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Can Mobile Wallets Make Money?

Wintrust Financial's Tom Ormseth knew the time was right for the $18 billion-asset, Chicago-area company to come up with a mobile wallet offering when merchants curious about the concept started asking him questions. A lot of questions.

The request for guidance was understandable. While "mobile wallet" has become an industry catchphrase, its definition remains amorphous. No one knows exactly when, how or from whom the supposed mobile wallet future will arrive. Nor can anyone say what it will mean for banks, merchants and card networks as more consumers start buying things with their phones, instead of debit or credit cards.

Nevertheless, the proliferation of phone-based payments seems inevitable. Less certain is whether banks will profit from it, by monetizing their mobile customer data. To do that, they will need enough consumers using mobile wallets to convince merchants that purchasing the data will help boost their own bottom lines. It's a chicken-or-the-egg conundrum, requiring banks to create demand among consumers, where many say there currently is very little interest.

So, like a songwriter hoping to come up with a hit, Ormseth, Wintrust's director of non-credit services, knew he needed a hook—something to entice retail banking customers to use a mobile wallet so that the bank, in turn, could convince merchants to pay for the data that would be generated.

FIS, Wintrust's mobile banking provider, eventually offered up something that was music to his ears.

Working with mobile wallet provider Paydiant and ATM maker Diebold, FIS developed a white-label, cloud-based service that lets bank customers withdraw cash from ATMs using a basic mobile wallet. The bank gets to brand the service as its own, and with only a software upgrade it could enable existing ATMs to handle the cardless withdrawals.

The money goes into the consumer's pocket the old-fashioned way—this is real cash, not digital credit—but no card is needed. The phone replaces the card, with identification and authentication handled by a mobile app where users can enter their debit card information, establish a PIN, see menus of withdrawal amounts and find ATM locations where the cardless cash withdrawal service is offered. When the customer selects the ".communityWallet" feature on the ATM welcome screen, up pops a QR code that can be scanned with a smartphone and the withdrawal can be made, turning "what is normally a 30-plus second transaction into about a nine-second transaction," Ormseth says.

The model excited Wintrust executives, who are betting that a cardless cash withdrawal feature at the ATM will jumpstart consumer interest in a more fully functional mobile wallet.

Ormseth hopes the service, tested first with employees, can achieve a 20 percent adoption rate among Wintrust's retail banking customers within 18 months of its rollout.

With that kind of traction, Ormseth says, the bank should have enough data to attract the attention of retailers, who might, for instance, be interested in sending coupons or other enticements directly to the smartphones of Wintrust customers who are withdrawing money from nearby ATMs.

"For the first time, this is where I think we can actually start to monetize mobile banking," Ormseth says.

"Customers who go to one of my ATMs within a mile of any one of these businesses could be presented with a value, and we could manage that for a lot of our merchants that aren't big retailers but want to compete on that level. We think that's something they'd be willing to pay for."

But will they?

"It's hard to say," says Gilles Ubaghs, senior analyst at the research firm Ovum. "That data can provide quite a bit of insight, so for a local bank working with its local merchants, it can become valuable. But I question how much small merchants would pay for this. Does the corner ice-cream seller really need that much analytics on their customer base?"

While Wintrust waits to find out, it is promoting the cardless ATM withdrawal service in videos and in live demonstrations at its branches. A YouTube clip from FIS on the BusinessWire channel, which calls attention to the Wintrust pilot and demonstrates how the service works, had more than 2,800 views at press time.

General awareness of mobile wallets is starting to proliferate with the help of competing bank-branded wallets from the likes of Gemalto and Monitise. Wallet technology startups such as LevelUp and Square also are creating buzz and gaining users.

According to Ormseth, employees involved in Wintrust's pilot responded enthusiastically to the cardless cash withdrawal service, which will be available at all of Wintrust's 185 ATMs by the end of the first quarter. Given the choice to use the app or to get cash via their traditional ATM cards, "everybody" chooses the app, Ormseth says.

But the expense of providing the service and developing other mobile wallet applications weighs heavily on Ormseth's mind. "We've got to be able to monetize this at some point," he says, "or we're not going to be able to keep paying for it."


Shane Kite is a freelancer in New York.


(3) Comments



Comments (3)
I think there is valuable perspective in what you are saying, Qualsol. But I also think you are being unduly negative.

Generally speaking, all businesses exist to earn money in exchange for the services they provide. I don't think anything about that has fundamentally changed in the digital age.

I also don't think banks can afford the luxury that perhaps Facebook and Twitter enjoy of burning through a lot of cash while providing a free service for an extended period of time, just on the faith that they can figure out later how to monetize it. Incidentally, they are going about the monetization process in a fashion similar to Wintrust -- with targeted advertising.

The non-card ATM transaction is a baby step toward a more fully functional mobile wallet. It's not the end game.

Although you dismiss the ATM functionality as being of no value, the users in the pilot obviously liked it a lot. As the story explains, all those in the pilot chose to use the app rather than continue doing ATM withdrawals with a card.

Your assumption about tripling wait times is incorrect. As the story explains, the app cuts ATM transaction times significantly -- from 30 seconds to 9 seconds.

Wintrust is trying to do exactly what you suggest. It is experimenting with an idea to see if it resonates with customers. If customers make use of this new app, then perhaps Wintrust will have a product (to use your words).

It's possible some people will opt out as you suggest. But whether opt-outs will go the roof is questionable. And, to Wintrust's credit, instead of making such assumptions, it is experimenting to see what actually happens.
Posted by bmcgeer | Monday, March 03 2014 at 7:17PM ET
As is typical - the completely wrong question to ask. If the expectation is that mobile wallet must make money to keep the lights on - then they should/will shut the operation down soon. It is fool hearty to run a new age digital business the same way you run your old school business.
The second you start hitting your customers with advertising - and its location based - your opt-out rates will go through the roof. There is zero 'real world' value in non-card transaction at an ATM - except that you tripled my wait time. Stop forcing the issue. Figure out the 'solution' that consumers want and need - and stop trying to make something that looks good on your CV.

The footnote should read - by anyone who knows anything about this space, "provide real value and you have a product"!! Provide 'BS value" and expect to make money for yourself and you've just wasted a lot of everyone's time. Including mine, for having read a worthless article.
Posted by Qualsol | Monday, March 03 2014 at 3:46PM ET
Great article! I would love to know how it works out with local merchants. I have seen a Diebold demo of the mobile wallet use at their ATM and it looks slick. Would be great to get local merchants to share some of the cost and make it that much more beneficial to your ATM users.
Posted by jamies | Thursday, February 27 2014 at 6:54PM ET
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