As mobile payments struggle to reach widespread adoption, big-box retailer Target is jumping into the mobile payments market with its own digital wallet, hoping to tie in loyal store-branded card customers.
This week, Target launched Wallet, a bar code-based digital wallet that when enabled, lives within the Target app. It’s only open to Target REDcard credit and debit card customers, who already get a 5 percent discount on purchases. By integrating a digital version of the Target card into the app, it can apply offers and coupons at the point of sale — sweetening the offer for discount-hungry shoppers. Restricting the mobile payment feature to Target cards may seem backwards at the outset, especially given that Walmart offers a similar service compatible with any kind of card. But analysts say it serves important business objectives, which include driving up adoption of store-branded cards and creating a better customer experience by merging loyalty and payments into one place.
“Target realized that they had enough scale and broad reach that they could move faster and be more agile by creating their own digital wallet experience using their own coupons and rewards,” said Brendan Miller, principal analyst at Forrester Research.
Target, like Walmart, hasn’t enabled Apple Pay for in-store purchases — while other large chains like Best Buy, Macy’s and Walgreens have embraced it. Target is the latest retailer to add a new mobile payment vehicle, following the launch of Kohl’s Pay (a feature that lets customers pay with a virtual Kohl’s card and apply loyalty points at the same time) and Walmart Pay (a QR-based payment tool that supports a range of different cards), in 2016.
By making it easier for customers to pay with Target-branded cards, the hope is that more customers will sign up, saving the retailer on card processing fees. It could likely also encourage more purchases from card customers, who, according to a recent research note from Morningstar, spend roughly double the amount that the average customer spends.
An added benefit to customers who use Wallet is that the retailer can make the most of the customer data to push targeted offers. “It’s a way to use the data coming from the REDcard to create value for the customer while they’re in the store, enhancing the value proposition for the consumer,” said Thad Peterson, senior analyst at Aite Group.
Target claims that payment with Wallet is “up to four times faster than other payment types,” but the customer has to open the app and scan the bar code at checkout, adding a layer of friction to the process. But Peterson said the type of customer Target is aiming for is already comfortable with mobile and simply enabling one more function within the Target app. “If I’m using the app, I’m already engaged before I get to the point of sale terminal,” he said. “I already have a vested relationship with Target anyway.”
Despite the extra step required to pay with Wallet, it could be just the beginning of point of sale innovations the retailer could add in the future. Among new functions, it opens up possibilities to remove the checkout step altogether.
“It has the potential to be more frictionless and convenient when they start adding stuff like Sam’s Club Scan to bypass checkout,” Miller said.
Photo credit: flickr / Jay Reed