How will customers pay for goods and services in the future, and how will they manage their money? How will access to the Internet via smartphones change consumer shopping habits? How will companies and customers integrate the online and offline worlds? These are some of the questions taken up at the first-ever Money 2020 Conference, held in October in Las Vegas, Nev.
Mobile payments are growing fast. By the end of this year, the U.S. market will be worth $640 million, and by 2016, the total transaction value of mobile payments in the U.S. will be $62.24 billion. By that year, 48.1 million Americans will regularly use their mobile phones to pay for goods and services, according to eMarketer, the digital marketing research company.
Google, the search engine giant that last year posted revenues of $37.9 billion, is vying for a piece of this market with Google Wallet, a mobile payment system that the company is planning to re-launch with updated and added features this month. (Among those features is a rumored physical card that consumers can use when digital payments are not feasible.) Osama Bedier, Google’s vice president of payments and a former PayPal executive, said that the company today is “striving to create a better, smarter digital wallet that works everywhere.”
Knowledge@Wharton sat down with Bedier during Money 2020 to talk about what’s ahead for Google Wallet and mobile payments. An edited transcript of the conversation follows.
Knowledge@Wharton: Describe the current mindset of the consumer when it comes to paying for goods and services — online, offline and on their smartphones. Are they frustrated?
Osama Bedier: I think consumers are frustrated. They see a lot of the apps, they understand that there could be value there, but they’re almost always let down by technology. It’s actually a rare moment when the consumer’s expectations of technology surpass our ability to deliver…. Consumers want their smartphones to do more as it relates to the shopping experience.
Knowledge@Wharton: Are retailers and sellers just as frustrated?
Bedier: Merchants have always wanted to connect better with their customers — especially their most loyal customers. Very few of them have figured out how to leverage technology and get more out of that relationship. The majority of merchants have a die-hard segment of customers who [account for] the majority of the company’s transactions. They know this, but they actually have a hard time reaching those customers when it matters most — whether it is to get them into the store, getting them to increase their basket size while they’re in the store or bringing them back again. Despite all of the advances retailers have made so far, they haven’t figured out exactly how to do that.
Knowledge@Wharton: And a digital wallet is the answer?
Bedier: I think a digital wallet will be the answer. I don’t think it is today. The digital wallet is more of a concept than a reality. There are a lot of companies trying to work toward it. We all name it the digital wallet, but it’s not there yet.
Knowledge@Wharton: What’s in it for consumers?
Bedier: Consumers are actually pretty straightforward. They want to save time, they want to save money and they want to feel appreciated. And they don’t want to work too hard to do these things.
Knowledge@Wharton: Will the digital wallet one day replace the wallet I carry in my purse?
Bedier: It’s hard to pin down time-wise, but I think it’s totally possible. Take your driver’s license, for instance. There are government agencies that are now trying to figure out how to make that go digital. Why not? It should be totally possible. Right now, there isn’t a lot of technology in that card you carry around. It is just habit. And the chips that we use for payment can equally hold — very securely and in a way you can’t replicate — identity information.
But I don’t think it stops there, either. It’s not just about replacing the leather wallet you carry in your purse. It’s about enabling things that your purse could never do, and connecting the experience from discovery, to transaction, to post transaction.
Knowledge@Wharton: Give me an example of what this experience will look like in the future.
Bedier: Discovery is usually a big problem. If you are a merchant and you have a loyal customer who hasn’t visited you for two weeks, how do you reach out to [him or her]? How do you bring that customer back? You can use e-mail or spam mail, but does that really work? What if that customer happens to be right outside your door, walking in front of your store, how do you get his attention and bring him in?
What if they’re looking for you, but they just don’t remember that they haven’t visited you in a while? [Google] Maps is a great example. Any place that does “order ahead” should be integrated directly into maps. Because that’s the point [at which] consumers are going to discover it.
So I go into Google Maps and I search for sushi — I just did this the other day. It brings up all the places nearby that sell sushi. Why [doesn't your phone] bring up the sushi place that you visited before and thought was awesome, but forgot about? Or what about the one that you have a punch card for? What if when that restaurant came up, you had the option of a simple click to pre-order? Why can’t it remember your last order and ask you if you want that again? That could be a simple click away. And the payment transaction is just part of it.
Knowledge@Wharton: So the payment part is just in the background?
Bedier: It doesn’t need to be front and center. Actually, the moment I pick the payment instrument, it’s an extra step. It’s not seamless; it’s not automated. And if my wallet knows me well enough, it should know which payment method to use — which credit card I like to use for dining out, or for groceries. I shouldn’t have to make that selection each and every time unless I want to.
Knowledge@Wharton: Why is that a benefit to consumers?
Bedier: We’re moving into a world where consumers take much more control of their relationships with merchants than in the past. In the past, merchants managed their consumer relationships. [Now], consumers are actively managing their merchant relationships. They are deciding which ones they care about more and which ones they don’t. The wallet will be the tool they will use to manage those relationships. They will be able to see: How much do I spend at Target? How much do I spend at Nordstrom? Which one appreciates me the most? Which one gives me the most value?
Knowledge@Wharton: So the digital wallet helps consumers figure out which companies to be loyal to?
Bedier: There have been a lot of studies about rewards and how they are ineffective in most cases. The best reward is the unexpected appreciation, where you are surprised with a neat gift at the end of the purchase. The tools to do that don’t exist today — especially at the point where it matters by reinforcing the behavior. Right after the transaction — as you walk out the door — that’s when the merchant should be reaching out to consumers saying: “Hey, you just spent $100 with me. Thank you. We appreciate you so much. Here’s another $10 gift card. Please come back again.” That is 10 times more effective than telling them you have the right to earn a $10 gift card.
Right now, the technology hasn’t helped. And I think there’s a lot of room for [better] technology.
Knowledge@Wharton: And is that why Google is uniquely positioned to become the digital wallet of choice?
Bedier: First of all, we already have relationships with a lot of these consumers, if not all of them. Almost everybody has a Google account somewhere. Half of the web’s traffic is driven by Google, and it’s important for us to make that traffic relevant — to connect the dots between two points. We see [Google Wallet] as just an extension of that.
We also want to do it in a platform way, just as we do search. We didn’t do search because we thought we could make money on ads. We started search and three years later, we did ads. The reason we started is because, when you think about it, ads — when done in the right way — are a form of information that’s relevant to the consumer. We’re doing something similar here in payments. Here’s a value to creating a platform that enables consumers to connect with merchants.
We want to do it in a neutral way where we’re not another mouth to feed. We’re not trying to make money on the payment transaction just like everybody else. So we will be objective about it.
Knowledge@Wharton: So how will you make money?
Bedier: We will make money on our core business: connecting consumers with merchants that want to sell them things. And the offers in the wallet: Those are relevant ads that consumers appreciate. These offers are based on the relationship that you already have with these merchants and on what you might want to see from them.
Knowledge@Wharton: Any hints about the new version of Google Wallet that is coming out in November?
Bedier: We are striving to create a better wallet — one that’s smarter, that helps connect the dots of the shopping experience and that works everywhere. It will be out in mid-November.