The race for the mobile wallet
The race for the mobile wallet key points • Research shows that the “wait-and-see” mobile wallet strategies adopted by many financial institutions are out of step with consumer expectations. • Consumers are open to non-bank competitors’ wallet offerings, and those competitors are aggressively moving ahead quickly with wallet programs. • Cloud-based wallets avoid expensive infrastructure and allow financial institutions to decrease deployment time while increasing security and convenience. • “White-label” mobile wallet programs let institutions maintain their brand throughout the purchase experience, resulting in deeper customer relationships. • Financial institutions have the advantage of high levels of trust through existing relationships with customers—but they need to move ahead soon in their pursuit of mobile wallets.
Many banks and credit unions are lagging behind non-bank competitors in the mobile payments arena—but new wallet options are creating opportunities to close the gap. For many financial institutions, mobile payments are top-of-mind and a logical next step for their mobile banking strategy. But industry executives often have a number of questions about how implementation will actually work—primarily concerns about security, evolving technologies, and the risk of betting on the wrong approach. Of primary interest is the mobile wallet, a key enabler of payments that provides a single access point to an individual’s cards and accounts for payments. There is a confusing array of mobile wallets on the market or under development, different products offer different options, and there are no mobile wallet standards in place. For financial institutions, this can present a complicated, shifting landscape that’s difficult to understand. In that environment, many financial institutions are hesitatant to move forward and are instead adopting a holding strategy toward mobile wallets. “We are taking a ‘wait-and-see’ approach for mobile until…there is clear demand for it,” one industry executive recently told Vantiv/Mercator researchers.
“The wait-and-see strategy is understandable, but it may also be a bad idea,” says Dean Seifert, senior vice president, Product Strategy, at Vantiv. “The mobile marketplace is taking shape quickly, and waiting puts financial institutions out of step with customers— and makes them likely to be left behind.”
Mobile Wallets: On the Move From the financial institution’s perspective, the value proposition for mobile wallets is clear. They enable the institution to engage cardholders and build loyalty through offers and promotions, and create new revenue streams through mobile advertising while keeping their brand at the forefront. “In an information-driven, mobile world, whoever owns the wallet owns the customer,” says Seifert. But executives’ concerns make them hesitant to take advantage of mobile wallets. Over the past two years, Vantiv/Mercator research has explored the attitudes of consumers and financial industry executives toward payment methods. It found several “disconnects” between the views of these two groups, par-
ticularly about mobile payments and wallets. Consumer interest is quite high, and 62% expect to see this method in wide use in two to five years. But financial institution executives tend to see adoption taking much longer. What’s more, the research found that “high-value” customers—those making $100,000 a year or more—are especially interested in mobile payments. So are younger consumers age 18 to 34—a clear indicator of the direction of consumer attitudes in the coming years. In short, consumer expectations for mobile payments are high—and consumers are not likely to be patient with financial institutions that won’t deliver. A number of larger, sophisticated financial institutions are currently exploring the use of their own wallets. So too are non-bank players such as Google, Apple, and PayPal—and research shows that consumers are open to considering such organizations as wallet providers. For financial institutions, these new competitors threaten to erode card-network-based and interchange revenues. Perhaps more troubling is the potential for disintermediation, with non-bank wallet providers having access to point-of-sale (POS) communications and customer payment data that can be used for marketing—in essence, enabling the provider to get between financial institutions and cardholders.
Simplifying the Mobile Wallet In this fast-moving environment, financial institutions can combine their
caution with action and take measured steps into the mobile wallet space by testing, piloting, and expanding gradually. By doing so, they can minimize risk while gaining experience and learning more about what cardholders want from wallet offerings. And by introducing the service to their cardholders earlier rather than later, they can encourage those cardholders to remain with them as mobile payments become more common. Several recent developments reduce the cost of entry and make it easier to take a measured approach to mobile wallets. For example, some wallets use QR codes for transactions, making it possible to leverage traditional merchant POS systems and consumer smartphones for mobile payments. That means that financial institutions can move forward with wallet programs without having to build out an expensive infrastructure while NFC and other standards continue to be debated. QR-based solutions can also take advantage of the cloud to store the consumer’s payment information, and easily enable consumers to use a variety of cards and other payment methods to make purchases. Sensitive information, such as personal or PCI data, is not shared with the POS terminal or stored on the mobile device, so a lost phone is not a significant security concern. Already, 2 out of 5 consumers are interested in using this type of payment, the research found. An evolving marketplace is also making it easier for financial institutions
Banks, credit unions
Major card networks Online payment providers
59% 20% 27%
Major technology companies
Major eCommerce companies
Major retailers 0%
18% 12% 18% 20%
■ All respondents ■ Respondents most likely to use mobile wallets Source: Vantiv/Mercator Insight Research 2013
IN BANKS THEY TRUST Consumers rank banks and credit unions at the top in terms of preferred wallet providers—a reflection of the trust built up by those institutions.
Strengthening the Value Proposition to get involved. For example, we are now seeing “white-label” mobile wallets that allow institutions to issue their own branded mobile wallets and easily integrate that functionality into their existing mobile banking platforms, while the wallet provider manages the actual operation of the program. The institution can therefore maintain its relationship with cardholders and strengthen that relationship through offers and promotions at the point of sale. That approach also allows the financial institution to rely on the skills and resources of the wallet provider to navigate the complicated, changing world of wallet standards and handset technologies. “The technology is moving so fast…,” one credit union executive told researchers. “Are we on top of the market? Are we identifying the best alternatives and partnering with the right vendors?” A partner can help institutions get up and running quickly, build relationships with merchants, process secure transactions, and integrate payments with loyalty programs.
The Industry’s Opportunity As they consider wallet programs, financial institution executives should remember that their organizations bring
some unique strengths to the table—a key one being trust. Consumers tend to view bank offerings as secure—a critical point, since 3 out of 5 consumers who aren’t interested in mobile payments cite security as a primary barrier, according to the Vantiv/ Mercator research. In addition, 74% of consumers said they are concerned about too many vendors having their purchase information. Banks are already entrusted with cardholders’ personal and financial information. As a result, cardholders using bank-issued wallets don’t need to share that information with a new—and perhaps less wellknown—provider. When researchers asked consumers what type of mobile wallet provider they would prefer, 50% said banks and credit unions, putting these institutions at the top of the list—well ahead of organizations such as Google and Apple, as well as retailers and card networks. “The mobile wallet space is becoming highly competitive, but financial institutions still have some advantages that let them stand out from the growing number of non-bank competitors,” says Seifert. “But they need to take action and build on those advantages if they are to fend off the competition and use mobile payments to get closer to customers.”
Mobile wallets can be a valuable part of mobile banking— and the right mobile banking strategy can help ensure the success of those wallets. Vantiv/Mercator research has found that consumers are looking for a comprehensive mobile strategy that offers more than just payments. “Consumers want mobile payments that give them more information and improve the shopping experience, while letting them make purchases and perform traditional banking functions,” says Vantiv’s Dean Seifert. As financial institutions prepare to offer mobile wallets, they can enhance the mobile banking platform itself to give consumers the broader set of functions they want. These can include features such as mobile check deposits, alerts , budgeting, and personal financial management tools, and the ability to easily manage and use coupons. With those kinds of features, says Seifert, “financial institutions can offer payments as part of a larger value proposition that gives consumers the control and convenience they want.”
About Vantiv Vantiv LLC is one of the leading integrated payment processors in the United States. Known as Fifth Third Processing Solutions since 1971, the company, headquartered in Cincinnati, Ohio, changed its name to Vantiv in 2011, and became a public company in 2012. Vantiv’s credit, debit, prepaid, and mobile solutions help businesses and financial institutions of all sizes get the most out of payment activities.
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