Win Me Over: What Will it Take for Consumers to Embrace Mobile/Digital Wallets? (September 2013)
By Kate Fitzgerald, Emerging Payments Editor
The pace of digital and mobile wallet development over the past few years has been so frenetic that some analysts estimate about 120 consumer mobile wallets are available from a slew of providers, with more constantly popping up from startups. Well-recognized contenders include Google Wallet, PayPal and Isis, each targeting mobile device users, while the retailer-led Merchant Customer Exchange (MCX) mobile-commerce venture is in the wings and Visa and MasterCard are each in the process of building out versatile, global digital wallet concepts.
But what consumers want from mobile wallets is a question not easily answered, nor is it clear whether any of the mobile wallets developed so far will hit the jackpot in creating a consumer experience compelling enough to change entrenched habits. “The problem is that existing payment systems work really well today and consumers don’t have any reason to change their habits,” notes Chris Cox, First Data’s vice president of product development.
|Google Wallet: Aiming for Versatility
One of the first broad mobile wallets targeting consumers, Google Wallet launched in 2011. Touting a mobile payment system enabling consumers to use NFC-compatible handsets to make purchases online or at the POS of participating retailers, the convenience of tap-to-pay technology and the ability to redeem specific merchant offers, it was marketed through the Google Wallet mobile app. Supported by Sprint, US Cellular, Virgin Mobile and most Google Experience phones sold on Google Play, Google Wallet also has broad e-commerce features for streamlining online purchases. Software development tools enable merchants to integrate their loyalty programs and offers into Google Wallet online or at POS. Google Wallet has direct participation from major merchants, including Walgreens, Macy’s, Bloomingdale’s, Toys R Us and Radio Shack.
Isis: An All-Access Play
Isis—the mobile wallet concept joint venture of wireless carriers AT&T Mobility, Verizon and T-Mobile USA—was unveiled in late 2010 as an open-platform, NFC-based mobile payments system welcoming all types of payment cards for online or POS payments. Designed to enable consumers to tap and pay at any retailer equipped to accept NFC payments, Isis’ primary goal is simplifying and speeding up consumer payments while driving marketing offers, coupons and loyalty rewards that are easily stored and redeemed through its mobile app. After a nine-month test in Salt Lake City and Austin, Texas, Isis in July announced plans to roll out across the U.S. during the latter half of 2013, noting that 35 different mobile devices support Isis and “support for the iPhone” is expected later this year. American Express Co. in August announced plans to link its Serve prepaid mobile card and app to Isis when it goes national, giving all Isis users access to Serve’s co-branded account. Chase and Capital One Corp. have been on board throughout the pilot and in August Chase committed to make all of its credit cards interoperable with Isis in the broader rollout.
MCX: The Retailers’ Own Wallet
MCX, announced in 2012, is a broad mobile wallet concept backed by a coalition of retailers, including Walmart, Target, Kohl’s, Southwest Airlines and Circle K convenience stores, to name a few. Still in development at press time, MCX this year said its mobile wallet will initially be primarily barcode- and cloud-based. Jacksonville, Fla.-based FIS will provide payment processing, routing and settlement for real-time POS payments, and Gemalto will provide the software for its mobile wallet. The venture plans to be a leader in the shift to mobile payments by providing a widely accepted wallet that improves customers’ shopping and buying experience, MCX says. In July MCX named Dekkers Davidson, a former Barclaycard executive, as its CEO.
Arguably the first broad digital wallet, PayPal created a proprietary online payments approach for consumers to support its original parent, eBay, and has since added a host of mobile payment and digital wallet options enabling customers to pay in many locations through various funding sources. PayPal in 2012 announced a deal with Discover Financial Services enabling merchants to accept PayPal through their existing relationships with Discover. In addition to paying at many e-commerce outlets with PayPal, customers may use PayPal to pay directly for purchases at the POS at Home Depot and Foot Locker with their mobile number and PIN. Consumers with PayPal accounts also may order ahead at Jamba Juice and pay at merchant POS locations with a physical PayPal-branded prepaid card. PayPal’s goal is to be “ubiquitous” so its account holders can use its broadly positioned wallet to pay anywhere.
MasterPass: Flexible, Customizable
MasterPass, introduced by MasterCard in 2013, is a digital commerce platform for payments enabling banks, merchants and their partners to offer their own wallets consumers can use to make purchases from any device, anywhere. Consumers may securely store account details in the cloud, eliminating the need to enter detailed shipping and card information for online purchases; they also may track account activity with real-time alerts. MasterPass also provides a set of checkout services and APIs for merchants and developers to accept electronic payments whether a consumer is at the register or in the store aisle, through the use of NFC, QR codes, tags and mobile devices at points of sale. Available so far in the U.S., U.K., Canada and Australia, MasterPass also provides support for loyalty programs and Priceless offers.
V.me by Visa: Everywhere
V.me is Visa’s broad digital wallet concept, introduced in 2012, and gradually rolling out to major global markets. Designed to simplify online shopping, V.me enables consumers to store payment and shipping credentials so consumers don’t have to re-enter data. Consumers may store any type of payment card within the wallet so they may log in and make purchases via a computer, tablet or mobile device with minimal steps. Integrated with certain banks’ existing mobile wallets and many Websites, V.me also enables consumers to sign up through e-commerce Websites and directly at V.me, with the option to set up alerts to track transactions and spending. For businesses, V.me is designed to streamline the online checkout process at both ends, with a “Checkout with V.me” option e-commerce providers may add to their sites. Visa also is creating resources for third-party developers to ease integration of V.me into Websites.
What companies in the payment ecosystem hope to achieve with digital wallets is clear enough, Cox explains. Retailers, banks and other payment providers want to shift consumers from plastic cards and paper-based checks and coupons to mobile wallets because it will cut costs by improving efficiency and open up new revenue streams by harnessing data for more effective sales, marketing and loyalty programs, he contends.
Getting there will be a long journey, notes Mary Monahan, vice president and research director for mobile at Javelin Strategy & Research. Mobile payments conducted at the POS made up just 0.01 percent of total retail POS volume in 2012, according to Javelin data. “There’s been a lot of talk about mobile wallets at the POS, but when you look at the numbers, there’s not much happening yet,” Monahan says.
But it’s hardly surprising that mobile wallet technology has not yet caught on widely, given the challenges any new technology faces, argues Cox. “I understand the pessimism, but if you set aside the complexity of commerce and payments, compared with any new application, I think the early players in mobile wallets have done fairly well in terms of early adoption.” (See sidebar for a sampling of mobile wallet offerings.)
Starbucks Corp.’s mobile payment platform is the unqualified champion so far. Since its launch in January 2011, millions of customers have downloaded Starbucks’ mobile app, which includes a rewards program to earn free food and drinks. As of July 2013, mobile accounted for 10 percent of all Starbucks POS purchases. While Starbucks may be a somewhat unique example, analysts say the field is still wide open for other mobile wallet providers to score with breakthrough offerings.
The process of building winning digital wallets will be rife with setbacks, analysts warn. Google Wallet already has seen high-profile industry execs come and go, while its own offering has undergone several major retoolings. Isis faced lengthy delays before its nine-month test in Austin, Texas and Salt Lake City finally began last year. Getting the payment technology and business model right is crucial for success, but some observers wonder: Have digital wallet developers focused too much on the technology and not enough on the consumer experience?
“I don’t think the consumer factor has been overlooked, but it’s often easier to think about implementing payment mechanics than about the consumer experience and the keys to driving adoption,” Cox notes.
Consumers already are building a foundation of trust in digital and mobile payments, Rick Oglesby, a senior analyst with Aite Group, tells Paybefore. With eBay, iTunes, Amazon, Google Play and Groupon, to name a few, consumers gradually have grown comfortable with storing payment credentials, paving the way to embracing broader digital wallets, he says. “Where it makes sense, consumers welcome the convenience, and retailers recognize the value of these relationships.”
A Thousand Mobile Wallets?
While diverse approaches to mobile wallets proliferate—and retailers are rapidly rolling out their own mobile payment apps and wallets—what’s the risk of oversaturation and turning off consumers with too many choices? Not as great as you might think, according to Zilvinas Bareisis, a senior analyst with Celent. “One of the arguments against the proliferation of all these different retailer mobile payment and wallet apps is that people aren’t going to want a thousand wallets, and I agree,” he says. But the average person probably makes routine purchases at only a handful of retailers weekly, and app aggregators like Apple Inc.’s Passbook will help consumers sort their options, Bareisis predicts.
It remains to be seen how consumers respond to offerings, Cox observes. “Ultimately, winners in the mobile wallet race will find a way to enhance the way consumers conduct routine transactions, and though we are still in the experimentation stage of development, we are likely to see some very sophisticated and fascinating offerings in the future that no one has yet conceived.”