Smartphone payment space packed with competition


Osama Bedier, vice president of Google Payments, demonstrates how to use the Google wallet application during a news conference unveiling the mobile payment system in May of 2011. (Shannon Stapleton/Reuters)

Salad in hand, Carol Lyn Brown walked up to the cashier at K Street Cafe and Bagel in Northwest Washington and handed over her credit card.

Erin Cullen, the cashier, didn’t run it through a traditional cash register. Instead, she swiped it through a small plastic attachment on her iPad — and within seconds the payment was processed. The receipt can be texted or e-mailed back to the customer.

With that simple transaction, Brown and Cullen joined a growing number of customers and merchants experimenting with ways to pay for items. A host of new options are turning up in shops and restaurants, and more are on the way — part of a fledging industry known as “mobile payment” that seeks to take advantage of the growing adoption of smartphones, tablets and wireless connections.

Two weeks ago, Square Inc., (which pioneered the iPad attachment Cullen uses) announced a partnership with Starbucks in which all the chain’s coffeeshops will use Square registers. Last week, major retailers including Wal-Mart, Best Buy, and Target united to create a company called Merchant Customer Exchange, which will develop a common system allowing customers to pay for merchadise with their cellphones.

MCX and Square are competing with tens of other alternative payment methods — such as Google Wallet, Intuit, LevelUp and PayPal Here — all vying to be the new digital wallet.

Some ideas are more unconventional. Using LevelUp, a customer scans a credit card with a smartphone and then scans a QR code — a pixelated black and white square barcode — at the store or restaurant to pay. Others are attempting to wrest power away from the traditional card processing giants by undercutting their fee structure.

For small businesses, the new systems are beginning to get traction.

“It’s user-friendly, and customers love it,” Cullen said.

Cullen and her mother, who owns K Street Cafe and Bagel, have been using Square for a month. Unlike with their Bank of America credit card processor, Cullen is charged a smaller, flat fee per transaction — 2.75 percent or, as Square announced last week, $275 a month for small businesses processing up to $250,000 a month.

Rachan Malhotra, owner of Rolls on Rolls, a food truck specializing in Indian cuisine, only relies on mobile payment systems for credit cards.

He uses two, Square and Level­Up, to give his customers options and in case one fails. One day last week, the Square system was down for the entire lunch rush, costing him and other food trucks customers who didn’t bring cash.

Malhotra and Cullen considered Starbucks’ adoption of Square a boost for the alternative. In a letter on the Square Web site posted the day the Starbucks partnership was announced, Square chief executive Jack Dorsey wrote that “by embracing Square, Starbucks has validated” its approach.

For now, though, mobile payment is the exception and not the rule. Popular with small businesses, some more-established enterprises think mobile payment is too risky.

Ginger Kim, owner of Chocolate, Chocolate on Connecticut Avenue Northwest, said she’s happy with her traditional processor because she can negotiate the transaction fee down with the bank based on the volume of sales she makes. Competitors such as Square and PayPal charge a low flat fee, but Kim thinks her overall fee is probably lower.

Although Kim said she would consider mobile payment, “there is no real demand for that.”

Mohana Ravindranath covers IT and small business for the Washington Post and its weekly Capital Business publication.
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