A couple weeks ago I attended the Mobile Banking and Payments Summit in NYC for the first time. There was an impressive list of experts from institutions such as JPMC, Barclays, Citibank, BNP Paribas, the Federal Reserve, USAA, Capital One, BBVA, and Moven, among others. I was only able to attend the final day, but it didn’t disappoint. The day focused mostly on mobile wallets, with a few main points shared below:
Mobile wallets have been challenged by industry barriers: The old rule of thumb with a payments scheme is that it needs to please three parties: the merchant, the bank, and the consumer. These products and solutions have traditionally fallen short of one or more of these objectives, essentially stalling a lot of the progress.
- There’s still plenty of fragmentation in the market: Android is an open system utilizing Host Card Emulation (HCE), while Apple is a closed system using a secure element. There are others beyond that, but it’s largely contributed to a lack of standardization and unimpressive overall adoption. We know this is largely understood by banks and merchants, and many are willing to play along for the time being.
- Consumers can misunderstand mobile wallets: Many users of Apple Pay, for example, have a poor understanding of how the system actually works, with many assuming Apple is in control of their card details. While the system is safer than traditional cards, the perception that it’s less safe is keeping many users from adopting it.
- Getting the marketing right is tough: Often, the mobile wallet really isn’t about the payment so much as the experience around the payment. It might be easier or there might be a whole host of incentives like rewards wrapped around it. The potential is there, but until recently the market hasn’t been.
- But many barriers are beginning to fall away, and there’s hope for adoption: For years, the industry has been declaring that FINALLY this year will be the year mobile wallets take off. The industry has been crying wolf for a long time, but there are some promising developments that hope to make mobile wallets a larger share of the payments universe. Currently in the US, 55% of merchants have updated their payment terminals, and 70% of consumers have chip cards. The chip card does a lot for security, but the argument is that it adds friction to the checkout experience. With the card dip taking away from the user experience, the expectation is that mobile wallets will finally offer enough UX improvement over traditional cards that consumers might opt for them during payment. It’s also reported that more than 50% of millennials have already used a mobile wallet at least once. This includes Apple Pay, Android Pay, or Samsung Pay. The growth in adoption with younger consumers is a good sign that broader adoption might not be too far behind.
My colleague Zil Bareisis has written about this quite a bit, and agrees that adoption could be driven by the emergence of EMV as well as an increase in handsets that support wallet payments.Wallets are also striking partnerships to add value, including introducing merchant loyalty, coupons, etc.The launch of Walmart Pay is a great example of a retailer applying these concepts internally, facilitating even greater adoption. For more information see any of the number of reports Zil has written on the topic.
Midsize institutions have a few paths to follow implementing a mobile wallet: Banks want to be a part of the adoption, but have so far taken a wait and see approach, unsure about the potential of existing wallets, and still trying to figure out what it means for them as the issuing bank. There are three primary ways a midsize or smaller bank can try to launch a wallet:
- Building an internal wallet: This provides the most control, customization, flexibility of functionality, and control over the release schedule. The drawbacks are that it can be a complicated task, a large investment is required, the institution needs sufficient subject matter expertise in-house, and there would be no Apple NFC support.
- Buying a turnkey white label wallet: A turnkey solution would have the benefit of being plug-and-play, there would be some customization options, functionality would be built in, fewer resources would be involved, and the vendor would provide some subject matter expertise. There would, however, be less control over the product, the wallet could be processor dependant, and the roadmap wouldn’t be controlled by the institution.
- Participating in an existing wallet: For many this is the road that will result in the largest adoption. The options are fairly universal, with Samsung, Apple, and Android offering networks here. Its plug and play, easy to get traction, includes a lot of choice, and frictionless. The drawbacks are mainly the lack of customization options or control over the direction of the wallet.
We often say that we go to these conferences so that our subscribers don’t have to. This is just a short summary of the day, and obviously there was much more detail shared. We encourage all of our readers to attend these events, but will be there in case they can’t make it.