Why mobile wallets alone will failMay 8, 2013: 11:18 AM ET
Smartphones are the key to revolutionizing shopping—but not in the way many think.
By Cyriac Roeding
FORTUNE -- Mobile wallets as they are defined today are unfortunately a solution in search of a problem. Consumers are quite happy with their credit and debit cards…they work, they're fast and they're familiar. And retailers, while they may complain about credit card fees, have bigger strategic issues with online competition and showrooming than to worry about installing the next "wallet" created to replace tried and true payment systems they've already invested in – and successfully process millions of transactions every day. The problem with mobile payments is that payment isn't a problem in the shopping world.
So, what is the problem? The problem is the experience of shopping. One hundred years ago, as a customer, you'd have been greeted by name when you walked into a local store. The shopkeeper would have asked you whether your kids liked the cereal he sold you last week. Nowadays no one "greets" you until you swipe your credit card because it isn't until that point when the store finds out you are even there – that means, as you leave, when you are no longer looking for items to purchase. No one shows you something that *you* might like at the store while shopping – everything is impersonal. By scaling retail, shopping has become inhuman.
The ironic twist is that the only way we can make shopping more human again, is by adding more technology, not less. The smartphone is the key. It is the only interactive medium consumers carry with them in a non-interactive environment like a store, and that is why smartphones are the new shopkeeper, capable of adding a deeply personalized lens on top of the physical store experience. It can be welcome you when you walk-in, make products come to life in the store, reward you for being there, point out things you might like, remind you what your family likes, and so on.
All of that hinges not on the payment but on many touchpoints throughout the shopping experience. The payment only happens when the purchase is already done, in other words, when the entire basket is set and cannot be altered anymore. It's paid for! You're on your way out. Thus, touching-base with the shopper when they pay is way too late to make any impact on either their experience or on the purchases in their basket.
What if the experience hinged on the walk-in to the store, not the walk-out? If the wallet can extend its relevancy to the moment you enter the store, its whole value changes: you are about to make purchasing decisions, you are about to spend money, you just don't know yet exactly what you will buy. That means if I can get you to open an app at the entrance of a store, it can guide you through the store, be your shopping friend and companion, and re-humanize and personalize the entire experience. As a result you would shop longer at the store, actually enjoy being there and therefore come back more often.
And there lies the solution for mobile payments. Mobile payments will actually be great as part of an overhaul to the overall shopping experience in the physical world (or of course for m-commerce at home on the couch). Alone, mobile payment won't take off with shoppers in a big way, but only as part of something that lifts up the shopping experience radically and fundamentally,then it will be awesome.
Maybe most importantly, this is how we'll clear the chicken/egg phenomenon needed to get retailers to commit to a new wallet. Why? Very simple – it is something useful and valuable for shoppers, not because it's a cool new payment technology… which, sorry Valley, is not what most shoppers care about.
Retailers will be excited to get onboard with a "mobile wallet" that enhances the store experience and drive more sales, or in their language "incrementality." Consumers will love the store more and come more often.
And once they are at the store, they will buy. Online, only about one-half to three-percent of website visits turn into sales (even Amazon and eBay, heroes in the space, never top 10%). At physical stores, people don't often visit just because, they visit to shop: in-store visits convert to sales 20-95% of the time. By industry, that breaks down to 20% in fashion, 50% in electronics and 95% in groceries. Offline shopping is 12 times larger than online shopping today – $3 trillion in the U.S., to be exact – and the conversion rates are exponentially higher. Online shopping, in contrast, will account for only $370 billion in the U.S four years from now – and Forrester projects it will make up only 10% of all shopping by 2017.
When shopping becomes more fun and personal, shoppers will not only buy, they will buy more. Test yourself the next time you walk-in to a store: upon entry check your list or ask yourself exactly what you'll buy and then, when you walk out, look into your basket. Chances are, half of what you bought wasn't on your initial list -- impulse buys already make up 50% in a typical basket which proves there is ample opportunity to influence purchases while shoppers are in-store.
Mobile payments will be a very large market – once it is part of a smartphone experience that lifts the shopping experience to a fundamentally new level. I can't wait.
Cyriac Roeding is the Co-Founder and CEO of shopkick Inc., focused on bridging the physical retail and the interactive worlds through smartphones. Shopkick was founded in 2009, and is backed by Kleiner Perkins Caufield & Byers (KPCB)'s iFund and Reid Hoffman/Greylock (Founder of LinkedIn, investor in Facebook and Zynga, and partner at Greylock), Ron Conway and Citi Growth Ventures. Previously, Roeding spent a year at Kleiner Perkins Caufield & Byers as an Entrepreneur-in-Residence to identify next-generation cross-platform mobile and online venture concepts.