Russ Jones - Glenbrook Partners

Who knows what in payments? Sounds like a question begging for a snappy one-liner comeback.

But this is a question we hear more and more from our clients. Particularly those that see the increasingly close relationship between payments and marketing — and want to better understand how the targeting of ads and offers can be enhanced with insight from payment transaction data. The real question, then, is who knows what in payments and do mobile wallets change anything?

I’ve discussed the underlying “purchase visibility” issue before and argued that few players in the card ecosystem have a complete view of the consumer and what they buy. But before we look at how mobile wallets might change things, let’s review purchase visibility in the pre-wallet world.

Of the various stakeholders in the four corner card model, it is the issuer and the merchant who are closest to the consumer’s purchase behavior. While card networks, merchant acquirers, and the various processors have some insight into the transaction, they don’t necessarily know what the transactions represent or have the right to unilaterally use or repurpose what they do know.

From the consumer’s perspective, card issuers know who you are (know-your-customer laws in the U.S. actually require them to know this) and have some insight into your financial situation, depending on the type of card they issue. They know where you shop by merchant category and merchant name. Of the two, merchant category is a lot more important than merchant name. There are several hundred big “name” brands that drive a lot of transactions but there are millions and millions of merchants in the card system. And besides, sometimes the merchant name is truncated or nonsensical.

Beyond the categories, which can be helpfully narrow or frustratingly broad, issuers have no idea what consumers actually buy. Was that $34.75 purchase from Walmart for baby diapers or shotgun shells? And while they know where you shop, they don’t have a view of your overall purchase behavior — just where you you shop when you buy something using their card.

Retailers know what you buy, but they don’t know who you are. Unless you tell them. And they are really good at getting you to tell them. Want the special discounted price on select items? You need to sign up for the members club or reward program. Don’t want to carry another loyalty card? No problem, just share your telephone number with them on each purchase. That way you’ll be guaranteed every benefit you have coming!

In addition to helping them understand who you are, these types of programs help retailers correlate your purchases across visits, across payment methods, and across shoppers in the same household. Online retailers know even more than physical retailers, as they can use cookies to see how often you visit, track your movement through their online store, and analyze what is added and removed from your shopping cart. But online or offline, they don’t know everything you buy, they only know what you buy from them.

It’s tempting to say that only the consumer has a full view of their own purchase behavior. But that may be overstating it. I’m not sure, for example, consumers always remember where they shopped or what they bought. That comes up a lot in the chargeback process. How many times a day do issuers hear a cardholder say, “I’ve never heard of this merchant and I’ve certainly never bought anything from them.”

That’s who knows what in payments. Now, how do mobile wallets change things?

It would seem at first blush that the mobile wallet might know a lot, as it is extremely close to the consumer and is involved, after all, in the transaction. But what will it know?

  • Does it know who you are? There are no anonymous wallets. As a result of the registration and activation process, the mobile wallet knows who you are at least in terms of name, phone number, email, bill-to address, etc. Maybe it doesn’t know if you rent or own your home, but it certainly has enough information to target you (oops, I meant contact you.)
  • Does it knows where you shop? Well, it kind of knows where you shop. It might know from the GPS location that you are making a purchase in Redwood City, but it doesn’t have the accuracy to figure out if you standing in PetSmart or next door in Bed, Bath, and Beyond. There’s an outside chance, however, that it might be able to figure out which store based on available WiFi hotspots and signal strength.
  • Does it know how you pay? Because most mobile wallets will be multi-card and multi-brand, in theory, the wallet will also see purchase behavior across issuers and across card brands depending on what cards the consumer uses. From this, it will know which card is “top of wallet” in terms of usage frequency, but not necessarily in terms of “spend”. But it only knows how you pay when you use it (and not another wallet) to make a purchase. You might have multiple wallets on your phone, none of which would have a complete view of how you pay.

So the mobile wallet knows a lot, but does it know what the consumer buys? That’s the million dollar question. Actually, probably a multi-hundred million question. What the wallet knows about what you buy is circumstantial. I’ll use Google Wallet as an example, because it’s in the market now, but think the story will likely be true of all the major mobile POS wallets.

The Google Wallet has three real usage modes at the POS:

  • Tap and Pay. This is for merchants that have contactless terminals, but haven’t agreed to change their POS environment to accept Google offers. In this mode the wallet emulates a passive contactless card — passive in the sense that the wallet doesn’t have a dialog with the merchant about what is happening at the POS. The wallet knows that you just made a purchase, but other than the GPS location of the transaction, the wallet doesn’t know the merchant name, merchant category, purchase amount, or what the purchase represents. The issuer knows, but Google Wallet doesn’t know.
  • SingleTap. This is for merchants that have contactless terminals, and have agreed to customize their POS environment to support the Google Wallet initiative. In this mode the wallet has a peer-to-peer dialog with the merchant’s POS terminal as it hands over coupons to be redeemed, the card data to pay for the purchase, and any merchant-specific gift cards or loyalty card. We don’t know the specifics of what is included in the peer-to-peer dialog, but hypothetically you can imagine this being a pretty data “rich” exchange. Even if the transaction is not especially data rich, part of the dialog will inevitably involve the merchant handing the mobile wallet the purchase receipt. Talk about line-item purchase data!
  • Offer Presentation Mode. This is for merchants that haven’t upgraded their POS devices to support contactless payments, but want to accept Google offers. In this mode, the payment is handled outside the wallet (most likely with a swipe) and the wallet is just used to visually present the offer for redemption. The merchant can scan the offer barcode or key in the offer code. Here the wallet doesn’t even know that a purchase was just made; it just knows that an offer has been presented. Perhaps somewhere in the Google cloud they know that an offer has been redeemed, but there is no guarantee at this point that it is automated or information rich. Either way, the mobile wallet doesn’t get its hands on the receipt and there is no line-item data provided by the merchant.

So does the mobile wallet know where the consumers shops and what they buy? Using Google Wallet terminology, in SingleTap mode it very well might. Especially if they can get merchants to send the purchase receipt back to the wallet. In Tap-And-Pay and Offer Presentation Mode, it won’t. And while its premature to know for sure, my gut tells me that most of the transactions will be tap-and-pay transactions.

So, as you can see, no one party knows everything that a marketer would ideally like to know. But some information is better than none, and successful campaigns have been built around partial data sets like card transactions or purchases made at a single retailer.

But if the great promise of mobile payments really lies in mobile marketing, then the next generation of killer apps will likely result from creative business partnerships that meld specific purchase information, analytical insights, and message delivery capabilities in a way that balances the interests of multiple participants and produce a comfortable and valued experience for the consumer.

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