Target Pay's holiday launch is good for shoppers, bad for retail

Will forcing shoppers to use a different payment mechanism for every retailer be a good thing? Or will it just dampen mobile payment enthusiasm overall?

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Target will ring in this year's holiday season with its official mobile payment system, what has been referred to as Target Pay, though it doesn't officially have that name yet. The good parts: It's potentially faster than most mobile payment options, and it is available in far more phones than Apple Pay. The bad part: Because it's only usable with one retailer, it will be less likely to become a habit with shoppers.

One element, though, bodes especially well for Target. Because its behavior mimics an existing popular Target program — a discount effort called Cartwheel — cashiers will not have much of a learning curve, which is a problem that almost every other mobile payment system had to initially overcome.

"Because Cartwheel has been such a successful program, guests are accustomed to scanning their phones," Target spokesman Eddie Baeb said in an interview. "Both our guests and our store team members are accustomed to it."

But is it really faster than Apple Pay? What shoppers are being asked to do is fill their physical shopping carts as they normally would and then, while in line at checkout, find their Target app and launch it. Shopper then will have to click through to the payment area, which will display a barcode that indicates their payment mechanism (a payment card previously registered). The cashier will then scan the barcode display on the phone and process the purchase normally.

Baeb said that initial Target tests, using employees as beta users, "shows us the wallet payment plus Cartwheel scan with wallet is taking under five seconds, including time for the receipt to print, versus more than 20 seconds for a comparable transaction today."

That sounds impressive, but Baeb couldn't provide any details. What was included in "a comparable transaction today"? Baeb said it was an average of whatever payment methods were used by shoppers in a specific time frame. But how long a time frame and what payment methods? Someone using cash or — heaven forbid — writing a check may not be a fair comparison point.

How early was it? In the earliest days of U.S. EMV transactions, there were a lot of delays (from both the associate and the shopper) that melted away over time.

Perhaps the most material question would be "When did someone start the timing?" The best advantage of Apple Pay — which comes from Apple controlling all of the hardware and the OS — is that the phone instantly activates Apple Pay when the phone is close enough to the cardswipe mechanism.

Some shoppers have an awful lot of apps on their phone, and it can take some time to find an app that is not used every day. Was the timing started the instant shoppers took out their phones and started the process, presumably while standing in line? Or did it not start timing until the shopper had already launched the app and clicked through to the payment area, which would display the barcode? If so, that may not be a fair comparison.

That all aside, the fact that Target's lower-tech (no NFC needed) approach will work on just about any smartphone is huge. And by going with a one-retailer approach — versus Apple's and Samsung's one handset maker approach — this Target effort also neatly sidesteps any incompatible POS system issues.

Target is also leveraging its very popular REDcard program, which gives its shoppers 5% off on all purchases. This is something that Target has executed brilliantly, and it's a baffler why no other major chains have yet to effectively mimic REDcard. There's little reason for a regular Target shopper to not use REDcard. (Asked to comment on this, Baeb said he had no explanation for "why everyone doesn't copy perfection." How could I possibly not quote that?).

Despite all of these advantages, I'm not in love with this trend. This harkens back to the early retail days, before Visa, MasterCard and, to a much lesser extent, American Express began to take over the vast majority of retail payments. Back then, every major chain had its own payment card, and shoppers had to carry with them a different card for every shop they favored.

The card brand argument was that all of retail would benefit if a shopper could have just one card that would be accepted by almost all retailers. It was a legitimate — albeit an embarrassingly self-serving — argument.

The Target approach, along with Walmart Pay, CVS Pay, Amazon Pay and Starbucks and other single-chain payment systems, takes us back to the early days. (At least this is all better than a bank-specific approach, such as the limping along of ChasePay.) This brings us back to Apple Pay's automatic app launch advantage. If a phone would detect its presence in a specific store — such as Target — and then automatically launch that chain's app, that would go a very long way toward making a single-chain payment system tolerable. (By the way, handset-central payment systems have their own issues, as SamsungPay and Vodafone Pay prove.

But getting the app to automatically launch when it detects a specific chain's Wi-Fi is only one element. (Note: This would require the phone to be off airplane mode, something that not all shoppers would automatically do and is also something that Apple Pay doesn't require.) The next issue is shopper training.

These chains often tout how customer-centric they are, but single-chain payment systems are the polar opposite of customer-centric. I can't believe I am saying this, but in this limited context, Visa and MasterCard are far more shopper-centric than anyone else. It's a shame that their customers are merchants and they are far from merchant-centric, but that's another column.

This forces shoppers to learn different behaviors for every chain. Even the pre-Visa efforts didn't do that, as just about all of them used magstripe, so the swipe behavior was almost universal. Shoppers eventually got quite good at it. (To be fair, in the early days, it was more that cashiers got quite good at it, as they were initially the only ones who did much swiping.)

Baeb argued that Target doesn't have to worry much about shoppers learning these new behaviors because of the chain's popularity with many of its customers. "Target is different because we're a store that is a multi-trip kind of place. We're a very broad merchant" with lots of different kinds of items, he said. "It's a regular trip."

Then there's REDcard 5%-off element, which provides a truly compelling reason for regular Target shoppers to use the app.

All in all, even though this Target payment system may not be the perfect model for the industry, I predict that it will give Target a very happy holiday payment season.

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