Anyone who has ever watched old reruns of TV shows knows there was once a point where you could walk into the general store of your town and be instantly recognized by the shopkeeper, make a purchase, and walk out without ever touching your wallet. Your good name was your currency, and the shopkeeper would just keep a running tab for you.
With an investment Starbucks is making in Square, your good name is about to be good enough to buy coffee at any one of 7,000 Starbucks stores, and CIOs need to think of the consequences.
Starbucks is making a $25 million investment in Square, which includes partnering with them on several mobile payment options. The most interesting one is that if you have Square enabled on your mobile device, when you enter a Starbucks store, the cash register of that store will be sent a picture of you and your name. Once you order your triple venti sugar-free no fat extra caramel with whip to go, you simply give the cashier your name, they check you against your picture, and viola, much faster than they can make your coffee, you are past the cash register. The register simply charges the card you have on file.
Contrast this with other mobile payment services, including Starbuck's very popular mobile payment service that requires you to have a card or a phone in hand: often, you have to open a particular app or use a PIN. This is the friction-free transaction retailers and financial services industries have been chasing for years. And the best part is that consumers and retailers should be equally thrilled with the results.
Well, right up until the first time something goes wrong. And there seems to be plenty that could go wrong. If this scales up past 7,000 Starbucks stores into most retail outlets in the country, CIOs at retailers and card services are going to have their hands full.
The obvious first concern is security. Obviously, CIOs need to make sure that your database is pulling the right names and pictures up at the right times. Imagine you come into Starbucks and order the same thing every day. An identity thief who looks a little bit like you, especially with a hat on, gets to know the name that you are telling the cashier every day. The cashier, who is too busy and not well trained in differentiating pictures and faces, then lets your evil twin buy coffee. No big deal since we're talking about a specific setting and an intimate one where you might even hear the guy use your name.
But imagine instead, he starts following you around into larger and busier stores where your phone keeps tripping more databases for more stores and enabling you to buy stuff just using your name. For CIOs to get this right, they're going to be spending a lot of time fine-tuning the range of the signal, how long they want it to enable purchases, and for how much. And trust me, the business side is going to be pushing to be more aggressive than CIOs will want to be.
Another issue right now is splintering the point of sale. Starbucks alone shows the problem. At Starbucks, you can pay by cash, pay by debit card from multiple systems, pay by credit card from multiple systems, pay by phone using Starbucks' mobile payment system hooked to Starbucks' own debit card, pay by phone using Square's mobile system hooked to multiple types of cards, or pay by giving them your name. Each requires software and hardware to make work. Add Paypal, which is finding its way into retail stores, Google's digital wallet offerings, and other startups with new ideas, and the POS is getting crowded. Yet just like your point of sale will take multiple cards, you will be forced to take multiple mobile payment methods for years to come in order to avoid missing sales.
Of course, if you're a financial services CIO at a company that can't offer something like this, you have to be worried, too. Right now, Square charges a transaction fee that it splits between itself and the card company. As non-traditional payment companies like Square and Paypal keep out-innovating card companies, how long is it before card companies see their fees shrinking as Square and Paypal gain power in the transaction?
The transaction at the point of sale is getting easier for the consumer but more complicated for the CIO. The CIO who responds fastest to the changes, enables the fastest and widest-ranging innovation, is going to have an advantage. Can you keep up?