Why mobile wallets took the long way to the point of sale

It took some time to get there, but mobile wallets may have finally found their niche — boosted more by e-commerce than by the point of sale systems they were designed for.

What retailers, especially smaller and midsize ones, have to decide now is if the mobile wallet has found its place soon enough to help them neutralize what some of the major brands are doing as well as the futuristic tendencies of Amazon.

Target's situation is a good example of this pattern. The retailer chose to accept Apple Pay online only when Apple's mobile wallet debuted. This protected Target's interests at the point of sale, but also helped Apple build its market in the digital realm. Ultimately, Apple Pay gained enough of an audience that Target agreed to accept it in stores as well.

"We are where we are supposed to be now with mobile wallets," said Ralph Dangelmaier, CEO of BlueSnap, an online payments and mobile checkout provider. "We always thought the mobile wallet was the great equalizer between the middle-market guy and the Amazon and Starbucks, which have amazing technology."

In building its business the past five years, BlueSnap has been encouraging clients to adopt mobile checkout and be part of the growing flow of in-app payments to grab some of the transactions that larger retailers are getting — and be a player at a time when most every financial or payments service is moving to the smartphone.

It has generally been agreed upon in the payments industry that a clear "winner" may never unfold in the general mobile wallet competitions, but Dangelmaier predicts Google Pay will ultimately have an upper hand by 2020.

While Alipay may dominate China, and Starbucks will own the coffee buyers' mobile habits, Google Pay has advantages over Apple Pay and Samsung Pay that can't be overlooked, he said.

"I have found it is extremely hard to be against the devices, and Android Pay becoming Google Pay was a big deal, as well as the fact there are more Android phones on the market than iPhones," Dangelmaier said.

Plus, Google Pay will always have an advantage in that those using the Google browser likely already have payment credentials registered with Google. "If they have your information, you are going to be following Google's lead on the IoT trend and could be ordering and paying for milk from your refrigerator," Dangelmaier added.

Regardless of which wallet makes a move to the forefront, it is likely more consumers will be pulling out smartphones for payments in the near future.

Mobile wallet use will increase in the coming years because "it is the only payment form that can transcend physicality," said Thad Peterson, senior analyst with Boston-based Aite Group. "It works equally well online, on mobile and in-store."

As those three worlds continue to blend, the value proposition for mobile wallets will only increase, Peterson added.

"A second factor is the coming explosion of contactless cards, which increase penetration of NFC-accepting terminals," he said. "With a combination of greater functionality and more places to use them, mobile wallet usage will increase."

While mobile wallet growth will help both merchants and consumers in terms of speed and security because payment credentials never leave the phone, the technology's future has at least some uncertainty. For example, an Amazon Go cashierless concept or voice-controlled payments give the advantage to the retailer or tech provider instead of the handset maker.

"Amazon is in a parallel universe right now, and that universe is voice," said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC. "You can't initiate and complete a voice transaction without first enrolling the authenticated user for payment."

It would mean Amazon is compiling data to complete this task and spread to its other payments options as needed, Crone added.

All this makes it even more critical for merchants currently trying to compete with the likes of Amazon to get a grasp of mobile commerce and use the mobile wallet options to "populate payment credentials in the merchant apps," Crone said.

It's increasingly difficult for merchants to compete with Amazon or Walmart if they are still operating without knowing who their customers are and being able to analyze their spending tendencies.

"We push hard with our merchants to adopt mobile wallets," BlueSnap's Dangelmaier said. "You really have to explain all of the factors to them, and explain that if people connect to their sites with a Visa card online, then they really already are accepting a 'wallet.' "

BlueSnap provides the software development kits that are certified by Google and Apple to get merchants accepting the wallets through the proper coding in a matter of hours. That sort of turnaround should go a long way to get the still-reluctant merchants to get on board with mobile commerce.

"The merchants in the middle, between the very large and small, are really underserved," Dangelmaier said. "They don't have the payments know-how or tech available to build things themselves."