Wireless: The Next Generation

An idea sketched out on an airplane napkin about 10 years ago is dramatically affecting retail payment and may be at the heart of a new revolution between customers and retailers.

That idea has evolved into the "contactless" electronic payment system called ExxonMobil Speedpass, now being used at more than 7,500 Exxon and Mobil stations, 440 McDonald's restaurants and other fast-food outlets nationwide. Stop & Shop supermarkets recently joined these retailers to begin its testing of the Speedpass technology, while still other retailers are entering the wireless payment arena using the technology of 2Scoot.

Payment systems based on wireless technologies may bring immediate tactical advantages but they must be closely examined on the basis of long-range strategic issues. These issues include supply chain integration and technological decisions, as well as compatibility, evolving standards and industry relationships. Decisions are complicated by the uncertain future of smart cards and micro-payments. In addition, flame-outs by one-time market leaders like Snaz, who sought to capitalize early on this emerging retail tsunami, have also helped to cloud the future of wireless payment.

"You want to make sure you think through and test all issues before you go too far down the wireless road," advises Grant Anderson, director of store systems for Garden Ridge, a private Houston-based home decor and craft retailer with 44 stores in 13 states.

Wireless Advantages

What's not an issue are the numerous advantages of electronic payment systems. For retailers, they provide in-store flexibility and the opportunity to extend sales reach. Garden Ridge, for example, is leveraging in-store 802.11-based networks from Symbol Technologies and PowerCart mobile units to enable wireless cash registers for sidewalk sales. The mobile units have also proved surprisingly effective at increasing enrollment in the chain's private-label credit card program.

Wireless payment systems can also decrease customer check-out times and even increase sales. Joe Giordano, who originally outlined the Speedpass network on the napkin and who is now vice president of business and product development for the ExxonMobil Speedpass venture in Fairfax, Virginia, says consumers spend up to 15 percent more with a Speedpass linked to a credit card than with a credit card alone. A McDonald's trial lifted some in-store sales by as much as 20 percent.

The ultimate payoff may come in tracking customer purchases and establishing customer relationships through couponing and loyalty programs. This was a strategy Giordano and ExxonMobil came to recognize early on in consumers' use of the Speedpass technology.

The Stop & Shop experiment includes enabling consumers to receive rewards and discounts without having to swipe a loyalty card. Giordano also envisions a day when a contactless system can be the hub of links to multiple reward and loyalty systems for retailers.

Unfortunately, the issue is more complex than just picking the best technology. Because of proven flexibility and cost-effectiveness, wireless is quickly becoming an integral part of retailer long-term strategies, from RFID in distant supply chains to in-store ESLs. Ideally, retailers can outline a universal wireless strategy now that will save integration, adoption and other costs later, both in the U.S. and abroad.

Consumer Devices

Once again it is a task easier said than done. Although consumer acceptance is high — Speedpass reports that 92 percent of users are highly satisfied — it's unlikely that consumers will want to carry around a variety of contactless systems that may range from cell phones and PDAs to smart cards and smart fobs, each of which works at some retailers but not others.

Since auto manufacturers are moving rapidly to incorporate wireless systems into vehicles that can control everything from brakes to entertainment systems, consumers will most likely want devices compatible with in-vehicle telematics systems. The impact of this development cannot be underestimated.

Recognizing the importance of the customer device, wireless payment vendors are working to deploy devices that merge multiple technologies. Timex has announced the arrival of a wristwatch that incorporates an RF transponder and Speedpass hints at other devices that will be similarly enabled. Mean-while, 2Scoot has partnered with Nokia to make a cell phone faceplate that enables wireless payments.

ExxonMobil Leads

Thanks to its forward-thinking vision, ExxonMobil's Speedpass is the undisputed leader in RFID payment systems, with more than six million active Speedpass customers. The highly secure system is also being used in Singapore and Canada. Recognizing that its value relies not in technology but in the network effect, Speedpass is now on a quest to enroll as many Speedpass participants and merchants as possible. Speedpass also wants to bolster capabilities, including potential infrared and debit transactions and higher data throughput.

"We see this as a universal ID service that creates greater value for consumers with less risk for merchants," says Giordano. "Speedpass would be ideal as part of a network with multiple retailers."

The second issue for retailers requires betting on the right technological horse. Will the point of consumer contact for electronic payment reside in an RFID key fob or similar device, or will it be in a PDA or cellphone that uses Bluetooth, Wi-Fi or even infrared technologies?

A wild card for U.S. retailers are smart cards with embedded microchips that enable payment. Their popularity is increasing in Europe, but usage in the U.S. is rare. A wide variety of players are jockeying for position in electronic payment, ranging from financial heavyweights like Visa International and MasterCard to such industry associations as MeT, SETCo and PayCircle.

Payment Integration

Finally, wireless electronic payments should not take place in a technological void and must be integrated with supply chain and other strategies. Gillette, for example, is buying half-a-billion RFID tags that incorporate EPCs (electronic product codes). The tags will be used for supply chain and retail visibility over the next several years. Ford and other companies are also experimenting with real-time locator systems based on wireless technologies.

Amid all the uncertainty in the retail and economic climate, many retailers are just going for the quick technological win. Garden Ridge added wireless checkouts, based on carts with battery power, due to cabling and power complications when traditional checkouts were extended. Carts are generally used in the front of stores where customers enter to encourage enrollment in the Garden Ridge credit card program. Customers provide name, address and other basic information as well as a major credit card. The card is swiped, and the application is approved or disapproved in about a minute's time.

An inspiration scrawled on a napkin transformed payment in the retail industry. But as wireless verges on transforming consumer behavior as well as supply chains, retailers must ensure that today's innovation makes the transition to integrated solutions throughout stores and supply chains tomorrow.

What's the state of wireless in your retail organization? Let us know: [email protected].