The right mobile wallet solution can benefit everyone by improving the shopping experience for consumers, enhancing loyalty programs for retailers, and allowing financial institutions to connect with their customers at the point of payment – the most frequent touchpoint between any institution and its customers.
While any disruptive technology has more than one path to widespread adoption, one thing is clear: Both financial institutions and retailers should be considering adding mobile payments as part of their shopping or banking app, or risk disintermediation by third party mobile wallet solutions and the loss of important customer interaction.
To fully maximize the potential of mobile wallet solutions, financial institutions and retailers must work together to create mobile wallets with ubiquitous access for all phones, all tender types, and in all purchase venues.
As many companies scramble to find the winning formula for mobile payments, they are coming to market with distinctly different ideas. It's still not clear what the best tactic should be, but a few mistakes stand out as lessons for others.
Because of the access limitations of hardware-based mobile wallets, current solutions will not ultimately achieve widespread adoption at the physical point of sale (POS), according to NACHA—The Electronic Payments Association’s Payments Innovation Alliance.
Android phones utilize a more open approach, but ApplePay – while providing a simple, intuitive and fast transaction – stores encrypted payment credentials on the iPhone and does not allow access to the Near Field Communication (NFC) antenna to others.
Until all hardware makers are willing to provide full, open access to the hardware-based methods of storing account credentials and access the POS, cloud-based approaches are the most promising for creating ubiquitous access and for the evolution of both retailer and financial institution mobile wallets.
To ensure that mobile wallet solutions provide customers with an optimized experience, all methods of payment must be utilized. Thus financial institutions and retailers will want to consider the clearing and settlement networks they use to process mobile payments.
The final foundational element of a successful mobile payment platform is merchant acceptance. Without merchant acceptance, the mobile payment cannot be made by the consumer. For a financial institution wallet or app to achieve success at the physical POS will require working with retailers to provide benefits that make acceptance advantageous to the retailer, such as access to customer data, reduction of retailer processing costs, and keeping changes to POS acceptance technology to a minimum.
But the successful mobile wallet will go beyond ubiquitous access, acceptance of multiple tender types, and acceptance by all merchants. Every financial institution should be considering the steps necessary to create a viable, interoperable mobile wallet solution for one simple reason: “The mobile wallet is more than just a payment method.”
The creation and development of mobile wallet solutions by financial institutions will allow for capitalization on a growing consumer expectation – a more integrated and personal mobile banking and payment experience. By integrating new avenues of customer data such as account history and product information, financial institutions will be better equipped to tailor offerings of new services to their existing clients.
The value proposition for financial institutions does not end with the opportunity to offer existing clients new services. According to Richard Crone of Crone Consulting LLC, “Consumers prefer to activate mobile payments from their trusted financial institution. By offering a mobile wallet solution, financial institutions can reinforce the connection between their brand and their customers while providing a springboard for new in-context services wherever they may be.”
But as is the case with any major endeavor, financial institutions must consider the return on investment for developing a branded mobile wallet. Per recent research from The Alliance, the annual gross revenue that could be generated from a mobile wallet is estimated to be as much as $300 per user per year, just from the “data-driven” elements alone.
This potential return on investment is centered on one crucially important factor: enrollment. Financial institutions that enroll their customers in a branded mobile wallet will control the user interface and be in a position to monetize the use of the app.
The benefits of offering a branded mobile wallet app are clear, but the advantages cannot be the only consideration for financial institutions looking to strengthen their relationships and expand their customer base. Failing to adapt to this emerging technology could leave institutions out in the cold when third parties enter the market offering the solutions their customers need. It is vital that financial institutions not miss out on this opportunity for increased interaction with their customers.
Mobile wallets will change the nature of payments for consumers, retailers and financial institutions alike. And those banks and credit unions that do not want to be left behind need to have a strategy for how they will address this major shift in the payments universe.
