Interest in mobile payment methods among customers and businesses continues to grow. According to National Restaurant Association research, restaurant guests are showing strong interest in utilizing a mobile payment system. A third of all adults and more than half of 18- to 34-year-olds say that they would use mobile or wireless devices to pay restaurant tabs at full-service restaurants if given the option, and more than half of full- and limited-service restaurants planned to increase spending on smartphone apps and other mobile technology in 2013.
Payment is only one part of the mobile commerce picture, which has the potential to drastically change the way restaurants interact with their customers. But even with the growing business and consumer interest in mobile commerce, significant hurdles remain before the payments component of mobile becomes a viable, efficient, and sustainable reality. The U.S. payments system, which is dominated by the Visa and MasterCard brands has not seen significant innovation since the 1970s and is long overdue. Mobile commerce provides a tremendous marketplace opportunity for innovation to be realized as long as legacy payments systems don’t create barriers to new market entrants.
The Federal Reserve recently published a paper on the future of the payment system, “Payment System Improvements,” in an effort to identify key gaps and opportunities in the current system. The Federal Reserve offered possible objectives aimed at improving privacy and security and the value of payments, and diversifying consumer and business choice. The National Restaurant Association submitted comments on the paper as part of its work to ensure that the transition to emerging payments, including mobile commerce, leads to a more competitive, innovative and efficient payment landscape.
“The U.S. is lagging behind the rest of the industrialized world in data security and payments system innovation,” said Liz Garner, NRA director, commerce and entrepreneurship. “The old system is not cost efficient, it’s not secure, and we’ve seen very little innovation in the last 40 years because the system is basically a duopoly. We’re encouraged by the role the Federal Reserve can play as a facilitator as we move the payment system into the next century.”
In its comments, the NRA addressed six priorities for the future of mobile commerce:
• Standards development. Development of standards is critical for restaurant operators who seek to upgrade hardware and software necessary for accepting electronic payments, the NRA wrote. A single, interoperable standard would also simplify payments for consumers.
• Transparency. There are currently more than 300 different Visa and MasterCard credit card rates, making it nearly impossible for businesses to determine whether the fees they are being charged are correct. A mobile payment system offers the potential for more competition and transparency in the payment market.
• Cost efficiency. Escalating costs of processing credit and debit transactions remain a top concern for restaurant operators, the NRA wrote. Average industry credit card fees are over four percent of transaction costs. In addition, the major card brands charge network fees that have increased more than 200 percent over the past few years. Mobile commerce has the potential to introduce new competition that would help keep fees low and transparent.
• Legacy rule limitations. Existing card network rules, such as the Honor All Cards rule, force merchants to accept multiple cards under a single card brand without knowing the associated costs, the NRA wrote. These rules limit choice and should not extend to mobile payment systems, the comments said.
• Payment security improvements. Currently, the majority of losses due to fraud fall on the shoulders of businesses and card issuers, not card networks. Interoperable, uniform standards for mobile payments should include provisions for fraud prevention, mitigation, and resolution, the NRA wrote in its comments.
• Mobile commerce advancement. According to NRA research, 76 percent of limited-service restaurant operators and 53 percent of full-service operators said mobile payment options will become more popular in those segments in the future. However, implementation and usage costs pose significant challenges for operators who want to use the systems. As standards are developed, multiple steps can be taken to address these issues, the NRA wrote.
•“Restaurateurs…are ready to embrace any technology that can provide guests with secure, efficient, less costly payment options,” the NRA wrote. “Price competition, and the increased innovation and efficiencies that come with more competition, will benefit both restaurateurs and our guests.”
The NRA will stay engaged with the Federal Reserve and other stakeholders as discussions of mobile commerce progress. “Restaurants absolutely need a seat at the table when the future of payments, and particularly mobile commerce, is being discussed,” Garner said. “Restaurants and other retailers are the ultimate point of interaction with the customer who wants to use their phone in one of our establishments. It would be short-sighted to leave us out of the process as new systems are developed.”
Operators who wish to be involved may join the Association’s Payments Working Group. Contact Liz Garner for information.
Read the NRA’s comments on the Federal Reserve’s “Payment System Improvements” paper here.