The risks and rewards of Tesco pushing its own mobile payment app

With Tesco announcing plans for a wider rollout of the long-trialled PayQwiq app this week, experts have warned the supermarket giant that the risk of rolling out its own mobile payment solutions could far outweigh the reward.

Marketing Week first broke the news of Tesco’s trial of the Payqwiq app, which allows Payqwiq customers to pay for baskets worth up to £400, back in 2014. And this week it emerged that the supermarket giant will expand the pilot  to 500 stores and write to 600,000 customers offering them a trial following what it described as “very positive” feedback.

Tesco isn’t alone in its mobile payment endeavours. Last month, Waitrose trialled a self-scan app for shoppers in three stores and said it could launch the concept nationwide by the end of the year. It also recently launched a new cashless store at Sky’s offices in London.

Asda, meanwhile, piloted smartphone scan-and-go shopping technology at its York store back in April 2014.

However, with new research from Mintel revealing that less than one in eight (12%) of British smartphone users have signed up to a digital wallet service – with only 7% of those actively using the service – the success of mobile-based contactless transactions has come under scrutiny.

The pros

Offering mobile, self-scan, payment apps can speed up the in-store shopping process and also reduce queues. Therefore the logic behind the supermarkets’ moving to implement payment apps such as Payqwiq is reasonable, according to Thomas Slide, a UK retail analyst at Mintel.

He explains: “It can provide integration with loyalty schemes to get a more comprehensive idea of customer behaviour and speed up service in-store as there has been a general trend towards further automation with self-service tills and this could just be seen as a natural next step.”

Waitrose is preparing to roll out a mobile self-scan trial that allows customers to scan products on their mobile device

“It also allows the grocers to take control of the payment process – by removing the middle men (banks and payment providers) retailers can potentially save themselves money in terms of card fees etc. This money can be reinvested to incentivise the customer to visit and also allow the retailer to better track the behaviour of its customers (as an extension to what they can achieve using loyalty cards).”

And as Amazon readies its own Amazon Fresh online groceries service, the supermarkets must be part of the mobile conversation to ensure their brands are thought of as forward-thinking when it comes to digital technology, according to Peter Veash, CEO at The Bio Agency.

He adds: “Grocery stores need to ensure they offer their customers seamless experiences and digitally enhanced solutions in order to compete with the retail giant. Digitising their loyalty schemes and trying to jump on the mobile payment bandwagon is definitely a part of this.”

The cons

Slide, however, doesn’t believe the logic necessarily links up with a clear demand among consumers. Currently, only 18% of consumers are interested in using their smartphone to pay for purchases in shops, according to Mintel. And the main barrier is still trust.

Slide cites research by Mintel which found that just 1% think a retailer can produce a secure mobile payment app, compared to 59% that think a bank can. Just 2% said a mobile payment app by a retailer would be most likely to protect their privacy, while 53% put their trust in a bank and 13% in payment companies.

“The problem for retailers like Tesco is they lack trust when it comes to building payment apps compared to other payment providers such as banks or even technology companies.”

Thomas Slide, UK retail analyst at Mintel

With contactless cards continuing to grow – as of January 2016, there were a total of 81.5 million contactless cards issued in the UK according to the UK Card Association – and the high-profile launches of the likes of Apple Pay, there could be also be an issue of overcrowding.

Ray Gaul, VP of research and analytics at Kantar Retail, believes the mobile phone could quickly become like the physical wallet – overcrowded with payment options from supermarkets, mobile phone creators and payment brands.

He explains: “Pulling out 10 different credit or loyalty cards from your wallet is already a pain. And it will be the same pain to have to choose from 10 different mobile payment apps on your smartphone.

“The most likely outcome is at some point, consumers will just pick from two or three payments apps – most likely from their payment or smartphone provider – to avoid the hassle. Brands will have to integrate within them and not compete with them.”

Bridging mobile payments and loyalty

Veash agrees and says the supermarkets will have much more success making payment an option as part of a wider loyalty offering.

“If every supermarket does this, customers will need to download a number of apps and I’m not convinced that people would want to use different apps for payment,” he adds. “An alternative would be to integrate their loyalty schemes and offers into the existing payment solutions.”

Ultimately Gaul believes the major supermarkets are moving towards automation in order to cut the costs associated with hiring too many in-store workers.

He concludes: “The retailers are struggling in figuring out what to do with staff and to manage in an environment which is deflationary. To pay for staff with the rise in the cost of the living wage – well, it is difficult to justify paying for more people to count money and help consumers check out when an app can do the job.

“Any way they can make this more efficient and less stressful, they will look to do so.”

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