From VentureBeat:
Last week, several major retailers, including Walmart, Target, CVS, Sears, Publix, and 7-Eleven, announced that they had formed a joint venture to
develop a mobile payment network. Called the Merchant Customer
Exchange, the venture intends to build a new way for customers to pay
using mobile phones. The idea is to replace the legacy credit card
systems that accept Visa, Mastercard, American Express, which the
retailers do not own, with a modern system they control.
This is a major development and one that is going to be fun to watch play out.
While the announcement of the plan has received a fair amount of
press, I haven’t seen a good analysis of why these traditionally fierce
competitors have embarked on an unprecedented level of cooperation
presumably in an area they consider a closely guarded state secret:
sharing customer purchase data.
As the founder and CEO of Endorse,
a next-generation offers platform for consumer brands in stores like
Walmart and Target, I have spent the past two years working in the
space. Here are a few reasons why I believe these particular retailers
feel the urgency to do something like this now:
- Cost reduction: Scale-based, low-margin industries
like that of modern traditional retailing, are constantly looking to
their value chain to wring out any cost efficiencies they can find.
Walmart is the king of forcing brands to conform to their EDLP strategy
(Everyday Low Pricing) and to alter everything from package sizes to
delivery methods to pricing and promotion strategies in order to get
Walmart shelf space. Every dollar these companies save drops directly to
the bottom line. As you can see from the chart below, 5% to 6% EBIT is
the norm — eliminating 1%-2% transaction fees for credit card payments
is a significant savings.
- Revenue growth: As you can also see below, revenue
growth in this industry is hard to come by. I see three opportunities
for revenue growth here: increasing basket sizes (giving incentives for
buyers to spend more when they shop), increasing trip frequency (giving
incentives to shop one more time a month), and increasing exposure to
brand trade dollars associated with product-level offers and increased
customization. By tying purchase behavior and history to the mobile
phone, all of these are now on the table, and all are multibillion
dollar opportunities.
- Customer behavior is changing: Shoppers are now
far more tech-savvy than the retailers, and the retailers know it. They
use their mobile phones while shopping and they are more deal-driven
than ever before. They are busy, always on the go, and are shopping in
more short-burst trips and spending less per trip. The planned, once a
week major shopping trip that Walmart and Target have both dominated for
years, is happening less frequently. Retailers need to be more
real-time and in-tune to making it more convenient for a consumer to go
to one place over another....MORE
And in a related press release, one of these is not like the others:
PayPal, Facebook, Samsung and Walmart to speak at The Open Mobile Summit
