As the hype around mobile wallets continues to build, many banks find themselves at a crossroads in their strategic thinking.
On the one hand, a mobile wallet represents a valuable communications channel through which banks can deepen customer relationships, gain valuable insight into spending habits and a clearer understanding of customer attitudes toward new products and services. Advocates promise new revenues for banks too, through customer profiling data collected by mobile wallets.
Yet, big questions remain over when, or even if, mass market mobile wallet adoption will ever be achieved. Detractors maintain that the supporting infrastructure (for both consumer use and merchant acceptance) may still fail to mature to a point where it is able to support widespread adoption. What’s more, the mobile wallet’s complex and crowded development ecosystem is unchartered territory for many banks, making evaluating strategic options harder still. Due consideration must be given to the commercial agendas of a wide variety of stakeholders with whom many banks have had little prior experience. Merchants, mobile network operators (MNOs), device manufacturers, mobile marketers together with a wide range of niche service providers are all vying for influence. How then should a bank approach weighing up its options?
In our view, banks should be guided by a simple yet fundamental question: “Do our customers consider the mobile wallet to be valuable?” lf the answer is “no” and the bank concludes that the whole offering will never take off, then it can refocus resources on more familiar territory, such as online services and mobile banking. But if the answer is “yes,” then it should act now to engage with the market before third-party wallets have the chance to establish dominance.
Fly Solo or in Partnership?
Fundamentally, there are two routes a bank could take to participate in mobile wallets:
Fly solo. A bank could opt to develop a 100% proprietary solution over which it has complete control, ensuring that it retains exclusivity over its customer relationships. This option also enables delivery of the bank’s own digital content to customers without jostling for customer attention with competing third parties in the app. A proprietary mobile wallet could also reduce time-to-market by coordinating all design and development internally.
But this route is fraught with difficulty since several factors crucial to a mobile wallet’s success sit well outside the core competencies of a conventional bank. Obviously, the mobile wallet’s strength will come from the variety and allure of additional services that the technology can offer users, together with the unique value-add those services provide. Banks, with little experience in these fields, would find themselves up against a growing number of specialist value-added service (VAS) providers operating both independently and in partnership with MNOs and merchants.
Issues relating to technical integration and payment service interoperability are likely to further complicate matters for banks looking to go it alone. Most mobile wallets will aim to support a range of payment facilities, from cloud-based remote payments to contactless proximity payments, using near field communications (NFC). These, together with a growing range of mobile point-of-sale acceptance technologies are at the center of their own development ecosystems, the majority of which operate independently of the banking community.
At the very least, a proprietary mobile wallet solution from a bank will require engagement with an MNO or payment network in order to support the exchange of payment and VAS data to and from the wallet.
Seek partners. An alternative route is to develop a mobile wallet proposition in partnership with other stakeholders. By taking this approach, a bank would be able to focus on its core competencies and leverage the expertise of its partners and its digitally-engaged customers to create a mobile wallet proposition that delivers greater customer value than a proprietary alternative.
Such “innovation networks” that are built from collaboration between cross industry stakeholders can spark new ideas which can lead to the inception of valuable services. Pooling the expertise of different stakeholders can also result in a solution capable of scaling rapidly, thanks to each stakeholder’s ability to identify and rectify challenges in their field before they grind development to a halt. A co-branded solution with high profile stakeholders, be they internet giants, MNOs, merchants or other financial institutions, will increase reach and may also enhance customer confidence in the solution, boosting adoption rates further.
But there are complications here, too. Any bank considering this approach must strive to understand each stakeholder’s intentions, together with the market dynamics that will ultimately govern the actions of potential future partners. Entrusting one’s customer base to a partnership requires an extraordinary level of trust and shared risk. Internet giants, for example, consider the mobile wallet to be an area ripe for use as a tool to protect and generate profits from within their existing customer ecosystems.
MNOs, meanwhile, seek to host the secure payment credentials needed to execute a transaction on the device’s SIM card, generating revenues from each payment. This means an MNO may resist a bank’s efforts to integrate alternative solutions, where the secure credential is hosted on an embedded NFC chip, a microSD card, or on a remote server in the cloud, for example. Banks should be prepared to take a view on these emerging alternatives before committing themselves to a contract.
Merchants and VAS providers are starting to create their own payments networks and branded wallet experiences which could, through partnership, also serve the interests of banks. While unresolved questions remain over customer privacy and each stakeholder’s entitlement to the use of customer profiling data collected via the mobile wallet, there is no doubt that additional information about the spending behavior of current and potential customers has value. It is also widely acknowledged that the proliferation of valuable services available in a mobile wallet will be key to driving mass adoption, indicating that these issues are likely to be addressed as the mobile wallet market matures.
In payments specifically, the digital payment networks are developing and promoting their own branded mobile wallets, together with capabilities for simultaneous cooperative and competitive efforts with third-party solutions. Online payment facilities are also vying to establish a presence in the development ecosystem, offering a front-end payment mechanism that is linked to credit and debit cards, automated clearing houses and merchant stored-value. This model, a simple extension of well-established e-commerce practices, threatens to reduce a bank’s customer visibility in the mobile wallet space by taking control of the front-end payment interface, thus squeezing banks into a processing-only role in the value chain.
Overall, mobile wallet strategy is not only about technology, but includes building and protecting a valuable role for banks in the mobile wallet value chain. Banks wishing to engage with the mobile wallet must balance multiple, simultaneous challenges in an emerging space and do so without impacting customer security or convenience. Since the end-state remains unclear, multiple simultaneous bets must be placed to ensure a role in years to come.
Opting to ignore the space entirely remains on the table but we believe that can be painfully detrimental to a financial institution as mobile wallets develop through multiple generations. To ignore the mobile wallet is to risk a cornerstone in a highly competitive and fast moving digital ecosystem. Understanding the dynamics of the industry is crucial if a bank is to take an assured first step into the marketplace.
Mr. Tabakovic is chairman of the Mobile Wallet Taskforce at Helsinki, Finland-based Mobey Forum, which provides a platform for discussion, networking and knowledge sharing in mobile financial services. He can be reached at email@example.com. A fuller discussion of mobile wallets can be found in Mobey Forum’s recent white papers on the topic.
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