Why Are Merchants So Afraid Of Mobile Payments?

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With all of the hoopla surrounding mobile payments, there is often little attention paid to the pragmatic obstacles faced by retailers in the field. And those obstacles are causing a river of fear, loathing and more fear among merchants when they consider mobile payments. I’ve spent a huge chunk of my career sweating those logistical details, whether it’s designing and implementing mobile apps while serving as VP of IT for Focus Brands (Carvel, Cinnabon, Auntie Annie’s, Schlotzsky’s, Moe’s Southwest Grill, Seattle’s Best Coffee) or Director of Retail Technology for Dunkin’ Brands (Dunkin’ Donuts, Baskin-Robbins) or other retailers.

One of my current clients is a mid-sized national pizza chain that is aggressively going mobile. Today, the ease in which a customer can order a pizza is becoming almost as important as the recipe for the sauce. But when it comes to mobile, it’s all about ordering, loyalty, and offers—pretty much everything but payment. Why is payment not top of mind? From the chain’s perspective, it’s an ugly topics about increased costs and added complexities. For many of my restaurant clients, mobile payments cause more problems than it solves.

Let’s not beat around the bush: there is loathing among the restaurant industry when it comes to payment card processing and the associated costs. They still are angry about EMV. I am constantly being asked what can be done with technology to reduce or mitigate these costs. “Can the delivery driver swipe a card at the customer’s door? Will that help? If the customer orders online, but picks up their pizza in the restaurant, can we just authorize the transaction online and then cancel it and re-do it in the restaurant to get a card present rate? Can we look at alternative forms of payment that will reduce our overall payment processing costs?” And while these are all good ideas, each one comes with technical and operational challenges that are non-trivial and, in some cases, can make the situation worse than before.

It seems like every week I am being asked about credit card processing challenges and costs. There seem to be a never-ending set of ideas of how things can be made easier or cheaper, but almost all seem to have significant gotchas.

A group of operators worked with a POS provider to investigate “payment at the door.” The concept was to have the driver swipe the customer’s card at the customer’s front door. And while those not in the payment industry would assume that if a retail employee was standing in-front of the customer and swiping a physical card, that would be the same type of transaction as if they were both in the restaurant, the bad news is that it’s not.

Let’s assume the merchant is using a commercially available application, such as a Square-like dongle. At first glance, a 2.75 percent rate seems like better than the typical CNP rate, there are several gotchas. First, that doesn’t integrate with your POS and has to be treated like a stand-alone payment terminal, which means end-of-day reconciliation hassles. You are also now managing two payment card processors because the Square POS is not built to handle bump stations, driver management and the other crucial restaurant operating systems that most chains use. It’s a lot of work.

Secondly, all driver-based payment terminals have the risk of fraud when the driver uses their own dongle instead of the company terminal. And while some solid operational procedures can reduce this risk (turn in your payment slips at the end of your shift just like you do cash), I’m still worried that it could be a day or two until the payment card deposits come through, until the situation would be noticed. And while the pizza industry may have the operational processes to manage this, what about other restaurants that are just getting into non-traditional payments and delivery?

So then you think about a custom device from your POS provider. This way, you enjoy the integration with the POS and not having to manage a second credit card settlement. But these devices are extremely difficult and expensive to be made PCI DSS/PED/EMV compliant. And even if you were to manage to get your POS provider to run that gauntlet, to my knowledge, transactions done via a purpose-built device like that would still be the higher CNP rates.

If that’s the case, why not have drivers use an m-commerce phone apps where they manually enter the customer’s card number or use card recognition via the mobile camera? Or even more simply, let’s go right back to having the customers enter the card into an app or the website. We are right back where we started with increased processing rates.

And when I look at the mobile payments space, most of the packages and innovation seem to solve for everything but this. I’m not looking for my payments app to acquire new customers, keep them loyal or get them to spend more. Payments are a commodity. None of the flashy-stuff matters. It just needs to be cheaper.

I put the question out to the PF community. How does payments that have moved outside of the four walls of the restaurant maintain a card present rate in situations where the customer, the card and a cashier are still all in the same room?

Todd Michaud runs Power Thinking a retail technology consulting shop. He lives in the world of mobile, big data, payments and marketing technologies. Prior to Power Thinking, he spent nine years delivering technology platforms to more than 10,000 retail locations as VP of IT for Focus Brands (Carvel, Cinnabon, Auntie Annie’s, Schlotzsky’s, Moe’s Southwest Grill, Seattle’s Best Coffee) and Director of Retail Technology for Dunkin’ Brands (Dunkin’ Donuts, Baskin-Robbins).

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