Closed-loop payments
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Starbucks has successfully implemented a closed-loop mobile payment system using their mobile app. By 2016, 25% of transactions in U.S. Starbucks stores were made through the mobile app. The system allows customers to load funds from various sources like credit cards and PayPal into their Starbucks account. To make a purchase, customers scan a barcode from the Starbucks app at the register. This closed-loop system provides Starbucks with benefits like lower payment processing fees and valuable customer data insights. As mobile payment usage increased, other retailers like Dunkin Donuts and CVS also launched their own closed-loop mobile apps.
Closed-loop payments
- 2. of transactions at company- owned U.S. stores come through the app 25%2016 2016 Active Members 12M Launched the Mobile Payment using barcode 2009 STARBUCKS APP orders were placed through mobile devices in U.S. 7M STARBUCKS MOBILE PAYMENT APP SUCCESS
- 3. TRENDS IN CLOSED-LOOP PAYMENTS “ ” No single competency is enabling us to elevate the Starbucks brand more than our global leadership in mobile, digital, and loyalty. Starbucks is a clear leader in mobile payments and we are encouraged by how consumers have embraced mobile apps as a way to pay. -Howard Schultz, 2013 There are two elements to this strategy: a closed-loop electronic check card and a loyalty rewards program. The approach uses a new merchant-branded closed-loop payment card in which the loyalty or membership card issued by a merchant is linked to the customer’s checking account. In effect, the loyalty card becomes a payment card.
- 4. - Reload balance from: - Paypal - Apple Pay - Credit Cards - Visa Checkout - Gift Cards - Walks to a store - Place an order - Pays using app by holding up the on-screen barcode to the reader Source of Funds Barcode POSWallet App MOBILE PAYMENT APP: HOW DOES IT WORK? Customers Steps
- 5. Money Flow UX • Source: • Apple Pay • Credit Card • Gift Cards • Flow • Form any of the sources, the funds are loaded in the Starbucks cloud. Loading Funds Loading FundsTransaction • Money is transferred from the cloud to the merchant once the transaction is approved Transaction • Launch the App • Select Pay • Select Reload • Select “Paying with” (Optional*) • Under Payment Methods select: • Credit Card • PayPal • Visa Checkout • PayPal • Add a new method of payment • Select Reload * This step is optional if the default method is used • App • Launch App • Select Pay • Align the phone (barcode) under the barcode reader. • Completed • Wallet • Double Tap Home Button • Tap on Passes • Select Starbucks Card • Hold up the on-screen barcode to the reader. MOBILE PAYMENT APP: HOW DOES IT WORK?
- 6. In a general sense, closed-loop mobile payments are those that enable consumers to load money into a spending account that is linked to a payment device – for example, a mobile wallet for a specific company. Maintains ownership Electronic payments are processed through the merchant system bypassing card transaction fees. Lower payments processing fees Enables capturing big data on customer transactions, including customer insights buying habits, popular items, and even an ROI measure on marketing campaigns Data Analytics Easy to reward customers for loyal purchases Improves Loyalty Closed-loop systems offer merchants the ability to maintain ownership over the the entire merchant /customer process $ BENEFITS OF CLOSED-LOOP PAYMENT
- 7. ECONOMY OF STARBUCKS MOBILE PAYMENT 0 15 30 45 60 Credit Card Closed-Loop $ 6 1 M Average Food, Coffee Bean and Merchandize spend per customer Assumptions: $ 5 . 5 M $2.2 Credit Card Transactions (Preload/ Direct transaction) $0.15 Quarterly Revenue from mobile purchases (25% of transactions) $900M Estimated direct savings by using Closed-loop system $56M Starbucks Mobile payment savings:
- 8. EXPANDING ON THE SUCCESS OF STARTBUCKS
- 9. 2009 STARBUCKS Launched the first mobile payment app, and became leaders in mobile commerce. 2011 ALIPAY Alipay unleash the new mobile barcode payments feature 2012 DUNKIN’ DONUTS Dunkin' Donuts offers mobile payment app. TRENDS IN CLOSED-LOOP PAYMENTS Some examples of Barcode Payment https://flomio.com/?p=57560 https://flomio.com/2017/01/trends-on-closed-loop-payment/
- 10. CURRENTC A consortium of U.S. retail companies develop a merchant-owned mobile payment system. TIM HORTON Tim Hortons rolls out mobile barcode payments across Canada and USA ZAPPER Point-of-sale systems automatically adds a QR code to the bottom of a bill that can be scanned using an app 2012 2014 2014 TRENDS ON CLOSE LOOP PAYMENTS Some examples of Barcode Payment https://flomio.com/2017/01/trends-on-closed-loop-payment/
- 11. Walmart Walmart launched “Walmart Pay” SPEEDPASS+ the app that let users pay for gas and car washes using smart phone exclusively at Exxon- and Mobil- branded stations CVS CVS Pharmacy launches its own mobile payments and loyalty solution 2015 2016 2016 TRENDS ON CLOSE LOOP PAYMENTS The Barcode based mobile payment has accelerated in the last year
- 12. IT’S ABOUT SIMPLICITY “ ” It’s about Simplicity ….With one scan, we’re taking away three or four extra steps that customers have lived with for a long time. -Brian Tilzer, CVS Health’s Chief Digital Officer told Techcrunch. “It has to be more than just payments,” “ ” What we’re trying to do is provide real utility and solve real problems for customers using digital. “The value is in combining a couple of these things… and the examples in the market where that has happened have worked really well.
- 13. The Barcode based mobile payment has accelerated in the last year TRENDS IN CLOSE LOOP PAYMENTS WHY? RESPONDING TO APPLE PAY STORES BENEFIT FROM LOYALTY SIMPLICITY (ONE SCAN TWO ACTIONS)
- 14. 01 02 03 01 02 Inexpensive Fast adoption Simple ecosystem Barcodes are simple to print or to generate and display on a phone screen. Barcode readers are also inexpensive. All smartphones are capable of reading or displaying a barcode. Familiarity with Barcode is high: 83% of North American consumers are aware of QR codes Barcode ecosystem is simple and proven. It does not require many stakeholders. User Experience SecurityBarcode transactions present a high level of friction. It takes more steps to create a bar code than tapping with NFC. Barcode can be easily replicated by taking a screenshot or taking a picture of the screen and used ADVANTAGES DISADVANTAGES MAIN DRIVERS OF THE BARCODE POPULARITY 03 Speed Barcode transactions are slow to execute
- 15. DEATH OF THE BARCODE PRIORITIZING THE USER EXPERIENCE
- 16. 01 02 03 01 02 Expensive Slow adoption Complex ecosystem MYTH: NFC tags and readers are becoming very inexpensive. MYTH: ADOPTION 1.9 billion phones estimated world wide by 2018. 76% of users are very satisfied using NFC, vs. 53% using QR The backend ecosystem can be shared between Barcodes and NFC. The only difference is the reader. User Experience SecurityContactless transaction is much more frictionless than the barcode counterpart. NFC has faster time to checkout. NFC is a more robust solution and definitely more secure NFC MYTHS ADVANTAGES BENEFITS OF NFC 03 THROUGHPUT NFC transactions are at least twice as fast when compared to Barcode
- 17. Funds Source Contactless mPOS Retail Cloud Service Apple Wallet CLOSED-LOOP PAYMENT USING CONTACTLESS - Customer reload balance from: - Paypal - Apple Pay - Credit Cards - Visa Checkout - Gift Cards - Walks to a store and place and order - Pay using app by using contactless (Payment and Loyalty card transaction) - Funds are transfer from the retail cloud service to the merchant.
- 18. Pay at the StoreMasterPass or Visa Checkout Wallet Store Receives MoneyConfigure and select default credit card CLOSED-LOOP PAYMENT: ALTERNATE SCENARIO - Customer selects credit card wallet to use: - VISA Checkout - MasterPass - Walks to a store and place and order - Pay using app by using contactless (Payment and Loyalty card transaction) - Funds are transfer from the default credit card service to the merchant. - The transaction is just like a regular credit card transaction, although is considered Card-Not-Present
- 19. CLOSED-LOOP PAYMENT: ALTERNATE SCENARIO Funds Source Apple Wallet Contactless mPOS Carrier Billing Carrier Cloud Service “Carrier Billing” - The funds are either extracted from Carrier Credit (Prepaid) or added to the carrier billing. - Walks to a store and place and order - Pay using app by using contactless - Funds are transfer from the carrier user’s account to the merchant.
- 20. Tap to Start Tan Credit Cards Or Apple Pay Store Receives MoneyConfigure and select default credit card Tap to Complete Tab CLOSED-LOOP PAYMENT: ALTERNATE SCENARIO “Bar Tab” - User Taps for every drink - Patron credentials are stored on First Tap - Drinks are added as they occur - Bill is consolidated on the last tap
- 21. Higher App usage -> Higher mobile transactions -> Increase per transaction savings Friction Enhance the 'buying experience' by making payments simple. Buying Experience 86 % of consumers avoid stores with long queues. It takes consumers less time to complete transactions using NFC than any other technology. (estimated savings: 30 seconds) Reduce Long Queues Reduce App abandonment 23 percent of users abandon mobile applications after only one use Increase loyalty Improve App usage Remove as much friction as possible from the payments process to eliminate consumer frustration. Increase throughput $ BENEFITS OF NFC-BASED CLOSE LOOP PAYMENTS
- 23. 41 Search and Select Starbucks App Select Pay 2 Select Pay one more time Present it to the barcode reader 3 4 STEPS TO PAY USING BARCODE (FROM APP)
- 24. 41 Double tap to select Apple wallet Select Passes 2 Select Starbucks Pass Present it to the barcode reader 3 4 STEPS TO PAY USING BARCODE (FROM WALLET)
- 25. 4 STEPS TO PAY USING BARCODE https://www.youtube.com/watch?v=cwsWpdDrwpI Open, Scan, Done – It’s That Easy Checkout using Walmart Pay happens in three easy steps: Open: Visit any register, open the Walmart app and choose Walmart Pay. Activate the camera. Scan: At any time during checkout, simply scan the code displayed at the register. Walmart Pay is now connected. Done: Associate scans and bags the items… and it’s done. An eReceipt will be sent to the app and can be viewed at any time. 1 2 3 4
- 26. 1 2 2 STEPS TO PAY USING NFC Place near the reader Pay and exchange loyalty credentials in just 2 steps. Place your finger on the home button
- 27. 0% 6.5% 13% 19.5% 26% Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 Starbucks Card, Loyalty & Mobile Dashboard Mobile Transactions as % of Total Transactions (US Company-Operated Retail Stores Only) Source: Starbucks investor relaCons. Starbucks Coffee Company - Starbucks Card, Loyalty & Mobile Dashboard (Oct ’16)