The mobile wallet already exists! It’s called mobile banking

With more than a hundred mobile wallet companies active in the US, no winner has emerged. Why not? Simon Cadbury explores the mobile wallet and mobile banking.

The mobile wallet already exists! It's called mobile banking. Image by gorodenkoff, iStockphoto.com

What do we mean by a mobile wallet? The term mobile wallet has been a buzzword for some time. With a broad range of use cases, it unsurprisingly can mean different things to different people. If we look at what has been deployed to date, there are three core types of mobile wallet: remote, proximity, and those used for both, omni-channel.

Do we even need mobile wallets?

What’s not up for debate is the primary benefits of the mobile wallet. A main advantage is that people will no longer need to carry physical wallets anymore – the mobile would replace the requirement to carry cash and cards. Here at ieDigital, we believe that if we peel back the layers further, there are a number of mobile features that offer a greater customer experience, plus added security benefits:

Mobile features

In addition, innovation around mobile payments is enabling the following:

  • The reinvention of the payment process. Take, for instance, Square founder Jack Dorsey, who rose to fame as the co-founder of Twitter. He coined the phrase ‘frictionless’ to describe his concept of making a payment with your name and nothing else. Once a payer has registered his/her card with Square, the payer’s name and photo are displayed on merchant terminals when the payer’s device is in close proximity.
  • Customers to enter a brave new world. Here is a world where bricks and clicks no longer compete. Instead, they complement one another. Mobile wallets allow for customers to begin a transaction online only to complete it when in close proximity of a store, which can present the potential purchaser with additional promotions. Or the purchaser can start in-store and complete the payment via a device at a later time.

Why haven’t mobile wallets taken off?

Despite a hive of activity in the last few years, with more than a hundred mobile wallet companies currently active in the US, no winner has emerged. In fact, some might argue that there’s a graveyard of unsuccessful ventures:

  • O2 Wallet
    Launched in 2012, it was withdrawn from market in 2014 following poor adoption.
  • Square
    Valued at US $5bn, Square abandoned the project after the app fell out of the Top 300 free finance apps in Apple’s App Store.
  • Google Wallet
    Despite > US $300m investment, it failed to attract sufficient merchants or consumers.
  • PayPal
    Despite 148 million active ecommerce users, and many mobile in-store pilots, the company hasn’t cracked the in-store payments market.

These examples highlight the complexity involved in launching a successful payments proposition. A key issue ignored by mobile wallet innovators is that a number of affected parties must all be at the table, ready and willing to support this method of payment. Without this support, mobile payments will flounder.

What’s needed for a successful payment scheme?

What's needed for a successful payment scheme?
In addition, the regulatory landscape can also provide incentives and disincentives to invest.

Why financial institutions are best placed to answer this

We need to recognize the four strengths these institutions have:

  • Trust. As a 2014 survey from Bain reported: “Consumers trust banks with their data more than they trust retailers, technology companies, or alternative payment providers.”
  • Established interface. Mobile banking has an infinitely higher adoption rate than any wallet, and is already used widely. The active mobile app user for a typical UK retail bank is logging into his/her app an average of 23 times a month.
  • Established authentication model. The credentials currently used for digital banking.
  • Established settlement. Whether it be the bank-owned Faster Payments network or the Card Schemes (where the largest debit provider, Visa Europe, is owned by its member banks).

Financial institutions can build on these strengths, but they need to recognize that high levels of security and privacy need to be balanced with accessibility and ease of use.

What should financial institutions be doing?

To maintain their position at the forefront of the payments value chain, financial institutions need to continue innovating. However, we need to acknowledge that there’s myriad payment types that will not all be replaced by mobile payments overnight. A mobile payments strategy needs to be approached via a series of baby steps, focusing on specific use cases.

The first decision an institution needs to make is whether it wants to settle its payments via Faster Payments – the UK’s intra bank network that settles 99.9% of transactions in a matter of seconds – or the Card Network. If you’re a credit card issuer with no access to the Faster Payments network, it becomes an easy decision. If you’re a retail bank that issues debit cards (Visa has 96% share of the UK debit market) and has access to the Faster Payments network, the decision is more difficult.

How we can help

ieDigital can help its clients enable a number of solutions.

ieDigital helping its clients choose between Faster Payments and card-based payments.

* The Wallet in the Cloud, an open platform that makes it easy for issuers to work collaboratively with merchants by enabling payments from within their mobile banking app.

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