On Thursday, PayPal announced 15 new partnerships with major retailers that will enable consumers to pay with with just their PayPal account. These retailers, which include Abercrombie & Fitch, Advance Auto Parts, Aéropostale, American Eagle Outfitters, Barnes & Noble, Foot Locker, Guitar Center, Jamba Juice, J.C. Penney, Jos. A. Bank Clothiers, Nine West, Office Depot, Rooms To Go, Tiger Direct and Toys “R” Us, follow in the footsteps of Home Depot, which has already deployed this type of payment method at 2,000 of its stores.
Consumers can expect to be able to pay with their PayPal accounts at several of these merchants within just a few weeks, according to Don Kingsborough, VP of retail and prepaid for PayPal. For many of these consumers, this technology will completely revolutionize a shopping trip to the local mall, as paying via PayPal at any of these merchants will completely eradicate the need to cash or a debit or credit card. Customers can choose to either pay with the mobile PayPal app, and as the POS systems used to process PayPal payments via manual entry require customers to input a PIN, there's no need to verify identity by showing an ID to the sales associate. As these major retailers introduce PayPal as a payment method, there will be a lessening need to even carry your wallet at all when you go shopping.
However, a future without wallets is already upon us, yet most consumers have no idea that this freedom has been in the palm of our hands for years. While PayPal is partnering with big brands to introduce this technology with a POS, and tech enthusiasts count sheep while waiting for the next phone that supports Google Wallet (the total number of which is now up to a whopping four), branded and third-party apps are already enabling consumers to pay for nearly everything with just their smartphone, without ever touching their wallet.
Like myself, many consumers start their day at Starbucks, and also like myself, pay for drinks using a prepaid, registered Starbucks card that earns the customer a free drink for every 15 purchased. These types of loyalty cards are popular at most small businesses, but shortly after the introduction of the Starbucks cards in 2001, the company integrated the loyalty program. Now, over 5 million Starbucks customers are part of the loyalty program, and tens of millions activate plastic Starbucks cards every year.
When Starbucks introduced its mobile app in January 2011, Starbucks loyalty members became instantly able to use their Android or iPhone to link their loyalty cards. In fact, according to Adam Brotman, the Chief Digital Officer for Starbucks, this loyalty program "formed the basis for this mobile payment ecosystem." Now, instead of paying with plastic cards, customers can simply scan their phone using Starbucks unique POS to pay for their morning coffee. Brotman reports that a total of 25% of its customers now pay with either a digital or plastic Starbucks card.
By reducing the amount of customers who pay with other forms of payment - likely debit or credit - by 25%, Starbucks has notably reduced its cost to process purchases. For Starbucks, though, Brotman says "that is not the driver. [The app] is faster and more convenient for the customer as you generally always have your phone handy. This is a faster way to pay, and you can also reload while you're in line." Brotman explains that while the app does help save costs for Starbucks, " it is good for business because its good for customers.
However, for small businesses, saving on merchant transaction fees is much more important - though these business owners also want to provide what's good for customers too. Services like LevelUp, which is based in Boston, provides a mobile payment app to businesses in major cities throughout the U.S. similar to what Starbucks has developed for itself. LevelUp also offers the ability to pay with only your smartphone and also redeem loyalty points at restaurants, but the difference is that LevelUp is not a prepaid card, but links to your debit or credit card of choice. With LevelUp, users only have to download and use one app to pay for their lunch or coffee at a variety of merchants, and they can also track their expenses at each merchant and see what they have spent at every location. Smith Anderson, the company's city lead in Seattle, says LevelUp is available at 2500 merchants nationally and already has 150,000 active users nationwide.
While users enjoy the benefit of being able to pay with just their smartphone - which Anderson says is "just plain cool" and "really futuristic stuff" - the benefit for merchants to promote the use of mobile payments is the savings a service like LevelUp provides. In the Pioneer Square neighborhood of Seattle, the Berliner - a Turkish kebab shop that caters to the area's 9-5 lunch crowd - adopted LevelUp earlier this year after being sold on its lower transaction fees. Victor Twu, owner of the Berliner says that while his typical merchant fee for a normal debit card transaction can be around 4%, LevelUp reduces that cost to 2% and processes that payment for the business - which is also Twu's only cost for using LevelUp.
Other merchants and apps are also looking for ways to reduce these costs by turning your smartphone into your wallet. Tango Card, based in Seattle, allows consumers to store gift cards securely using its service and access them with the Tango Card app, and using the app users can generate a barcode for many of these gift cards that can be scanned at the register. (If not, just having the gift card number should suffice.) With Tango Card, customers no longer need to carry a wallet stuffed with gift cards - or worse, forget they even have one. In fact, Tango Card founder David Leeds notes that 25% of consumers have at least one gift card that has been unused since December 2010. While many gift cards can't be reloaded, Tango is yet another app already available to consumers that eradicate the need to carry a wallet.
Other companies are further disrupting the traditional technology by which merchants have processed payments for the last decade. Uber, for example, enables those who need a ride across town to pay for a town car without ever handing over cash or credit to the driver by linking a debit or credit card to its app, and parking lots and garages in cities across the U.S. are allowing smartphone users to pay-by-phone. There is also the long list of other companies also providing mobile wallets including game-changers likes Dwolla and TabbedOut, and several other companies that offer loyalty-only programs, such as Belly.
While Google Wallet and phones that feature NFC are slowly making their way into the mainstream market, the integration of PayPal with dozens of major retailers and the availability of several apps to help you pay nearly everywhere else is already enabling consumers to replace their wallets with their smartphone.
The real question, then, is not could you replace your wallet with your smartphone - but will you?
