Supermarket chain Tesco is rolling out its own branded mobile payments application, which is likely to benefit from enhanced loyalty tie-ins, but may struggle as a standalone offering.

The multinational grocery chain is placing its new PayQwiq app in direct competition with mobile commerce heavyweights such as Apple Pay and Android Pay by enabling shoppers in Britain to store their Tesco Clubcard and debit card information and pay for up to £400 worth of products in one trip. Tesco’s decision is likely to prompt other major supermarket brands to perk up and notice, especially since growing numbers of powerful retailers are developing their own branded payment solutions that may offer strong loyalty tie-ins.

“Tesco, as any large merchant brand that interacts with customers with frequency, has an opportunity to convert loyal customers to its payment scheme,” said Jon Squire, CEO and founder of CardFree. “It all boils down to utility and an enhanced experience that combines payment, loyalty, offers and anything else that eases the in-store shopping experience.”

Keeping mcommerce in-house
Tesco shoppers will be able to download the PayQwiq app and use the branded payment service in lieu of Apple Pay, Android Pay or Samsung Pay, which is facing an imminent rollout in Britain. The supermarket giant is ensuring that PayQwiq differentiates itself from these solutions by letting customers make grocery purchases worth up to £400, a limit that eclipses the £30 limit for Apple Pay users.

Once consumers have picked up all of their groceries, they may present their smartphone to the cashier at the checkout counter. The cashier will scan a QR code within the PayQwiq app that will complete the transaction and automatically add loyalty points to members’ Clubcard accounts.

The app, which was developed by Tesco Bank, has been in pilot mode with thousands of the retailer’s shoppers in stores in the Edinburgh and London areas.

Tesco is now expanding the PayQwiq app rollout to approximately 500 stores in Britain.

The chain has already begun reaching out to frequent shoppers and inviting them to download the app, as a result of positive feedback stemming from the initial pilot.

By introducing a branded payment service, Tesco is keeping a lid on proprietary customer data, which will help evolve future mobile initiatives and also glean valuable insight into purchasing behavior.

Branded payment apps also help marketers circumvent some of the costs involved in adopting new technologies across a large number of bricks-and-mortar locations.

Hopping on the bandwagon
Tesco’s decision to enable a wide-scale rollout of the PayQwiq app arrives on the heels of Walmart’s own recently introduced mobile wallet, a move that placed the brand a notch above its competitors, such as Target.

The United States’ largest retailer launched the Walmart Pay mobile wallet last December, in a bid to meet customers’ demands and address the lack of open solutions usable across devices and payment types (see story).

Fellow Tesco rival Sainsbury’s is also ramping up to join the fray. The grocer is testing its SmartShop app, which allows users to scan products using their smartphones, making shopping lists at home, take advantage of a personalized store navigation guide and pay for groceries with their devices at checkout.

However, Tesco’s app may enjoy high usage thanks to the strong loyalty focus at its core. Consumers will automatically receive additional Clubcard rewards points when they use the app during checkout, which will likely be enough to persuade many first-time users to test out PayQwiq.

Tesco has previously attempted to innovate in the mobile space by tapping into the popularity of in-store beacons.

Over the summer, Tesco teamed up with Unilever’s Magnum brand to celebrate the start of warmer weather by bringing beacon-enabled offers and discounts to shoppers via mobile (see story).

Potential pitfalls
While this new initiative may propel Tesco forward in an increasingly mobile-first environment, the chain could experience some challenges. Perhaps most importantly, consumers will need to download the separate PayQwiq app to take advantage of the mobile payment options.

Unlike Walmart Pay, Tesco’s service is not integrated within the company’s primary retail app. Individuals have proven to be wary about cluttering their mobile devices with a barrage of apps.

Additionally, some consumers may prefer to keep all of their credit or debit card details stored within one payment solution, such as Android Pay or Apple Pay, instead of within multiple platforms.

However, Tesco’s strong loyalty aspect may win them over, especially if they are frequent shoppers.

“More and more merchants are seeing that mobile provides the opportunity to captain their own boat, whether via an app, mobile Web or even SMS/push,” Mr. Squire said. “To date, Apple is the only wallet provider that has taken strides to integrate a loyalty experience on behalf of brands, but most retailers of scale will also want a one-to-one relationship via their own app.”