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In-app in-crypto

I ignore almost all of the “news” that arrives via my cryptocurrency feeds, but a particular story about Bitcoin in the mass market caught my attention because it appeared to herald an unexpected and significant shift in the mass-market. The announcement was that Starbucks is "working with Microsoft and a leading global exchange on a new digital platform that will allow consumers to use bitcoin and other cryptocurrencies at Starbucks”. This struck me as a little odd, since Howard Schultz, (the executive chairman of Starbucks) said earlier this year that “I don’t believe that bitcoin is going to be a currency today or in the future”. When I read the story in detail in turned out to be untrue, just as I has suspected, and a couple of days later came the further annoucement that "Starbucks has clarified that it will not be accepting Bitcoin (BTC) or other cryptocurrencies as payment”.

Starbucks has no intention of accepting Bitcoin at retail point of sales (and nor, I imagine, does any other Main Street retailer). Starbucks said that they will play a “pivotal role” is developing applications "for consumers to convert their digital assets into US dollars”. Note the specifics: to convert cryptocurrencies into US dollars. What was actually being announced was, essentially, a plan to find a way of loading Starbucks wallets from Bitcoin accounts. Which brings us on to the bigger strategic point.

Now, earlier in the year Jeremy Light, who knows what he is talking about, made the evolution of retailer wallets central to his predictions for change in the payment sector this year. He said that these wallets - for both online and in-store purchases, where I expect to see convergence - will spread "emulating the success of Starbucks and Walmart” by focusing on slick checkout. These retailer wallets are of great strategic importance. It is reasonable to observe that the way most Americans are currently experiencing the new payment revolution "isn’t through Apple or Android Pay, but through proprietary payment apps from chains such as Target, Walmart, and Starbucks”.

In strategic terms, my strawman assumption is that retailers are going to get rid of payments at POS and shift to payments inside their own apps, apps that they use to deliver better customer services. Or, in the bumper-sticker version, “we’re going from check-out to check-in”. Take a look at what the major supermarket chains have been doing in the UK, where Tesco was "the latest grocer to develop its own technology to bypass the costly Android and Apple systems” and Sainsbury's is trialling its SmartShop app which allows users to create their own shopping lists, navigate stores and make payments at dedicated kiosks. Just as in the US, where Walmart has launched its own system to expand customer payment options and increase the speed of checkouts in its stores, we will see more of these. I already have half a dozen on my phone.

A Comscore survey a couple of years ago found that 55% of American consumers would be happy to have four or more retailer apps on their phone. Now, I don’t remember the figures exactly, and a quick search on my laptop can’t find them, but I remember something I looked at for a UK client a couple of years ago where it turned out that something like 90% of household disposable income in the UK goes to five retailers per household. In my house, for example, a Waitrose app, a BP app, a Martins’ the newsagent app, a Boots app and a Tesco Metro app would pretty much take care of things.

In the in-app vision of the future, consumers wouldn’t have hundreds of apps for every retailer. For the retailers they visit frequently (e.g., Starbucks) they will have the retailer app and use it. In other cases they will just use their bank app or some third-party payment app (e.g., Venmo). Actually, Venmo is a good example, since they have already made it plain that they see in-app payments are the future, saying that they had kill off their developer API to move the resources to their in-app payment service.

This focus on app-and-pay is hardly new and was an obvious strategic focus long before Tim Cook stood up on stage to explains "the benefits of Apple Pay in apps” so I’m hardly reading the tea leaves by saying that tap and paying with mobile phones may not, in the great scheme of things, be that important because, to Jeremy’s point, online and offline will converge to app-and-pay not tap-and-pay.

This may well turn out to be good news for the trading and use of cryptoassets. There is no point trying to extend acceptance of such assets at point-of-sale. That’s not what they were designed for and it makes no sense from a strategic perspective for retailers to mess around with in-store systems, service and acceptance for them. However, having online mechanisms to load the retailer wallets by exchanging these assets for retailer currency is a different proposition, because the point-of-sale systems only need to be modified once (to accept the wallet) and the any number of back-end conversions can be explored without requiring further front-end modifications. In time, the POS will then vanish (except for those retailers who still want to take cash) and the triumph of “invisible payments” will be complete.

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