Digital wallets are a hot topic in financial services-and with good reason. According to a "Global Study 2013" conducted by PayPal, a whopping 86% of us would rather leave our traditional wallets at home if we could in favor of a mobile alternative.
Consumers may like the idea of a mobile wallet, but awareness of existing products is unclear. There is no dominant brand or category defining product. For credit unions, the challenge is making sure that member engagement with mobile wallets is part and parcel of engaging with their credit unions as the market evolves.
Unpacking the Mobile Wallet
Mobile wallets represent the area of greatest potential growth for the financial services industry, including credit unions. Before we delve into mobile wallets, let's define its more familiar predecessor: the online digital wallet. Businessdictionary.com defines "digital wallet" as "Software that resides on a buyer's computer and holds digital cash, and a digital certificate with a digital signature, as well as billing, shipping and payment information for online transactions."
Mobile wallets offer some of the same functionality, but by using a smartphone instead of a computer. Moving the wallet to a mobile device offers more portability and creates interactive shopping experiences along with basic functions such as payments and identification.
For example, a mobile wallet might use geolocation to determine where a consumer is shopping, pull relevant coupons and loyalty cards for that store, present cardless payment options and even facilitate the transaction.
Another commonly cited mobile wallet feature is person-to-person payments. Friends attempting to split a dinner check no longer have to reach for their cash-or ask the server to split the bill between different credit cards. They simply exchange money via their smartphones, using their mobile wallets. (PayPal's study found that 54% of Americans say they've been stiffed by someone, most often by friends who intended to split a restaurant check with them. Mobile wallets may provide the immense service of reducing social bad debits!)
For a mobile wallet to be useful, of course, it has to connect with merchants and other wallets. A mobile wallet isn't really working at optimum capacity if it doesn't connect with a wide range of merchants-and the individual people with whom the user wishes to exchange money.
Expectation: What do Consumers Want?
Now that we've seen how mobile wallets might work, let's consider what consumers expect from mobile wallets.
First, a question: Is there actual demand for mobile wallets, or is this a solution in search of a problem? Answer: As stated at the beginning, 86% of Americans would prefer to leave their wallets at home. Top places they want to go wallet-free: the beach, the gym (or wherever they're exercising), the laundromat, the grocery store and restaurants.
Consumers might want the utility of a mobile wallet, but they're unsure how to get it. According to a spring 2013 CMB Consumer Pulse study, "The Mobile Moment: Barriers and Opportunities for Mobile Wallet," only 50% of consumers surveyed even knew what a digital wallet was. This lack of awareness leads to lack of usage. Thus, mobile wallets haven't really exploded on the scene yet. Only 16% of CMB Consumer Pulse respondents had used a mobile wallet in the past six months.
Apparently, there is a gap between the large number of consumers who expect to abandon their regular wallets and the minority who are ready to try one out now. What's the problem?
A raft of concerns (led by security), spotty awareness and current low usage stand in the way of more robust adoption. But this is a growing market.
In its report, "Mobile Money Transfer & Remittances-Business Models & Monetisation Opportunities 2011-2016," Juniper Research expects the average number of active mobile wallet users making domestic transfers in the U.S. and Canada to more than double between 2011 and 2013-going from 2.3 million to 5.4 million.
Gartner, Inc. produced its own report, "Forecast: Mobile Payment, Worldwide, 2013 Update," and predicted 245 million people worldwide will use mobile payment technology this year, generating $235 billion in transactions. By 2017, Gartner expects the ranks of mobile payment users to reach 450 million, with $721 billion in transactions.
These bright predictions assume that the gap between consumer expectation and experience will narrow, making customers more comfortable with the technology and paving the way for its growth to reach its envisioned potential. Credit unions obviously have their work cut out for them as they try to close the gap through information, education and marketing.
For credit unions specifically, the best mobile wallet is one that works as part of the financial services package. Credit unions need to embrace this technology or risk losing wallet share entirely to competitors. It will be time, resources and management energy well spent.
Amanda Smith is senior technology and innovation manager for CO-OP. She can be reached at
