Open Mobile Payment Platforms are the Future

Greg McAllister is co-founder and CEO of PushPoint, a mobile marketing software company who guest blogged for Forbes:  This year, global mobile payment transactions will top $171 billion, according to Gartner, in 1.1 billion transactions. By 2016, In-State projects, the number of global mobile payment transactions will reach 9.9 billion, almost 10x this year’s level.

Where many experts believe mobile payments will have the biggest impact is with small-to-mid-sized businesses, by democratizing access to tools that have historically been above their pay grade. Already, thousands of businesses are offering mobile payment options via the likes of Google Wallet and Square. But as this adoption increases, so should the debate between open and closed platforms for mobile payments.

Similar to the value proposition of open platforms in other areas of technology, open payment platforms are being touted as having the potential to level the playing field. But confusion persists about what’s open, what’s closed, and why it even matters.

The History

As electronic payment processing first emerged, only closed, proprietary platforms existed. Few of the required technologies could easily talk to each other. Only large merchants could afford to integrate their systems to support communication. The benefits of electronic payment processing were restricted to the “big guys.”

The Internet began to even things out a bit, and the payment landscape became less about being able to integrate the hardware and more about online access to the right software for functions like inventory and accounting.

Along with the explosion in mobile technology to support commerce, startups like LevelUp have begun disrupting the payments market by offering free payment processing in return for paid loyalty and marketing services, showing that we are quickly moving into an age where the value of payment data exceeds the value of transaction fees. The original payment processing revenue model is officially dead.

However, while these new players are certainly “opening up” the amount of services merchants can leverage via their mobile payment platform, they remain closed. In a mobile payment landscape, which is changing literally every month, is another wave of disruption coming via open platforms?

Why Open Platforms Matter

Companies like LevelUp and Square have seen considerable success in the U.S.; in fact, Square claims more than 2 million Americans are using the mobile payment product today.

Yet while these successful platforms are accessible to anyone, they remain closed — and may face similar dangers to the platforms that came before them. While they do offer a ‘one-stop shop’ scenario along with a seamless customer experience, they have also created a monolith that presents the following problems for retailers:

• The closed platform owns all of the data. These providers are focused on ways to collect consumer purchase data to create more revenue opportunities for themselves, and not necessarily for their merchant clients. Much like we have seen with the unsustainability of the daily deal model, small and mid-size retailers could risk handing their customer’s loyalty to the platform provider, ultimately hurting their business.
• The closed platform eliminates the choice of other SaaS offerings. Retailers running accounting on Intuit’s Quickbooks, for instance, may find themselves having to switch over to a new accounting system if their payment platform doesn’t integrate with Quickbooks. Retailers could also be forced to use systems for inventory or marketing that are not a good fit for the business, but are part of the closed platform ecosystem.
• The closed platform offers only fixed fee structures. There’s no room for price negotiation. Retailers will pay whatever fixed cost the platform has determined for its services, as it can be very painful to change all your systems at once.

A Clear Evaluation

The good news is that, for retail IT teams, this flurry of new platforms, both open and closed, makes mobile payments possible for everyone. What used to cost millions of dollars is now available in integrated systems that are meant to play nicely and that will lower overall costs and create efficiencies not seen before outside of large retailers.

This new, dynamic environment also allows retail brands, whether a national food chain or a boutique-clothing store, to evaluate what platform is the best fit to not only process payments, but also drive customers through the door.

For some smaller shops, the ability to connect right into a social network may be the most important factor. Larger organizations will need stronger, closed-loop marketing that is highly scalable but also targeted and personal. All retailers will want to evaluate which platforms plug into the systems that are already being used.

Open Up or Die

The current disruption in the market will continue to unfold, and technologies will continue to offer retail brands many new opportunities.

But in the long run, if history has taught us anything, the case for closed platforms is closed, and open mobile payment platforms are the future.

EXACT CPA COMMENT: This article was an eye - opening look at what could happen if consumers remain in the dark about their choices in mobile payment platforms.  I'll be the first to admit, that until recently that there was such a thing as a closed versus an open mobile payment system.  It looks like that knowledge could literally change the way that a small business owner does business.  If someone incorrectly chooses a closed platform that doesn't work with their accounting system, consumers are faced with the choice of purchasing a new accounting system that works with the closed payment system on finding a new system and losing all their data.  When it comes time to select a mobile payment system , choose carefully.  It will be very interesting where the marketplace for mobile payment services moves in the near term.  As more and more small businesses (and larger businesses for that matter) move to choosing mobile payments to process transactions with their clients, service providers are going to have to find a way to provide services that meet the needs of clients in the way that their clients run their businesses.