KAREN EPPER HOFFMAN_resized
Karen Epper Hoffman Aug 23, 2016

Reaching for your (mobile) wallet

When people reach for their wallets, increasingly it’s not the conventional leather cash-and-card holder they are pulling out, but their smartphone.

Mobile wallet applications, which store payment credentials and information, are beginning to snowball in popularity, after a few false starts early on. Aided by the entrance of major technology industry powerhouses, including Apple Inc., Samsung, Google Inc. and PayPal, the mobile wallet concept is finally striking a chord with consumers and bankers alike, who see a ripe opportunity to pair the ubiquity of the mobile device with more convenient payment.

“Apple Pay, Android Pay and Samsung Pay are targeted at the mobile-first customer,” says David Godsman, the digital banking, emerging payments and innovation executive for Bank of America Corp. of Charlotte, N.C. “Banks are becoming more aware of mobile being with customers 24 hours a day. Besides your car keys, it’s often the only other thing that people leave their home with.”

Indeed, Digitas of New York City last year conducted a survey on retail trends and the impact of digital devices on consumer shopping behavior in 17 countries (including the U.S.) and found that people use 2.8 devices as part of their shopping experience. This year, the average went up to five devices. Similarly, Nielsen reported in 2014 that consumers in the U.S. specifically owned four digital devices (not including televisions), and relied on all of them at some point to shop.

Embracing Mobile Commerce

As smartphone screens get larger and clearer (and throughput speeds increase), consumers are increasingly embracing the platform for commerce. Nearly half [47 percent] of online retail traffic and one-third of online orders were driven by smartphones and tablets in the fourth quarter of 2014, according to a Demandware, Burlington, Mass. survey of more than 100 million shoppers across 1,100 online retail sites. Offering these mobile shoppers the ability to store their card information on their mobile devices is, in turn, seen as the best way to further boost sales through this platform and make the buying process more friction-free, bankers say.

Bank of America, for example, offers its customers Apple Pay, which can store card information on iOS devices. The Charlotte, N.C. bank boasts more than 13 million active mobile banking users. “Most banks, including Bank of America, are leaning toward mobile because it impacts our customers’ daily lives in the most relevant manner, as they are looking up information on the fly, moving through their day and now making payments more easily,” Godsman says.

Aside from the aforementioned Apple Pay – considered a prime mover for mobile wallet after its well-publicized introduction last year – a number of other high-profile players have thrown their hats into the ring, including:  

  • Samsung Pay, which is based on technology from LoopPay (bought by Samsung earlier this year) and will work at Near Field Communication-enabled terminals as well as at more traditional magnetic-stripe terminals.
  • Google Inc.’s recently launched Android Pay, which will (as the name implies) enable developers to add in-store and in-app payment capabilities to software they develop for Android mobile devices, just as Apply Pay is aimed at iOS devices. The move is seen by many in the industry as Google’s revamp of its Google Wallet, which will still remain as a peer-to-peer online money movement service for Android users.
  • In addition, Google in February purchased the technology and intellectual property behind Softcard (formerly named Isis), the digital wallet application supported by mobile carriers Verizon Wireless, AT&T and T-Mobile. 
  • PayPal, which was originally conceived 15 years ago as a mobile payments company before it veered into the then more lucrative waters of basic Internet payment, is signaling its intent to compete with its own February acquisition of white-label mobile wallet developer Paydiant.
  • Looking overseas, Alipay Wallet, the mobile wallet application of Alibaba, China’s answer to Amazon, already claims more than 190 million users.
  • Starbucks is perhaps the most notable retailer that has developed its own mobile wallet application for iOS and Android devices, to make it easier for customers to order and pay for their lattes by phone. The mobile wallet, which was originally introduced in 2010, now has more than 16 million users making roughly 8 million payments per week – nearly one-fifth of all the transactions in the company’s U.S. stores.

Paul Moreton, vice president for digital commerce at McLean, Va.-based Capital One points out that the above players largely represent the “multi-issuer or third-party mobile wallet.” In other words, wallets such as Apple Pay, Samsung Pay and Android Pay are being developed and offered by the technology developer and not the issuer of the credit or debit card itself. Even as banks partner with these technology players on third-party wallets, many are creating their own white-label single-issuer wallet, which utilizes credentials from accounts at that specific financial institution.

For example, Capital One offers its own single-issuer wallet, Capital One Wallet, which Moreton says “provides an in-depth knowledge of a customer account – including but not limited to balances, transactions across plastic and mobile, rewards balance and redemption and account management.” Similarly, Royal Bank of Canada offers RBC Wallet, which works on Android and Blackberry devices with a combination of the SIM card in the mobile device and stored payment information in its RBC Secure Cloud, according to Jeremy Bornstein, head of payments innovation for RBC. The Toronto, Ontario-based bank is able to manage 99% of mobile wallet transactions and provisioning attempts in under two minutes, he adds. In Canada, RBC’s mobile wallet user base has been growing 20 percent per month. “This area is too important to us and our customers not to get it right,” Bornstein says.

Bankers Trump

Despite lacking the technological and branding heft of an Apple or a Samsung, bankers may be carrying a trump card in terms of attracting consumer support for mobile wallets. A recent ING International survey of more than 10,000 mobile customers found that the vast majority [84%] are more likely to trust their own bank as a mobile wallet provider than a technology company. Surprisingly, just 5% of respondents said they would trust companies such as Apple and Google to provide a mobile wallet application.   

Nonetheless, bankers like Godsman say that they will partner with technology players to offer third-party wallets like Apple Pay and Android Pay in order to meet the needs of their iOS- and Android-loving mobile customers in offering device-specific wallet options – as opposed to just single-issuer options. “We felt confident in the adoption of Apple products within our customer base and felt the same with Android,” he says. “There have to be enough customers to justify this being available at merchants. And, we need to see merchants embrace this as well.”

Since these are still early days for mobile wallet and consumers are still feeling out the space, several banks are opting to offer both their own brand of mobile wallet, as well as ones developed by a third-party technology developer. As Capital One’s Moreton says, “a third-party wallet offers multiple payment instruments and the potential for more integration with merchant loyalty, including coupons and special offers.” The debut of the Capital One Wallet last fall, Moreton says, was aligned with the bank’s integration with both Apple Pay and the bank’s own rewards program, which enables customers to use points for purchases within the wallet.

Going forward, bankers expect to see more competition and much more growth before the market for mobile wallet consolidates. Allied Market Research of Portland, Ore., estimates that the global mobile wallet market is expected to grow 127.5% from 2012 to 2020, with seven out of 10 smartphone users willing to embrace mobile payments.

Industry insiders also foresee this digital payments technology popping up on other wireless or NFC-enabled gadgets and wearables. Case in point: RBC late last year already began testing its own PayBand options. The wristband, developed with Toronto-based technology firm Bionym, authenticates users by their heartbeat when they want to pay. “The revenue streams here are small,” says Bornstein, “but they allow us the ability to bring relevancy and top-of-wallet when customers can so quickly choose RBC to pay.”

Ms. Hoffman is a contributing writer to BAI Banking Strategies based in Seattle.

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