13 June 2014
Banks and mobile wallets – a good marriage?
Nearly 700 mobile payments startups seek funding, according to AngelList, an online platform for entrepreneurs and investors. This means that mobile payments are ‘hot’. Consumers want to trust third parties to handle their money, but there’s a flipside. Even though a lot of parties introduce new payment solutions, consumers aren’t eager to test out these novelties. Why? They lack engagement and trust. This is why banks are the perfect party to join this race in creating the best mobile wallet technology.
“No mobile wallet has developed a strong enough value proposition to get consumers to change the ‘form factor’ with which they pay”, according to an article on why mobile wallet technology fails to entice U.S. consumers. This failure hasn’t stopped technology companies (eBay, Google), wireless carriers (AT&T, T-Mobile) and merchants (Wal-Mart, Starbucks) to dive into the market, along with MasterCard and Visa. However so far, it hasn’t been a real success because mainstream adoption is a bridge too far. “Consumers don’t yet see the value in it,” according to the report.
A promising development
The word ‘yet’ is a promising word because consumers are becoming more interested in new technologies. A recent Juniper report shows that one in five mobile handsets will have a mobile wallet functionality by 2018, versus less than one in ten at the end of 2013. Two distinct wallet models would drive growth. First, in emerging and developing markets, Stored Value Accounts are increasingly enabling first-time financial access for unbanked individuals. Secondly, North America and Western Europe mobile wallet deployments are increasingly expected to feature contactless payment functionality.
The growth can’t be denied anymore, but what is needed to support such growth? So far, no one company has found the winning combination to transform mobile payments into everyday consumer behaviour. The question still remains, how to bring the much-needed extra value in the form of payments? The answer lies in engagement. “There needs to be more incentive than just easier payment”, states an article on Finextra on why the Square Wallet failed. “Engagement is the future of the day-to-day payment experience for merchants, issuers and banks. These players will all be relying on mobile as the platform for that engagement in the medium term.”
Mobile is the platform
Mobile is the platform, but it should proceed beyond treating phones like payment cards, according to an article on American Banker. Customers want mobile payment programmes that deliver extra value, such as better loyalty rewards or apps that help them manage their money. “Of course, these apps must also be secure, widely accepted and easy to use. Where possible, they should also make it easier for customers to shop – for example, by eliminating the need to key in long credit card numbers for online purchases.”
Recent research from Aite Group finds that in order to get consumers to start using mobile wallets, technology companies and brands must ensure the user experience is exceptional and easy, and includes engagement features. What party is better suited to bring trust and engagement into play than a bank, with their long term relationships and reward programmes?
Until now, banks weren’t as eager as the many technology startups competing to dominate the mobile payments market. The Aite report backs that strategy. “Banks have to move slowly because they have more at stake and a reputation on the line with new products. Although, banks have an advantage because of the longstanding consumer relationships and trust,” says Nathalie Reinelt, analyst in Retail Banking & Payments at Aite Group.
According to the analyst, banks move slower with mobile payments because they have to develop a system that works with their existing reward programmes. “And it’s harder for a bank to attract tech talent. Silicon Valley startups can easily woo talented developers, but it’s not sexy to work at a bank,” she adds. “Financial institutions should therefore begin partnering with mobile payment vendors to incorporate mobile payments into mobile banking applications and focus on developing offers and promotions as well as consumer education to convert their mobile banking customers to mobile payments consumers.”