(Bloomberg) -- Wal-Mart Stores Inc.’s expansion of its mobile-payment system across the U.S. may meet resistance from shoppers with little incentive to whip out their phones at the register.
“There’s got to be something in there that would get consumers to use it,” said Brendan Miller, an analyst at Forrester Research. Otherwise, “I can just pull out my credit card and swipe it.”
The Walmart Pay feature is part of a mobile app -- available on Apple and Android devices -- that offers discounts, helps shoppers locate items within stores and provides easy access to baby registries and wish lists. But analysts agree the Bentonville, Arkansas-based company would be wise to do more, taking a cue from another retailer, Starbucks Corp. For starters, the coffee chain’s app is tied to a loyalty program, which gives frequent users free beverages and coupons.
It also allows customers to order ahead, so they don’t have to wait in line for their coffee. This strategy has made Starbucks a leading light in mobile payments among U.S. merchants, with 24 percent of U.S. tender in the second quarter coming from its mobile app. “Loyalty remains the cornerstone of our digital flywheel,” President Kevin Johnson said in an April earnings call.
Walmart Pay users don’t get these kind of perks. They receive the same rewards as they do for using a plastic credit and debit card. The app also isn’t integrated -- unlike the Starbucks’ functionality -- with already-popular payment services such as Apple Pay, which lets iPhone owners pay with a tap at millions of retail stores. Those pitfalls may spell trouble for Walmart Pay’s adoption.
“Apps that incorporate loyalty and the Apple and Android payment systems, which are simpler for the customer, are likely the optimal combination at this point,” said David Schick, director of research and lead retail analyst at Consumer Edge Research LLC. “Simple wins over time.”
Wal-Mart said more than 20 million people regularly use its mobile app, and some 88 percent of Walmart Pay transactions come from repeat users.
“The feedback that we are getting from Walmart Pay is that the value they are getting out of that improved checkout experience is a reward enough to be advocates and repeat users of the solution,” Daniel Eckert, senior vice president of services for Walmart U.S., said on a conference call on Wednesday.
To be sure, the company could still find ways to attract new Walmart Pay users and drive sales, even without loyalty programs tied to its app.
“It can be time savings or an improved customer experience,” said James Wester, research director at IDC Financial Insights. “It doesn’t have to be about money or lower costs. That matters to a merchant like Wal-Mart because they can’t reduce costs much more, but they can improve the consumer experience.”
The expanded mobile payments will also provide Wal-Mart with a trove of additional data that it could use to improve its marketing via e-mail, text message or on Facebook. And that could help tailor customers’ experiences, like creating a shopping list for users based on past purchases, Eckert said.
Eventually, Wal-Mart may allow mobile ordering ahead for items like groceries, according to Richard Crone, chief executive officer of payment researcher Crone Consulting LLC, which estimates that Walmart Pay could have more than 2.2 million active users by yearend. The retailer currently offers mobile ordering for curbside pickup in a few cities.
“It’s an iterative process, they know these things,” said Miller, the Forrester Research analyst. “It’s a big job. It’s a matter of time, these things are still coming together.”
--With assistance from Shannon Pettypiece
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