Virtual supermarkets and the mpayments market down under

Australian supermarket giant Woolworths has recently created a buzz by launching Australia's first 'virtual supermarket'. The initiative, undertaken as a one-week trial in Sydney and Melbourne, enabled consumers to order groceries through their mobile phone by scanning 'virtual supermarket' billboards installed in major urban railway stations. The large billboard display contains images of grocery products designed to mimic the appearance of a real supermarket shelf. Consumers are able to make purchases by scanning the barcodes on the billboard with their smartphone. The barcodes then direct consumers to the Woolworths online store, where the company's full range of products can be purchased and delivered to the consumer's home or office within hours.

The entire process is facilitated through Woolworths' mobile phone app. The app, initially released in August 2011, enabled consumers to browse Woolworths' range of products, create shopping lists and locate nearby stores using GPS. The app was upgraded late last year to include a barcode scanner and 'check-out' facility. The check-out facility allows consumers to finalise purchases on the app by linking them to the mobile version of the Woolworths online store. Consumers can then pay for their products using either a credit card or Woolworths gift card. The virtual supermarkets essentially leverage the existing app and online payment infrastructure - the difference being that consumers can use the barcode scanner to select items to purchase rather than browsing for products online or in the app. In this sense, the virtual supermarket ties in with Woolworths' broader online sales strategy by offering consumers greater opportunity to make purchases on the go.

The virtual supermarkets were installed in two major urban railway stations in Sydney and Melbourne as part of a one-week trial in February this year. Woolworths have yet to announce further trials or whether the concept will be rolled out on a permanent basis.

While the virtual supermarkets are one of a number of developments in mobile payments announced recently in Australia, the uptake of near field communication-based technologies in Australia continues to lag behind other markets.

However, there have been two other significant developments in the mobile payments space announced recently: the launch of a new smartphone app by online payments company PayPal and the emergence of a local start-up Sniip

PayPal Here

The PayPal app, called 'PayPal Here', is designed to allow small businesses, service providers and casual sellers the ability to collect credit card and PayPal payments via their smartphone. The system allows merchants to scan a customer's credit card via a thumb-sized card reader which plugs into the headphone jack on the merchant's smartphone. The payment can then be processed using the accompanying PayPal Here mobile app. Alternatively, customers who use PayPal can choose to make the payment from their online PayPal account.

The other new product to create waves is Sniip, the brainchild of former Myer executive John Hawker. Sniip involves a similar concept to the Woolworths app in that it uses barcode-scanning technology to enable customers to purchase goods using their mobile phone. However, unlike the Woolworths app, Sniip is an open platform available to any retailer wanting to provide mobile payment offerings to customers. In return, Sniip will retain a percentage of the sale price.

From a retail perspective, one key advantage of the Sniip application is that it enables businesses to make sales outside normal operating hours. For example, by embedding barcodes or QR codes in advertising displays, retailers can offer customers the ability to purchase goods on the go via the Sniip application. Alternatively, when stores are open, customers can scan items as they shop and have them delivered to their homes rather than waiting in queues.

Fashion chain Jeans West is the first retailer to sign up with Sniip and is likely to begin rolling out the platform in May.

One aspect of mobile payments that is yet to take off in Australia is the use of near field communications (NFC) technologies. NFC is a standard for contactless communication that, when incorporated into a mobile payments system, enables consumers to make payments with their mobile phone instead of a credit card.

The key difference between NFC-based systems and the systems discussed previously is that NFC is focussed on transactions occurring at the point-of-sale. In an NFC system, consumers pay for goods at the store register as usual, except that instead of swiping a credit card to pay for the transaction, they can swipe an NFC-enabled smartphone. In contrast, the Sniip and Woolworth's applications are 'remote' systems in that they can be initiated regardless of the location of the payer and payee and rely on goods being delivered to the purchaser at a later time.

While 2012 appears set to be a big year for NFC in the US and Europe, the market in Australia is still developing and it seems unlikely we will see mainstream adoption of NFC in the next 12 months.

Having said that, there have been some encouraging signs recently. For example, Commonwealth Bank has become the first Australian bank to launch a commercial NFC application, the much anticipated 'Kaching' mobile banking app. Kaching (which involves a partnership between Commonwealth Bank and MasterCard) allows users to make NFC payments wherever MasterCard PayPass terminals have been installed. At this stage, the service is only available to iPhone users and requires customers to purchase a specially designed case called iCarte, which contains the NFC chip.

Another encouraging sign is the recent announcements from both Woolworths and Coles that they will be upgrading their payment terminals to support contactless credit and debit-card payments. The widespread availability of contactless card readers is seen as a key prerequisite to the roll out of NFC-based systems.

Initiatives such as the Woolworth's virtual supermarket and Sniip indicate that, in the short term, the market is turning its attention to the use of a mobile phone as a remote payments facilitator, rather than a payment device or mobile wallet in itself. Because such systems essentially leverage existing online payments infrastructure (for example, by linking customers to a business's online payment website), they are unlikely to raise additional regulatory issues.

The regulatory situation may be different as more sophisticated NFC-based mobile payments systems are deployed. In Australia, e-banking and payment systems are subject to regulation from a number of sources including:

- Chapter 7 of the Corporations Act - operators of a payment system or e-banking service may be required to hold a financial services licence under this legislation;

- The Payment Systems (Regulation) Act - this legislation gives the Reserve Bank of Australia the power to designate payment systems where the RBA considers it in the public interest to do so;

- ePayments Code - the ePayments Code regulates the terms of supply of most types of e-banking and smartcard transactions. It is a voluntary code, however compliance with it is monitored by the Australian Security and Investments Commission. The ePayments Code came into effect on 20 September 2011 and replaces the old Electronic Funds Transfer Code of Conduct.