A Mobile Commerce Strategy: Merchant Services that Embrace and Win Mobile Consumers

Bank of America Merchant Services White Paper A Mobile Commerce Strategy: Merchant Services that Embrace and Win Mobile Consumers Executive Summary Mobile technologies, smartphones and tablets, in particular, have changed the way consumers behave. How are merchants responding? October 2013 Table of Contents Introduction: Smartphones, tablets and the mobile consumer.................. 2 Meet a new generation of merchant service providers... 3 The ideal mobile commerce merchant solution: integrated merchant services........... 4 How valuable is an integrated merchant services strategy?.. 6 A mobile commerce growth strategy: embracing the mobile shopper by meeting and exceeding customer expectations................ 6 Summary: managing the consumer experience........ 8

A MOBILE COMMERCE STRATEGY FOR SMALL BUSINESS: MERCHANT SERVICES THAT EMBRACE AND WIN MOBILE CONSUMERS 2 Mobile tools have turned consumers into more knowledgeable shoppers actively seeking deeper product information and the best deal. Merchants are responding by seeking new vendor relationships and merchant services that give them a bigger voice in the world of mobile commerce. However, some technology solutions are offering greater value when it comes to creating consumer experiences that capture and retain customers. Introduction: Smartphones, tablets and the mobile consumer Remember when the mark of an astute shopper was one who had a coupon file, a handful of newspaper flyers, lots of time and a full tank of gas? Consumers went from store to store comparing prices, quality and availability as they sought out the best deal. These days, consumers do all that from wherever they happen to be in their house, in a parking lot, or even in a store aisle. When someone says, I m going shopping, it doesn t have the same meaning as it did just five years ago. What has caused this dramatic change? Mobile technologies, specifically smartphones and tablets, have ushered in this new era of commerce. Consumers own mobile devices have empowered them to seek and find the information they need to make decisions and purchases from anywhere at any time. In the mobile commerce era, smartphones and tablets are reshaping how consumers shop and consequently, their expectations about what they will get from a shopping experience. A growing body of research shows just what is happening in mobile commerce. A 2012 study conducted for BBDO and AOL found that shopping trailed only entertainment and personal interaction in total smartphone activity. 1 According to JiWire s Mobile Audience Insights Report Q3 2012, 85 percent of mobile consumers use their smart devices while in-store shopping. This represents a 33 percent increase from Q4 2011. 2 According to a First Data study, 44 percent of smartphone- empowered consumers have actually made a purchase with their phones. 3 When we think of smartphone shoppers, we often think of consumers using their phones to search the internet for information and price comparisons while shopping. However, increasingly consumers are using specialty apps and online catalogs to help find what they want. According to recent emarketing research conducted by Allrecipes.com, Mobile food apps and social platforms like Pinterest are affecting mealtime more than ever before. The survey found that almost half of those surveyed increased their use of smartphones for shopping in the past year, and 47 percent said a major reason why was that the apps are easy and quick to use in-store. 4 Mobile devices give shoppers information transparency in real time. They use their phones for show rooming (checking the availability and prices of the same item at other online or local retailers), reading product reviews, scanning barcodes, posting on social media, receiving special offers, and in some cases, actually making payment. What do mobile consumers really want? Recent research on consumer preferences 5 has revealed several trends: Consumers want information that helps them make better purchasing decisions, and they want it now. They want prices, reviews by experts as well as people like them, feature descriptions, and assurances that the desired items are available. Consumers want personalized offers and services, as long as the promotions are welcomed. 1 Harvard Business Review, Vision Statement: How People Really Use Mobile. January-February 2013. 2 JiWire Mobile Audience Insights Report, Q3 2012 3 First Data, Universal Commerce and Consumer Engagement: Understanding What Consumers Really Want. White paper, August 2012. 4 Mobile and Social Grab Spots in Moms Grocery Carts, emarketer, February 14, 2013. 5 First Data, Universal Commerce and Consumer Engagement: Understanding What Consumers Really Want. White paper, August 2012.

A MOBILE COMMERCE STRATEGY FOR SMALL BUSINESS: MERCHANT SERVICES THAT EMBRACE AND WIN MOBILE CONSUMERS 3 Consumers want a common experience across online and offline channels. They don t want to find offers limited to the online channel, for example, or different pricing for different channels. And they want the shopping experience to be fast and convenient from wherever they happen to be at home or on the go on the device they are using at the time. In short, consumers are going way beyond simply conducting the transaction; they are using technology to create their own shopping experience. They want interactions that are seamless, convenient and customized to their preferences as ecommerce is being brought into the brick-and-mortar shopping experience. The challenge and opportunity for small business Mobile consumers present a special challenge for businesses of all sizes. These consumers have greater control over information that influences their decisions, and they have immediate access to that information. Mobile consumers are also demonstrating greater loyalty to good value and the experience they want than to a particular business brand. They feel little or no obligation to purchase a product at the store where they initially see it. Businesses also have an opportunity, however, to reach customers in ways they never could before. The consumer s own smart device becomes a channel of direct communication between a business and the customer. The great opportunity for small business is to use the technology to provide consumers with convenience, information transparency, attractive offers and a unique shopping experience. That may be a desirable business objective, and it is certainly a strategy being pursued by the largest merchants who have big budgets to develop these kinds of technology-based initiatives. Do small and mid-sized businesses have a chance to compete for the mobile customer? The short answer is yes, but before taking a closer look at that, we need to look at some of the mobile commerce options available to small and mid-sized businesses. Meet a new generation of merchant service providers Over the past few years, other forces have emerged that are also changing the way merchants do business. These include a new layer of service providers offering novel ways for consumers to get information and deals. For the most part, this new layer of providers and influencers didn t exist, or had minimal relevance, before the mobile commerce boom. The new players include: Offers providers who work with merchants to create online deals of the day and special coupons. These services can generate high exposure for merchants without the up-front investment needed for a conventional media-buying approach to advertising. There is new category of marketing agencies that specializes in getting a retailer s messages to mobile shoppers. Social media (such as LinkedIn, Twitter, Pinterest and commercial Facebook sites) offers a simple way for retailers to have a presence and actually interact with consumers. Many retailers pay close attention to customer comments on Facebook. Review sites (like Urban Spoon, Yelp, Kudzu, and TripAdvisor) are increasingly popular with mobile device users. According to surveys cited earlier, 35 percent of consumers use social media to make smarter purchase decisions, while 30 percent actually post product reviews. 6 New and established firms are offering alternative payments and a new breed of low-cost, no-frills payment acceptance. In the payments arena, Square, LevelUp, online and in-store acceptance of PayPal, and other services are making aggressive plays for small-to-mid-size merchants. Other new players, such as Google, are joining traditional service providers with ways to manage mobile payment, such as mobile wallets. For many merchants, these services offer promise of new ways to reach customers, yet costs and overall value are less clear. They present small and mid-sized business with a special challenge: how to evaluate these services to decide which ones should be used in the business. Without a clear mobile commerce strategy, and often lacking the resources to become experts in mobile marketing and new forms of payment acceptance, many merchants feel pressure to adopt solutions without a good 6 Ibid.

A MOBILE COMMERCE STRATEGY FOR SMALL BUSINESS: MERCHANT SERVICES THAT EMBRACE AND WIN MOBILE CONSUMERS 4 understanding of the benefit. For example, when should merchants use daily deals and e-couponing programs? Is PayPal acceptance in-store necessary if it is accepted online? If competitors are doing it, does a merchant need to follow suit? Yet, what is the real value to the business in adopting these new services, and what are the risks? It is no wonder that merchants are often confused and unsure about new kinds of service offerings that cater to mobile consumers who are already exercising their shopping powers through their mobile devices. One result of the mobile commerce boom is a fragmented merchant services environment. There is also a growing risk for merchants. By trying to implement a variety of fragmented services from diverse sources, merchants can unwittingly create a fragmented engagement strategy that is more expensive to manage and actually creates a more disjointed experience for consumers. And that is exactly the opposite of what mobile consumers are seeking in their shopping experience. The ideal mobile commerce merchant solution: integrated merchant services Consider these two special offer scenarios: Scenario #1 Fragmented: A merchant decides to run a 30-day promotion through a daily deals provider. This merchant has two objectives: encourage store visits by new customers, and increase average number of store visits by existing customers. The merchant works out an arrangement with a popular deals provider to promote and sell the offers. The merchant also provides employees with training on how to accept the offers. Employees will need to scan paper printouts at the checkout, and they will need to save the paper in a special pouch for later tabulation. As the 30-day promotion period progresses, the manager sees by a growing pile of paper that customers are redeeming offers. At the end of the month, the deals provider delivers a report on how many offers were purchased. At some point, when the manager has time, he will count the paper redemptions to see how many of the purchased offers were actually redeemed. Although there was a slight bump in the number of store visits over the 30-day period, this manager realizes he cannot tell if those visits came from existing or new customers. Scenario #2 Integrated: A merchant decides to run a 30-day promotion through a daily deals provider whose service integrates with his payment system. The merchant works out an arrangement with a popular deals provider to promote and sell the offers. There is no special staff training required other than to thank customers for buying the promotion. This is because, for any customer who purchases the deal, the payment system automatically calculates the redemption as part of the transaction when the customer swipes his or her card. Customers do not need to remember their offer printouts, and employees do not need to handle paper. As the 30-day promotion progresses, the manager looks at daily tabulations of how many offers are being purchased and redeemed. He notices from an analytics service available from his payment provider exactly how many redemptions are coming from existing customers. He knows some other things too, such as average ticket size of those redeeming promotions. He learns that the promotion is actually causing customers to spend more in his store. He also knows what percentage of redemptions are happening with purchases made through the business s website. He decides to put some messages on his business s Facebook site to see if that impacts the sales of offers and redemptions. By the end of the 30-day period, this business manager has a very clear idea of the promotion s effectiveness, and he has been able to use his Facebook page to improve the promotion s performance part-way through the period. All this was accomplished with no additional staff training or time spent tabulating coupons.

A MOBILE COMMERCE STRATEGY FOR SMALL BUSINESS: MERCHANT SERVICES THAT EMBRACE AND WIN MOBILE CONSUMERS 5 These two scenarios illustrate the advantages of integrated merchant services. What exactly are these merchant services? Integrated merchant services are made possible by an infrastructure typically provided by a payments processor. This infrastructure consists of a common platform that ties together loyalty programs, offers, egift cards, prepaid accounts, payment acceptance, loyalty redemption tracking and data collection for marketing analytics. It is capable of supporting both online and offline customer engagements, thereby enabling merchants to offer a common experience across all channels. Fragmented Merchant Services IN-STORE ONLINE LOYALTY SOCIAL OFFERS AND DEALS CATALOG PRODUCT INFO PAYMENT GIFT CARDS MERCHANT Integrated Merchant Services INTEGRATED PAYMENT, MARKETING AND CHANNEL SERVICES MERCHANT This capability gives merchants a powerful tool for integrating multi-channel operations in a way that provides real-time insights into the effectiveness of everything from marketing initiatives to day-to-day operations. However, it does something more than that. With integrated merchant services, merchants have all the tools to gather and process the information they need to create a personalized shopping experience for consumers across all channels. These services eliminate problems created by a fragmented ecosystem of merchant services providers. Is this a futuristic vision? No. Integrated merchant services are available now from leading payment processors. These integrated services are based on existing technology working over existing payment processing networks. What s more, the best solution providers have the flexibility to offer a mix of integrated services that fits specific business requirements.

A MOBILE COMMERCE STRATEGY FOR SMALL BUSINESS: MERCHANT SERVICES THAT EMBRACE AND WIN MOBILE CONSUMERS 6 How valuable is an integrated merchant services strategy? Many merchants think of merchant services, such as payment processing, as commodities they must pay for in order to operate. For most businesses, operating without the ability to accept debit or credit card payments would not work for them. When you look at merchant services in this way, you are tempted to purchase the lowest cost service. Of course, it makes sense to purchase a service that offers the best value a simple and transparent fee structure, secure and reliable, easy-to-use, and all of this at a reasonable cost. But how does that value assessment work in a world of mobile commerce? Consider as an example a typical service that all merchants pay for payment processing. Every time a merchant accepts a credit, debit or gift card payment, they are paying a small fee to a merchant services provider to process that payment. But let s look at that in the context of the two scenarios we discussed in the previous section. In the fragmented scenario, the merchant s payment processing fees pay for one thing only the cost of processing card-based transactions. The merchant has separate costs associated with the deals initiative. Now compare that to the value of those same services in the integrated scenario. The merchant s costs are about the same, but by integrating the deals initiative with the payment processing system, the merchant gets more out of the services. He knows more about how the initiative is performing, he is able to improve the initiative s performance mid-stream, and he is able to do all these things with lower management overhead than with the fragmented scenario. In fact, the integrated scenario actually increases the value of the payment system by streamlining transactions, capturing more transaction information, and closing the loop on the deals initiative. It also increases the value of the deals initiative by making it possible to monitor the program in real time and take real-time actions to improve the program s performance. Merchant services, the payment processing services, and the deals service become more valuable when they become integrated. This is a very simple example. When you consider that integrated services open the door for entirely new levels of engagement with mobile customers that are not possible in a fragmented merchant services ecosystem, it becomes clear that assessing the value of integrated services is an entirely new kind of calculation. Integrated services make it possible for merchants to go further in combining their multichannel activities in ways that create a more personalized shopping experience for their customers. They make it possible to offer the right product at the right time in the right venue to maximize the possibility of a sale, and at the same time, assess the effectiveness of the strategy in real time. They do this in ways that enable merchants to tie these activities back to greater back-end operational efficiencies. By integrating the various functions that impact your customer relationships, you gain the ability to show customers that you know them. That enables you to grow by strengthening business relationships. A mobile commerce growth strategy: embracing the mobile shopper by meeting and exceeding customer expectations Mobile consumers use the technology they have to find the value they seek. Researchers surveying shoppers who went to a physical store and later bought online discovered that almost six out of 10 of those shoppers originally intended to make their purchase in the physical location. 7 There are any number of reasons why those stores lost those sales. Perhaps they lost on the basis of pricing, or product availability, or other online purchasing alternatives. But ultimately, those stores lost sales because they were not engaging the customers in a way that won the deal. Mobile commerce and integrated merchant services give merchants the power to engage with customers at a closer level. 7 Turning the Retail Showrooming Effect into a Vaue-add. Knowledge@Wharton, September 26, 2012.

A MOBILE COMMERCE STRATEGY FOR SMALL BUSINESS: MERCHANT SERVICES THAT EMBRACE AND WIN MOBILE CONSUMERS 7 What engagement strategies can merchants pursue to meet the challenges and opportunities of the mobile commerce era of increasingly connected, always on consumers? How can retailers embrace and benefit from consumers using mobile technologies in the store? What s possible with integrated merchant services? Consider some of the ways merchants can capitalize on sales and marketing strategies supported by integrated merchant services: Use geo-location technology to serve up coupons for items that customers are near in an aisle. Remind customers in real time when they are near an aisle or at some other relevant location that they have a valid offer or they have a loyalty reward available to them. According to research by Verve Mobile, a location-based mobile ad platform, the percentage of mobile campaigns using geofencing or geoaware techniques to target consumers more than doubled in one year, from 17 percent in 2011 to 36 percent in 2012. 8 The number of U.S. mobile coupon users, emarketer predicts, will rise from 12.3 million in 2010 to 53.2 million in 2014, driven by the rapid adoption of smartphones. By 2014, one in four mobile phone users will redeem a coupon via a mobile device. 9 Merchants can attach more value to their offers, such as through technical support and warranties, to make them more attractive for smartphone shoppers in a store. Entrepreneur.com suggests, It s wise to train salespeople to be alert to showrooming behavior and approach those shoppers with appealing offers. 10 Use QR codes on product displays to deliver content such as product comparisons, user reviews, how-to videos, coupons and detailed features to mobile shoppers. Complement QR codes and retailer mobile apps with free Wi-Fi to improve the in-store experience for mobile users, suggests econsultancy.com. Customers appreciate the freebie, and in-store Wi-Fi also enables the merchant to capture customer details and target them with offers. 11 Use consumer metrics, perhaps leveraged with geo-location technology, to make timely offers of valueadded products and services. A less sophisticated approach is to display local stores inventory on a local shopping search engine. The firm automatically extracts the inventory data from the website of stores with U.S. walk-in locations. Enable in-store browsing and purchasing from an online catalog, with immediate in-store pick-up of online orders. Leverage all of these capabilities by rethinking the point of sale and the level of service offered there. Mobile device users, incidentally, appreciate superior customer service just as much as their grandparents did; IDC found that up to 60 percent of smartphone-equipped shoppers are more likely or much more likely to buy when assisted by knowledgeable store associates. 12 In line with this finding, merchants might consider unleashing the point-of-sale from its traditional location at the front of the store by equipping roving employees to accept payments anywhere in the store. Employees themselves can leverage the same information technologies to become instant experts while servicing customers. 7 Turning the Retail Showrooming Effect into a Vaue-add. Knowledge@Wharton, September 26, 2012. 8 Real-Time Location Data Gets a Bigger Slice of Mobile Targeting, emarketer, February 15, 2013. 9 Mobile Spurs Digital Coupon User Growth, emarketer, January 31, 2013. 10 Gahran, Amy. How to Get Mobile Showrooming Shoppers to Buy More In-Store, entrepreneur.com, December 4, 2012. 11 Charlton, Graham. Should retailers offer in-store wi-fi? econsultancy.com, November 20, 2012. 12 Gahran, Amy. How to Get Mobile Showrooming Shoppers to Buy More In-Store, entrepreneur.com, December 4, 2012.

A MOBILE COMMERCE STRATEGY FOR SMALL BUSINESS: MERCHANT SERVICES THAT EMBRACE AND WIN MOBILE CONSUMERS 8 Summary: managing the consumer experience Smartphones and tablets offer consumers new ways to shop creatively and smartly, wherever they are. Equipped with flexibility and easy access to information by their smart devices, today s mobile shoppers have turned the world of retailing on its head. They can identify where to find the products they want and where to get the best prices, and they can shape the entire shopping experience from product discovery to cashing in on loyalty programs to suit their own preferences. Merchants, too, can use technology to create new shopping experiences for their customers. The same devices putting power in consumers hands also give merchants new ways to interact with casual shoppers and convert them to loyal customers. The challenge for merchants is making sense of the growing number of merchant services available for engaging with mobile consumers and getting the most value out of these technologies. Some merchant services provide new ways to reach customers, but they come with risks associated with costs and uncertainties about the benefits. Integrated merchant services enable merchants to close the loop on all the channels of engagement in a way that can be validated at the point of sale. The key question worth exploring for many businesses, especially small-to-mid-sized merchants, is the cost of these high-value integrated services. Why? Because integrating payment, marketing and multi-channel strategies through a common services platform increases the value and effectiveness of all these strategies in ways that can grow business. Through integrated services, it becomes possible to monitor effectiveness in real time, adjust strategies on the fly, and engage with consumers at a more personalized level based on both historical information and real-time, in-context, information. Integrated services also provide information that better informs back-end operations. When investigating integrated merchant services as an option for your own business, it is important to look at services providers with a large portfolio of marketing and analytics capabilities that tie back to the payment processing system. This gives you greater ability to craft a strategy that works for your business. Integrated merchant services change the value calculation for traditional services as well as newly emerging ones. They also open up a world of possibilities for business growth by enabling merchants to deliver stronger, more personalized consumer shopping experiences. For more information about how to build a mobile strategy that is integral to your business, contact Bank of America Merchant Services. This presentation is provided as a courtesy and is to be used for general informational purposes only. The information provided may not apply to your business, should not be treated as legal advice, and should not be acted upon without specific advice from your legal counsel based on the facts and circumstances of your particular situation. Bank of America Merchant Services makes no representations or warranties as to the accuracy or completeness of this information. 2013 Banc of America Merchant Services, LLC. All rights reserved. All trademarks, service marks and trade names referenced in this material are the property of and licensed by their respective owners. Merchant Services are provided by Bank of America, N.A. and its representative Banc of America Merchant Services, LLC. Banc of America Merchant Services, LLC is not a bank, does not offer bank deposits, and its services are not guaranteed or insured by the FDIC or any other governmental agency.