Banks, restaurants, and retailers of all kinds have a plan to sell you everything from your next meal to your next mortgage, all from the comfort of your cell phone. McKinsey’s Dave Edelman and Jack Stephenson, head of mobile marketing and ecommerce at JPMorgan Chase, recently sat down to talk about the future of mobile marketing.

Dave Edelman: So Jack, Google Wallet. Getting a lot of publicity. Is this something that everybody’s going to use over time? What do you think the eventual scale will be of mobile devices being used for payments?

Jack Stephenson: Well, you have to break that question down because the fact is, mobile devices are already used a lot for payments. If you take digital goods like music, ringtones, and videos games, that’s a big market. I think it’s about $7 billion in the US and growing. Mobile commerce—buying goods off the Internet from your phone—will top $10 or $12 billion this year. People are paying for these things on their phones right now. They may be billed to a credit card or a phone bill, but it’s happening today.

Dave Edelman: So how fast is that market growing?

Jack Stephenson: When I was at PayPal in 2008, I think we did $25 million of volume. This year, they’re going to do $3 billion of mobile volume. The adoption rate has been extraordinary. It took, probably, a decade to get mass consumers comfortable putting a credit card on their computer to buy things. On the phone, that behavior happens almost instantly.

The question really comes when you talk about payments at the point of sale. And I think there, we’re in the very, very, very early stages of seeing whether or not that will happen in this country. The one statement I’ll make is that payments are not really a problem in the physical world. People can use cash. Credit cards work very well. Checks work in some places. So you’re not really solving a customer problem by turning your phone into a payment device. People always say, “Gee, what if I could leave my wallet at home.” But you could just tape a credit card to the back of your phone right now and you would have essentially the same thing—a mobile-payment device. So I think a lot of the rationale for why people are going to use phones instead of cards in physical stores is pure fantasy.

Dave Edelman: So what will make the difference for mobile commerce? Will it ever be more than just a credit card taped to the phone?

Jack Stephenson: My view is that near field communication (NFC) is going to be embedded in phones and that it will be a game changer. More and more smartphones are going to have this technology, which lets you transmit data over short distances, like to a cash register, by “tapping” your phone on a reader. But I don’t think payment is going to be the use case that actually gets people tapping, initially. That may be part of it. But it actually will be things like “Hey, I’m going to tap to share music or content with somebody else.” We’ll tap phones, and then that’ll be a very quick way to exchange that content, whether it’s payment information or something else.

We’ll have NFC chips in posters, and the posters will have some kind of offer embedded. So say I want to get this offer. I tap the poster, and the offer is stored in my digital wallet instantly. It could be a coupon, it could be a song, it could be a video. If mobile payments take hold, they’ll evolve from these kinds of activities.

Dave Edelman: Let’s talk about these loyalty programs. One reason to pay with a phone is the ability to manage all the coupons and offers, and all of the other things that give the consumer more of a bonus at the moment of payment.

Jack Stephenson: Getting the coupons and offers right is essential if we’re ever going to see real mobile payments. It’s going to cost merchants a bundle to change their point-of-sales systems, and that’s a hurdle. So you’ve got to have something that not only has a lot more value to a customer than a credit card does, it also has to have real value to the merchant. I think if mobile payments take hold, it will be because of things like NFC and something we haven’t talked about, location-based offers. If I know you happen to be in San Francisco today and you’re out looking for lunch, and I happen to have seats at my restaurant, I could give you an offer to come into my restaurant right now. That’s value-added for the merchant because it’s delivering real business to him when he needs it.

The mobile phone is a device people have with them literally 24/7. I think 60 or 70 percent of people sleep with their phones. It has your contact information and it knows where you are. It has a lot of personal stuff on it. If you know how to use that stuff to market, that could be pretty compelling. Stores could offer you discounts exactly when you want to use them. Banks could offer you a mortgage just when you’re out house hunting. We can market credit card offers in real time— “Use your Chase Freedom Card to take your friends to dinner and we’ll give you 5 percent cash back on the spot.” Traditional retailers adapted to e-commerce. They now need to do a similar type of adaptation to mobile commerce.

Dave Edelman: Right. But one of the things I see as a challenge is being able to design a loyalty scheme that really works. It’s going to take a pretty major upgrade for retailers in terms of their analytic capabilities and in rethinking the relationships they’re going to have with consumers once they start throwing more kinds of offers at them.

Jack Stephenson: No question. And the merchants who have operated in the physical world typically don’t have those skill sets: the underlying analytical and digital capabilities you’d find at an e-tailer—at an Amazon, for example, or a Netflix. Having said that, it’s not that this capability doesn’t exist in the world and that it can’t be acquired.

Dave Edelman: So, Jack, digging into that, let’s come back to where things stand in m-commerce versus physical-world commerce.

Jack Stephenson: I think those lines are blurring. Because what we see happening is that people will order something online or on their phones and pick it up in the store, or they’ll walk in the store and they’ll scan a barcode and they’ll order it on Amazon. And, in fact, that’s very worrying to most retailers. Essentially, they’re becoming very expensive showrooms. They show you the merchandise, but then you go online to get the best deal from someone else.

Some of the more forward-thinking retailers are now saying, “Hey, I want to play this game, too. I’m going to actually embrace mobile in my store—and make sure that you order this stuff from me, not from Amazon or eBay.”

Dave Edelman:Right, but this is where I think it gets interesting, because there’s a couple of things retailers have to do to make that happen. One is to be price competitive. The other is to develop services, be they warranties or other kinds of value-added services, to go beyond what e-tailers can provide. Do you see anything in the marketplace that points to where we’re headed?

Jack Stephenson: Yeah. If you want to look at a retailer that has really embraced digital, social, and mobile, then look at Best Buy. They’ve tried to create sort of a surround sound environment where you can come in, talk to the Geek Squad, touch the merchandise, et cetera.

Generally, they have what you’re looking for in inventory, and people who want instant fulfillment are going to walk out with it. But for others, you also have the ability to order it online. And in some cases, before you even get to the store, you can let them know what you’re shopping for, so they can be ready for you. I think that’s the way a lot of retailers are going to have to think.

It’s “How do I make sure that people understand my overall value proposition? How can I make the digital and the physical store environment seamless?” It’s the warranties, it’s the service, the fact that they will come to your home and set up the equipment, and knowing that you can always talk live to a sales associate. You’re not waiting for 45 minutes on the phone for somebody to help you. I think that is the kind of world that we’re headed toward.

Dave Edelman: I think we’ll see some very interesting second-order effects. For one, retailers are going to need a higher level of quality in their sales staff. They’re going to need people who are well trained, and they’re going to have to do things to make sure they keep those people—which, ironically, is going to raise the price structure.

Jack Stephenson: I think Apple retail is probably the premier example of that. They have redefined the whole retail experience. They don’t even have traditional cash registers. A lot of the sales take place right on the iPod Touch that the sales team carries with them. You get your receipt in an e-mail. They’ve really created a very different experience.

And I don’t know that it necessarily has to involve a higher cost structure in total. If people can go into an aisle, scan a product, pay from a phone, and walk out, that may mean the retailer needs fewer people at the register. They may also need less inventory on the premises. But that involves radically rethinking the business model, for sure.

Dave Edelman: Yeah, I think even in clothing stores, we’re seeing a similar evolution in the way the salespeople on the floor work. They’re much more focused on helping people create outfits. You’re seeing a revitalization of merchandising versus just displaying racks of clothes—for example, salespeople are getting more information from the customers so they can alert them when new fashions come in.

The model that some of the highest-end clothing stores have had is trickling down deeper into the apparel business. And you’re seeing the same kind of phenomenon in other industries. Digital has enabled a lot of companies to move all the low-value tasks online to free up the salespeople to do more value-added advising and selling.

Jack Stephenson: That’s the potential. You can have higher-touch employees. Maybe you’re paying more for those employees. But you have fewer people doing the more menial, routine tasks, because you’re moving those offline.

Dave Edelman: The social nature of some of this is also interesting. One of the theories I have is that marketers are going to find more excuses to create events—excuses for people to gather or meet each other at their establishments. So imagine a discount clothing retailer providing an incentive for people to shop together during their lunch break, or you meet friends at your local coffee shop for a free mocha latte or whatever. I think you’re going to see a new social aspect to marketing. Mobile will help you not just to get a coupon but to actually do something with somebody else in the physical world.

Jack Stephenson: I think that is absolutely true. I think social commerce, however you want to define it, is going to become more and more prevalent, just as m-commerce is going to become more and more prevalent. It’s going to mean a different way of shopping for consumers and a different kind of relationship with the companies they do business with. Those retailers that learn to embrace these things will thrive; those that don’t may not be around much longer.

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