FIS' move to offer mobile wallet technology to banks shakes up a mobile payments industry that's already a pretty volatile mix of heavy hitters in the telecom, bank and web spaces, bringing more complexity to a market that's has yet to coalesce around a dominant delivery model.
"There are a lot of providers out there…disrupters like Square and firms like PayPal, so there are still a lot of variables," says Stessa Cohen, a research director at Gartner. "FIS will have a lot of competition, and the model that emerges will depend on what consumers are comfortable doing when using their phone to pay."
FIS, which unveiled its mobile wallet technology on Thursday morning, brings a lot of advantages which should help it quickly ramp up its game. It has thousands of banks using its core and mobile banking technology, which can be quickly integrated with the new mobile payments offering, a bundle that includes loyalty offers, couponing and customer relationship management tied to contactless transactions. The FIS mobile wallet is also not reliant on near-field communications to execute payments, reducing its exposure to an immature technology with uncertain demand in the future.
Potentially working against FIS are several factors: the sizable heft of competitors; the mobile payment market's overall lack of direction in terms of interoperability and tech best practices; and concerns among some critics that possessiveness of its bank client base will affect the openness of an FIS-driven merchant/bank payments network.
FIS' new mobile wallet solution, developed through a partnership with Boston mobile payments tech provider Paydiant, will allow consumers to use most smartphones to make purchases at the point of sale and online. The product requires a downloadable app for consumers and retailers and can be built into retailers' and financial institutions' existing mobile applications, allowing FIS' core and mobile banking clients to offer mobile wallet products on a white label basis.
Consumers with smartphones download an app offered by their financial institution or retailer, attach their payment card information, then use the solution to make a purchase. The FIS mobile wallet is currently in production with a number of clients, which the tech firm did not identify. The fact that it's a software-only offering, FIS and analysts say, will allow the solution to be deployed quickly. FIS has more than 14,000 financial clients in 100 countries, and Paydiant's platform allows merchants, banks and processors to launch and manage their own mobile payments offering. Based on a hosted transaction processing system, Paydiant allows firms to enroll customers, build mobile payments into mobile apps, issue branded mobile wallets and redeem offers.
"It's about providing control over the wallet for banks," says Doug Brown, senior vice president of mobile financial services at FIS. "As a software-based model we've eliminated the hardware dependence of other models."
Brown says security will be provided though the hosting of user credentials on FIS' servers, so identifying information will not be exposed at the point of sale nor on the mobile handsets.
There are a number of other firms developing mobile wallets. ClearXchange-a Wells Fargo/Bank of America/Chase joint project, the telecom-driven ISIS, PayPal, Visa and Google are all among the firms chasing the mobile payments/mobile wallet market.
"One of the benefits of FIS' product is it's not just applicable to financial institutions or retailers. It's something that they can roll out to either one, and that positions FIS strongly. And FIS is not requiring the hardware adaptation like an NFC solution would," says Beth Robertson, director of payments research for Javelin Research.
Robertson says many other mobile wallet efforts are focused more heavily on either retailers or banks, but not both. She mentioned Google Wallet, which includes Citibank as an investor but is "not necessarily directing their efforts toward integrating mobile payments with mobile banking solutions." In the case of PayPal, "they are not rolling it out in conjunction with any banks. That would be more of a retail focus.
FIS' concept is to be able to incorporate the mobile payment option with mobile banking," Robertson says.
In a statement issued to BTN on Thursday afternoon, Dan Schatt, head of financial innovations at PayPal, says that since opening its platform in 2009, PayPal has been able to work closely with banking partners to offer new products that enable banks to monetize services, engage customers with differentiated products and execute retention strategies. He says PayPal has also opened its relationships with banks into retail banking.
"The combination of functionality and capabilities allow any financial institution to offer this premium service to the end users," Schatt said in his statement, adding PayPal also has a partnership with FIS, which has embedded PayPal capabilities within some of its applications.
"We see our service as complimentary, and one that will support models that banks want to use," Brown says, adding the system can integrate with banks that use PayPal.
Aaron MacPherson, a practice director with IDC Financial Insights, says that another advantage enjoyed by FIS is the lack of dependence on NFC; it uses instead a quick response barcode (QR code) to execute transactions, a mobile payments practice that's proven popular at Starbucks. Most point of sale retailers can more easily accept QR codes than they can NFC, which is still in development. Mobile phones with embedded NFC are not expected to be widely available for another year, and the payments industry has shown an openness to alternatives to NFC. "QR codes allow for payments without a lot of reprogramming," MacPherson says.
MacPherson says that one of his concerns for the new FIS mobile wallet is it may be "too bank centric. That might hinder adoption because consumers wouldn't know where it was accepted." MacPherson says PayPal, for example, has an acceptance mark that helps consumers know that PayPal's mobile payments option is available. "I understand that banks want to keep control of the payments…but even if mobile payments is integrated with mobile banking and branded with a bank, you still need this common mark. If a retailer has to have 200 bank logos in their window that wouldn't work. So [mobile payments] is one thing that can't be too bank centric."
Brown says it's still early in the product lifecycle, but that FIS is using smartphone location awareness technology in the pilots. He also says FIS is working on options to identify to customers where its mobile wallet-enabled services are available.