The deal with mobile payments

2 Apr

The tech world is moving rapidly towards mobile payments. It’s not that the market needs mobile payments: pulling out a credit card is quick, it’s secure, and it doesn’t run out of battery. But the reason for the mobile payments race is because of what’s being missed by not having mobile payments: data.

As of today, merchants are paying at least 3% of every transaction to the credit card companies. Visa and others earn this fee and need the money to fight fraud, sign up more merchants, and provide customer support. Don’t get me wrong, credit card companies have ridiculous margins: with gross margins of 80% and net margins often above 40%. Nobody ever said a data business can’t be sweet!

In a mobile transaction world merchants may pay less in payment fees. If someone with an already large balance sheet like Google steps in, the fees to the merchant could be 1% or even 0%, with advertisements subsidizing the fee. This sounds like a sweet deal to the merchant, especially if more and more consumers start paying with phone.


But neither Visa – nor many of the proprietors, sadly – know what’s being sold. Visa knows that John Doe spent $151 at Caddyshack’s Golf Store on February 2… but they have no idea what John bought. Likewise unless the operator goes through the transaction data on the register, they don’t even know what was selling nor why it was selling.

In the world of ecommerce much of this data is being tracked already. Google, Amazon and Facebook have huge repositories on what people look at, what data is being added to shopping carts, and what people like on their profile pages. But in the offline world, that data is mainly inaccessible. Unless you can tap into those registers, that is.

The mobile payments solution would let Google know that John Doe bought a Reebok water bottle, Adidas cleats size 10, 2 packs of Nike golf balls, and a copy of Golf Digest. All this information would be added to Google’s digital file on John Doe so more relevant advertising could be pushed. This increases the odds that John wouldn’t view the ads as spam, and also ensures a higher CPC and CPM rate for its ad products.