Editor’s note: Catherine Tucker is a marketing professor at the MIT Sloan School of Management.
In the digital age, it’s critical for retailers to collect and manage customer data. This information is the key to providing personalization for any kind of shopping experience, as it allows retailers to understand customer preferences and analyze shopping histories.
Smartphone payment systems like Apple Pay do not collect this information, but retailers would love to find a system that does. *
Just imagine that you use a mobile payment service and you’re heading out to a department store to buy holiday presents. The service could have such a complete history of your purchasing habits that your mere proximity to that store could trigger an advertisement or notice from a competing retailer to appear on your mobile phone, enticing you to visit the competing store instead. As the holder of the data, the payment service could retain all of the power in the relationship and can charge hefty referral fees to retailers who seek to use that data.
To avoid this future where retailers know less and less about their own customers’ preferences, retailers need to succeed in establishing their own online payment networks that would allow them to keep their data in house. Yet there are several reasons why retailers are likely to be doomed to fail in this effort.
First, data security is a key issue in users’ minds. Recent news reports stated that CurrentC — a competing smartphone payment system to be used by retailers like Target, Best Buy and Sears — was hacked before it even got off the ground.
Second, there is the question of whether customers will use multiple payment networks. This is a concept called multihoming. You can see this issue with Uber, which is facing difficulties because customers can use Uber or its competitor, Lyft, by simply pressing a different button on a mobile phone.
It’s easy to be on both platforms at the same time. In the world of mobile payments, the opposite may well be true.
Customers may find it more convenient to keep all of their payments on a single platform, especially if that platform provides services, like letting users search, sort and visualize their shopping expenditures. Customers would lose that functionality – and the ability to see the whole picture of their spending — if they use multiple platforms.
This is all bad news for retailers, who are losing control of their data.
* Update: This article has been corrected to reflect that Apple Pay does not collect or store consumer information.Featured Image: LDprod/Shutterstock (IMAGE HAS BEEN MODIFIED)