Thursday, September 11, 2014

Wallet Wars

Mobile wallets continue to be a hot topic and now the latest round of rumours has Apple, Facebook, Visa, MasterCard, and others set to leverage their global footprint to control our wallets into the future. While the battle grounds are drawn in the mobile wallet wars perhaps it’s time for the rest of us to have a recap covering the basics of mobile wallets where they have come from and where they are going. This brief article will try to cover the what, how, why, and who of mobile wallets.

What is a mobile wallet?
Mobile wallets mean many things to many people and can cover a variety of use-cases and feature sets. Take a second to think about what is in your wallet. You probably have credit cards, store cards, loyalty cards, vouchers, cash, and identification. In fact most of these features have been considered and are already included by one solution or another. In addition Mobile Wallets commonly target:
  • Gift cards
  • Alternate payment methods (PayPal, Bit coins, store credit)
  • Advertising
  • Event tickets
  • Boarding passes
  • Unbanked / Branchless Banking
  • Account Top-Up 
How do mobile wallets work?
Mobile wallets can act as a replacement for one or all of the features described above. Typically this is done by storing a secure electronic copy of the physical cards that they replace. For example, rather than carry physical loyalty cards have a software application store your unique id and points balance. Technically this can be achieved a number of ways:
  • Store the secure information directly in the application (locally on the device)
  • Store the secure information in the cloud and relay access when required.
At the point of sale use your mobile wallet (often an application on a mobile phone) rather than the physical card. Technically this can be achieved a number of ways:
  • Bar Code (The application displays a bar code on screen that is read by the store’s bar code scanner)
  • NFC (Near Field Communication is becoming increasingly popular)
  • SMS (Favoured on older mobile phones) 
Why have mobile wallets?
Convenience is often touted as the primary reason. How much easier would life be if you didn’t need to carry a fat wallet around with lots of cards in it? Most people are already carrying around a smart phone anyway so wouldn’t it be simpler to just be able to identify and pay with your phone? Of course there are some other great reasons for the vendors and suppliers of mobile wallets including:
  • Reduced costs (physical cards, new channels of payment)
  • Increasing customer base (such as emerging markets or unbanked)
  • Advertising
  • Loyalty
  • Big Data & Analytics
Currently when you purchase something by credit card the payment passes through a number of hands and this process typically incurs some costs. Mobile payments enable new channels for payment that could be for example direct between the consumer, merchant, and bank and bypass the card companies and the acquirer.

Why haven’t mobile wallets already taken over?
Let’s face it; wallets have been used for thousands of years. They are already “mobile” they are already pretty “convenient” and they handle cash, coins, government identification, etc. People are used to them and will therefore need the mobile wallet equivalent to be more than equally convenient. Additionally challenges include:

  • Completeness of features (mobile wallets offer some but not all features in one product, leading to the need for multiple wallets)
  • Regulations & Standards (different countries, banks, vendors, security)
  • Perception , Change & Uptake (A critical mass of support by vendors and consumers)

In Australia NFC has really taken off and most point of sale locations now offer contactless payment from credit cards. Some banks are already providing NFC based mobile applications. However NFC is certainly not popular in all geographies. Additionally for many countries POS systems are not ubiquitous and cash and cheques are still the primary method of payment.

With mobile wallets and associated payments opening the gate to bypass traditional players in the market there is also some obvious resistance to change.

Who is providing mobile wallets?
There are a plethora of providers for mobile wallet / payment solutions. These include:

  • Financial Institutions
  • Card Companies & Payment Brokers
  • Phone & Hardware manufacturers (e.g. Coin https://onlycoin.com/)
  • Telecommunications Providers
  • Software Companies
  • Merchants

As the associated technology has matured, providers of mobile wallet solutions have targeted their own customer base with features that add value to them and their customers. Now mobile wallets are already providing functionality to many people around the world. When it comes to mobile wallets what the world needs now (other than love sweet love) is a mobile wallet that allows more convenience and acceptance than the existing leather “mobile” wallet.