As Sainsbury’s tries out Mobile Scan & Go, smartphones are becoming a crucial part of the buying process in store. Rebecca Thomson looks at the latest developments

Smartphone

Just a few years ago, it would never have been possible – in a world where pricing, property and product were the key differentiators, mobile technology was unlikely to get a look in.

Now, it’s becoming a new battleground. Last month, Tesco boss Philip Clarke devoted a large part of his World Retail Congress speech to the digital revolution, describing apps as “the new high street”, and emphasised the importance of evolving along with consumers. And last week, Sainsbury’s announced it is piloting Mobile Scan & Go, a scan-and-shop service, in three stores. Shoppers will be able to use their smartphones to scan products in stores, and then pay at self-service tills using cash or credit cards.

The test is symptomatic of a recent shift in the retail industry. Mobile technology – and specifically in-store mobile payments – has become a new frontier of retailing, and retailers are racing to experiment and earn the hallowed tag of ‘innovative’ and shopper friendly.

Sainsbury’s Scan and Go requires customers to ‘check in’ to stores using a QR reader

Sainsbury’s Scan and Go requires customers to ‘check in’ to stores using a QR reader

Sainsbury’s says it hopes the new service will provide a range of benefits for shoppers. Head of digital Mark Bennett says: “We think that Mobile Scan & Go will save customers time in store, especially queuing time at the till. You’ll be able to see the running total of your shop and keep track of how much you’ve saved with the offers and deals you’ve picked up.”

Self-scan services are already available at several retailers. Both Tesco and Sainsbury’s offer a fast-track service that lets customers scan products themselves as they walk around store – Sainsbury’s has it in 37 shops, while Tesco expects to have it in 100 by Christmas. Waitrose started using such technology in 1996, and its shoppers have responded particularly well to the service – scanners are now available in 178 of Waitrose’s 285 branches.

Sainsbury’s trial will move things on further, and it demonstrates the effort retailers are putting into mobile-related services. Customers won’t need to find hand-held scanners or wait for one to become free. Once they’ve used a QR code reader to ‘check in’ at the store with their phones, they can shop the store scanning items as they go on their mobile phones. The service saves the consumer time because products don’t need to be scanned through a staffed till, and should cut queues. The trial is being run in the Tadley, Clerkenwell and Bethnal Green shops.

Sainsbury’s is optimistic customers will respond well. “We’re confident that customers will be comfortable using their own mobile phones to scan items,” says Bennett. “We’ve already seen a positive response to the news of the trial on Twitter and we’re optimistic to build a strong group of customers trialling Mobile Scan & Go with us.”

Complexity of collaboration

Mobile payments in store are hardly a new phenomenon – contactless payments have been big in Japan for years – but the technologies involved and the services they provide have yet to reach critical mass in the UK.

The process has been slow for several reasons. First, the IT infrastructure requirements are not straightforward. Retailers need to link systems that traditionally would have been separate entities, such as the mobile commerce platform and the store electronic point of sale platform. As Mobile Money Network managing director John Milliken says: “The technology is available and is relatively straightforward to implement. The innovation is in the linking of systems together.” That is not easy to do. Forrester analyst Martin Gill says that Debenhams is one of the few retailers to have fully linked its m-commerce operations with its ecommerce platform, so that any items customers scan in-store on their mobiles will appear later in their ecommerce shopping baskets if they decide not to buy them in the shop.

The main reason for the slow development of the market is its complexity. There are different types of mobile payment possibilities – using an app is one idea, for instance, and PayPal provides one that fashion retailer Aurora is using. But when most people talk about mobile payments, they mean contactless, or near field communication (NFC). This involves a small chip being added to a mobile phone that is read by a retailer’s scanner, in a process similar to that of Oyster cards communicating with Transport for London’s readers. The various wallet services available, such as Google’s and the O2 wallet, use NFC readers to communicate with the retailer.

The technology is fairly straightforward, but it has taken several years for the companies involved in mobile payments to manage to work together closely enough. The process requires the involvement of a clutch of different types of companies: banks and payment providers such as Barclays and Visa, mobile network operators such as O2, mobile handset manufacturers such as Apple and of course, the retailers themselves. As a result, the market is confusing. Everyone wants a slice of the mobile payments pie, and things are still fragmented and not cohesive enough.

Many of the contactless payment services available at present – mainly at food outlets such as Eat and Pret a Manager – also use cards rather than phones, because there are few consumers who have both an NFC enabled handset and access to a mobile wallet service. The scanners are used fairly infrequently and staff can have problems overseeing the process, because they’re not used to it.

Creating a situation that’s mutually beneficial for everyone has been taxing. “The challenge the industry faces is the linking of all the various companies involved in the value chain,” Milliken says. “So far in the UK we have seen one mobile handset working with one mobile operator and one bank across a few retailers.” The businesses involved are, naturally enough, keen to figure out how to increase their revenues and want to control as much of the process as possible. Milliken says they are now starting to realise that can’t always happen – what will happen next is that the different companies will start to collaborate.

“You can’t expect too much,” he says. “The mobile network operators are realising they can’t own that whole channel from end to end.”

Competing for data

So why are these companies all so keen to get control of the mobile payment process? The answer is data – everyone knows the opportunities inherent in this market lie in access to customer information. Mobile phones are personal gadgets. They hold information on where a shopper is, how they research, what they buy and what they are interested in. “It’s not really about payments – it’s about big data,” says Milliken. “It’s a pretty expansive profile of you as a consumer.”

This fragmented market, with banks and mobile operators squabbling over share, means retailers have, to an extent, had their hands tied. There’s little point in working with O2 to accept its wallet service if you then have to go through the entire process again with Google.

The collaboration needed is starting to filter through, however. In September, the EU approved a scheme called Project Oscar, a digital wallet involving Everything Everywhere, O2 and Vodafone. The scheme does at least mean there will be one unified offering from the mobile operators, but there will still be competing services available from Barclaycard, Visa, PayPal and Google. “Retailers are a bit concerned,” says David Oliver, a partner at PwC. “They don’t want to back the wrong horse. Most people are waiting to see how it plays out in terms of who the providers will be and who gains traction with consumers.” And despite the confusion, some retailers are biting the bullet and rolling out NFC scanners – Waitrose among them. The NFC technology is very likely to be used at some point, whichever wallet service ends up being dominant.

A Waitrose spokeswoman says: “We have contactless payment options available in 10 of our branches and it is proving popular with shoppers, particularly in convenience branches or with customers who have smaller basket sizes. We are planning to introduce it to the rest of our branches by spring next year, to give all of our shoppers more choice about how they pay.”

But while the suppliers squabble among themselves, standing still isn’t an option for retailers – hence this new era of experimentation and innovation. Sainsbury’s says the aim of its trial is not to get customers paying on their phones, but rather to get them accustomed to using phones in a store environment. Bennett says: “The idea of Scan & Go isn’t new: fast-track technology has been in our stores for 13 years and is now part of the offer in 37 stores. We know it’s popular with customers, so we wanted to test if our customers would be comfortable using their phone to scan items as they shop.”

Oliver says that at this stage, most retailers are aiming for a similar objective. “If you get customers used to interacting on their phones it will speed up take-up of full mobile payments once it’s available,” he says. It will also help retailers iron out glitches before the services are offered nationwide – a lot of first and second generation barcode scanners are notoriously unreliable.

Time to adopt a strategy

Retailers are encouraging shoppers to use phones in stores, such as Waitrose through its app

Retailers are encouraging shoppers to use phones in stores, such as Waitrose through its app

So how long will it be before using a mobile to pay in store becomes the norm? Milliken estimates it will take until the middle of 2013 for suppliers to reach the right level of collaboration and co-operation, and another year before retailers are ready to roll out contactless readers on a wide scale. Analyst firm Gartner, by comparison, says it will take until 2016. It’s not just the mobile operators that need to develop their offer. Other tipping points will include involvement from the mobile manufacturers – until Apple makes an iPhone with NFC technology, for instance, it’s hard to imagine NFC taking off. But it’s not known when or even whether Apple will choose to do so.

It’s also important to note that one size won’t fit all. A contactless payment service is not the right answer for everyone – for a start, at present it has an upper payment limit of £20, which isn’t high enough to make it worthwhile for every retailer.

For others, mobile apps such as PayPal’s might be the right answer, while others might prefer to develop their own app.

Retailers will take a keen interest in developments and, despite the large amounts of work evidently going on behind the scenes, their official position on mobile payments is one of watchful waiting. As Bennett says: “We’re keeping a close eye on developments in that space and on how people use these devices. Smartphone penetration in the UK is more than half and we’re expecting that to increase.”

It’s impossible to say for definite what will happen. But for now, if a retailer doesn’t have a mobile strategy, it’s time to get working. Mobile payments could move very quickly from being ‘nice to have’ to something that will lose retailers customers if a service isn’t offered. While the right answer is different for every business, and while some genuinely might not need a mobile payment offer, the speed of change in consumer shopping habits will take anyone who hasn’t thought about mobile by surprise.

Who’s doing what mobile in store

  • Sainsbury’s is piloting Mobile Scan & Go in three stores. US giant Walmart is using a similar service.
  • Waitrose is rolling out contactless payment to all stores by spring.
  • Carphone Warehouse has its own mobile payments app, powered by Simply Tap.
  • Arcadia says it is testing a variety of different mobile-related projects.
  • Aurora Fashions is using PayPal’s payment app and staff have iPads that can double up as an extra till.
  • Marks & Spencer has rolled out contactless payment scanners to its stores.
  • Fashion retailer Pretty Green uses image recognition technology to sell music via Universal Records in its stores.