M-Payments’ Next Chapter: Get Ready for ‘Wallet Wars’ (March 2013)
By Kate Fitzgerald, Emerging Payments Editor
The proliferation of mobile wallet concepts enabling consumers to make payments with smartphones and tablets already may seem daunting, but get ready for more. Experts say it’s still quite early in the cycle as card-based payments morph into new, mobile forms with countless approaches to enriching the shopping process as well as managing coupons, offers, loyalty and more.
At the upcoming CARTES America in Las Vegas April 23-25, financial services industry decision makers—including banks, merchants, card manufacturers, mobile network operators and security experts—will discuss key questions and themes surrounding hot topics in cards and payments. One of three day-long tracks on April 23 will focus on “The Wallet War,” with presentations and panels examining emerging trends and competing concepts.
With an estimated 150 mobile wallet concepts vying for attention and hundreds more in the pipeline, many merchant-specific apps and broader, branded umbrella-type wallets—such as Isis, Google Wallet, PayPal’s digital wallet and American Express’ Serve—are simultaneously competing to provide consumers with multiple merchant payment options within a single wallet.
$3.8 Trillion at Stake
“We are still at the beginning of the mobile wallet wars, with smartphones changing the way consumers go about their daily lives,” says Mary Monahan, executive vice president and research director at Javelin Strategy & Research, one of several companies presenting at CARTES America. With U.S. smartphone penetration at 51 percent and tablets at 21 percent and growing, many players recognize the opportunity to seize market share as a hefty portion of everyday commerce moves to mobile channels, she says. “In the United States the battle is over $3.8 trillion spent at the point of sale,” Monahan says, noting that while diverse competitors “want in on the game,” it’s too early to guess which players will “win.”
During the “Wallet Wars” track at CARTES America, First Data Corp., Apriva LLC and Spindle Inc. also will present their strategies. These companies operate in a more central, behind-the-scenes capacity as providers of private-label mobile wallets and related tools for enriching mobile payments. Each one offers a unique perspective on what mobile wallet developers as a whole are trying to achieve.
“Where we are in the ‘mobile wallet wars’ is similar to the early days of the Internet. A lot of companies are trying a lot of different things to capture the imagination of the consumer, but many of today’s concepts are unlikely to survive.”
—Chris Cox, First Data
“Where we are in the ‘mobile wallet wars’ is similar to the early days of the Internet,” says Chris Cox, First Data’s vice president of product development for mobile solutions. “A lot of companies are trying different things to capture the imagination of the consumer,” but many of today’s concepts are unlikely to survive, he suggests. And while many mobile wallet developers are intent on building scale for standalone concepts, consumer preferences ultimately will determine the wallet wars’ winners, Cox says.
“Anyone developing a wallet now ought to be focusing on creating the optimal experience for users and giving consumers compelling value propositions, not trying to figure out how to leverage a specific technology,” he suggests. That means banks and merchants “may need to pursue multiple pathways” to find the right mobile wallet approach, and such experiments could involve one organization trying out competing technologies and approaches, such as NFC as well as barcodes, along with storing payment credentials in the cloud.
Through its business-to-business relationships with thousands of merchants, banks and third-party payment services providers, First Data is working with a number of them that have mobile wallets that are “gaining traction” by providing “enabling services to support them,” Cox says. For example, First Data is the trusted service manager for Google Wallet; First Data is also providing “core support” for a number of other mobile wallet efforts still in development, he says. First Data also is active in helping wallet developers or merchants create application interfaces to turn gift card programs into mobile wallets. Serving competitors that are all pursuing similar goals is not new territory for First Data, which operates in dozens of payments niches, Cox adds. “We’re a partner for a lot of companies that are developing mobile wallets, and while we take a neutral role in the center, we can see that we are still very early in the cycle of what we’ll ultimately see in the so-called wallet wars.”
Another company looking to enable other organizations developing mobile wallets is Scottsdale, Ariz.-based Apriva, which got its start by providing wireless payment processing and merchant gateway services for thousands of merchants, including vending machine operators. In January 2012 the company introduced its customizable, white-labeled Apriva Wallet, touting its versatility in supporting all types of mobile payment devices and nimble reach based on existing connections to scores of payment processing networks, financial institutions and merchants, according to Bill Ramsey, Apriva’s vice president and general manager of mobile payments. “We take the functions we think are necessary for a wallet, such as a secure way to store and retrieve payment and identification credentials, coupons, loyalty, offers and gift cards, and we put them into the fabric of our payments gateway so any merchant can use all these functions and customize them in the way they want.”
Wallets within Wallets?
One of Apriva’s wallet clients is Dave & Buster’s, a 68-store, Dallas-based restaurant chain that offers on-site electronic videogames and other entertainment. The reloadable, closed-loop prepaid Power Card Dave & Buster’s sells to patrons had some limiting factors, Ramsey explains, such as requiring customers to stop playing to add funds to their cards using an in-store kiosk. “We wanted to create a way for customers to be able to add value to their Power Card without having to interrupt the game and walk away,” he says. Customers that have Power Cards can now download the private-labeled Dave & Buster’s wallet from Apple and Android app stores and link a credit card to their Power Card accounts, enabling them to add value to their accounts within seconds while playing a game, including redeeming rewards points and coupons for additional game play, all from a smartphone. The cloud-based app encrypts all payment data for security, Ramsey notes.
“Consumers have a lot of cards in their actual wallets today. Who says they want to have just one mobile wallet?”
—Bill Ramsey, Apriva
While Apriva Wallet is spawning yet more wallets that some say may ultimately swamp consumers, Ramsey disagrees that consumers will balk at adding merchant-specific wallets to their phones. “Consumers have a lot of cards in their actual wallets today. Who says they want to have just one mobile wallet? The fact is that consumers tend to have relationships with particular merchants and they won’t mind keeping that one-to-one connection with a merchant through a proprietary mobile wallet app,” Ramsey says, adding: “Our wallet may be integrated into other wallets.”
For Spindle, a startup founded in 2011 in Scottsdale, Ariz., the key to success in mobile wallets will be providing a low-cost, “frictionless” way for the nation’s thousands of merchants—including millions of small and midsize retailers—to participate in a cloud-based payment platform “with wallet-like capabilities,” says Bill Clark, Spindle’s president and CEO.
Embracing Open Architecture
Clark, a former First Data executive, says Spindle is in the process of building its platform, but the concept will ultimately center on a mobile wallet-like payment platform hinging on Spindle’s role as a “payment service provider,” which enables it to connect with many merchants through an aggregation model instead of signing them up one by one. “We have the ability to connect to merchants on an aggregate basis, which very few companies are doing,” he says. Clark declines to disclose exactly how the company plans to achieve scale with merchants or how consumers will sign up to make purchases. But, one hint he provides is that Spindle is aiming for “an open architecture” that will enable merchants to come onboard without making major POS changes. “We are working with companies like NCR Corp. to create open standards for acceptance of diverse payment types, including checks, cards and ACH bank payments,” he explains.
“One of the biggest challenges in mobile wallet development is getting merchants to participate.”
—Bill Clark, Spindle
Another key component of Spindle’s strategy is its $10.85 million acquisition earlier this month of Denver-based MeNetwork Inc., a location-based mobile marketing company whose technology tracks where consumers are and sends them relevant offers through their smartphones. When MeNetwork is fully integrated with Spindle’s platform and merchants come onboard, Clark says consumers using Spindle’s wallet may opt in to receive offers from merchants in specific categories and locations they choose, with offers appearing where and when they’re relevant to the consumer, Clark says. “One of the biggest challenges in mobile wallet development is getting merchants to participate. So with that as our primary focus, we added MeNetwork, which has consumer participation as its main focus.”
Spindle will complete the integration of the MeNetwork within the next couple of months, with plans to fully roll out later this year, Clark says. “Today with mobile wallets it’s kind of a Wild West with a lot of companies doing proprietary things,” Clark explains. “In my mind, a wallet should be open and a consumer should be able to walk into any merchant with [his smartphone] and pay with it,” he says.
Not coincidentally, that’s also the goal of several dozen other mobile wallets that promise to do battle in the coming months.