News Column

'Digital Wallets' the Future of Payments

Oct. 8, 2012

Dave Larsen

digital wallet

The way you pay for purchases is changing again.

First it was with cash or check. Then it is was by credit card, followed by debit card. And now it's by smartphone or tablet.

Dayton-area retailers are gearing up for the oncoming adoption of the "digital wallet" where software in cell phones and tablet computers allows consumers to make purchases via wireless technology, without cash or a credit card ever changing hands.

Ghostlight Coffee on Wayne Avenue is one of several local retailers now using the technology. Others include Sugar and Spice, an Oakwood children's clothing store; Cake, Hope & Love, a Beavercreek bakery; and Clash Consignments on East Fifth Street in Dayton's Oregon District.

Starbucks, which operates coffee shops throughout the area, has invested $25 million in Square, the start-up company that developed the mobile application used by Ghostlight Coffee. The deal to let customers use the app at about 7,000 U.S. Starbucks stores starting this fall will accelerate use of the this new payment method, experts said.

"That is how we are going to make payments eventually. The majority of payments will be mobile," said Irene Dickey, a University of Dayton School of Business lecturer.

Related story:"Square CEO Jack Dorsey, Starbucks Embrace Partnership"

Half of the adult American population owns a tablet or smartphone, and 30 percent of U.S. mobile phone owners are interested in using mobile payments, according to a Forrester Research survey. Worldwide mobile payment transactions will grow by 42 percent a year and reach $617 billion with 448 million users by 2016, according to research firm Gartner Inc.

Companies including Google, PayPal, Visa and MasterCard reportedly are working to develop mobile payment technology in an attempt to capture a piece of the exploding market. Meanwhile, a group of retailers including Wal-Mart, Best Buy, CVS and 7-Eleven recently announced they were forming a company, Merchant Customer Exchange, that would offer customers a way to pay for purchases with their smartphones.

"The companies that can do it in a safe and secure way are going to offer a lot of convenience to consumers," Dickey said.

Dickey likened the competing payment technologies to the online search engine industry, which started with numerous offerings but is now dominated by Google, Microsoft and Yahoo. "I think it will end up being two or three major players," she said.

In addition to convenience, mobile payments allow companies to collect customer information that they can use for advertising targeted to the individual consumer. "That is a driving force for businesses, capturing data," Dickey said.

Digital security is always a concern because of hackers, but Dickey noted that consumers initially resisted credit cards, ATMs and online banking for the same reason.

"There are still security and privacy concerns, but it is going to move forward," she said. "It is just another vehicle for doing business."

Founded in 2009, San Francisco-based Square is the largest retail mobile payment platform in the U.S., company officials said. Square has about 400 employees and processes more than $8 billion in payments annually, up significantly from 150 employees and $1 billion in payments in 2011.

Customers using the Pay with Square mobile payment app link a credit card to their Square account and open a tab on their smartphone before entering a store. Using GPS technology, the app notifies the merchant that the customer has entered, and the customer's name and photo will pop up on the cashier's screen. The customer gives their name to the cashier, who will match their photo to complete the payment.

"For somebody who doesn't carry cash a lot, I think it is perfect," said Ghostlight Coffee owner Shane Anderson. The technology has a "'cool' factor, too," he said.

A number of local independent retailers also use Square's free card reader to process credit and debit card transactions using an Android, iPhone or iPad.

Merchants said the technology reduces overhead by eliminating the monthly fees for a traditional point-of-sale system, including a credit card reader, receipt printer and telephone line. Square charges 2.75 percent per transaction, as opposed to the often higher percentage, plus fees, typically charged by many credit card companies.

"It's cheaper and it is paperless," said Holly Vickers, managing cosmetologist at Ambiance Salon and Spa in Beavercreek. "I can send receipts to my clients via text message or email. They just sign with their finger right on my screen," she said.

Smartphone and tablet-based systems such as Square are the future of the payment industry, said Mary Kathryn Burnside, owner of Clash Consignments on East Fifth Street in Dayton's Oregon District.

"It seems like more and more people are using it, and the traditional cash register is going away," Burnside sai --

Digital security and privacy are a concern with mobile payment technology, but companies are getting more savvy about establishing fire walls and protocols to thwart hackers, said Irene Dickey, a University of Dayton School of Business lecturer.

Ghostlight Coffee on Wayne Avenue installed a separate, secured WiFi network for its Square mobile payment system, said owner Shane Anderson.

"My Square account doesn't share or keep credit card numbers," said Holly Vickers, managing cosmetologist at Ambiance Salon and Spa in Beavercreek. "It will save e-mail addresses, but it doesn't even show them to me," she said.

Losing your smartphone might be the biggest risk for mobile payment users. Setting up a passcode lock to secure your device will help protect your data.

Source: (c)2012 the Dayton Daily News (Dayton, Ohio). Distributed by MCT Information Services.

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