC technology [into the hands of consumers]," said Vanderhoof. "Even if Isis fails, the residual benefits of NFC will find a home for many other applications that will deliver one-way or two-way data anytime, anywhere it is needed for consumers."
A more recent development in mobile payments is the Merchant Customer Exchange, or MCX, a startup announced in August by backers, including Darden Restaurants Inc., Dunkin’ Brands Group Inc., on-site feeder HMSHost Corp., and Wal-Mart Stores Inc. The founding companies have yet to disclose what technologies will be used by MCX or when a pilot test of the mobile payment platform might begin.
To date, little information has been released about the Merchant Customer Exchange except the pedigree of its backers. But there is little doubt that companies such as Darden, Dunkin’ and HMSHost were attracted to MCX by virtue of its backing by merchants —as opposed to third parties looking to profit from merchants — and the promise by founders that its features set will be drafted with merchants’ needs in mind, including support for promotions and retail programs.
“Darden joined MCX because we believe MCX is uniquely positioned to provide the type of mobile payment solution that will best serve customers and merchants alike, providing even greater convenience for our guests,” said Rich Jeffers, director of communications for the parent to the Olive Garden, Red Lobster and LongHorn Steakhouse chains, among others.
However, Vanderhoof pointed out, "MCX is cloaked in secrecy and can’t be considered a viable competitor until they reveal what it is and how it will be different from other proven technologies available today."
Rather than tying in with startup mobile payment platforms aiming for the mass market, some restaurant chains are letting guests pay for their meals using smartphones loaded with proprietary software. Among them is Carrollton, Texas-based T.G.I. Friday’s, which earlier this year empowered guests at 300 restaurants to complete transactions using its My Friday’s Tab mobile app.
“The bottom line is that it is still early in the game,” acknowledged Holman regarding the overall state of mobile payment technology in restaurants. “But it’s an exciting game.”