The payments news these days are filled with new developments on the mobile wallet front, from companies such as Isis, Google and even Wal-Mart, for example. Despite these early entrants, our recent mobile wallet study shows that the mobile wallet market remains up for grabs – which is good news for banks.
In our online survey of 605 U.S. consumers conducted in April 2012, 48% said they were interested in a mobile wallet. This interest strongly correlated with age and income level in that it was skewed toward younger and more affluent consumers. The survey also found that the consumers who are not interested in mobile wallets are more concerned with security and more likely to continue using their primary bank.
Consumers who are interested in mobile wallets said they would consider using alternative financial service providers such as PayPal, Google and Apple for both mobile wallets as well as other banking services. For example, eight in ten of consumers interested in mobile wallets would consider PayPal as their wallet provider. These consumers valued the ability to conduct the actual transaction and also demonstrated a strong interest in using a wide variety of “shopping” services in their mobile wallet, including managing receipts and documentation; search and shop; loyalty programs; real-time incentives; and social networking.
Banks currently enjoy a leadership advantage in providing transaction services to consumers. If security and functionality are equal, consumers would prefer to leverage their existing bank relationships as the conduit to retailers. However, banks are not perceived as agile in their product offerings and have not demonstrated a flair for the broad rich shopping experience that consumers want. Consumers will not accept inferior offerings simply to maintain the bank relationship. If banks do not stake out a leading role, they will be reduced to a commodity transaction services provider to the mobile wallet player who owns the customer relationship.
To defend their leadership position, banks need to define their role with mobile wallets by considering five key areas:
Build flexibility now to react to future change. Core transaction processing systems are the heart of every financial institution’s operations and the key in a bank’s quest to flourish in the new and intensely competitive mobile wallet world. Yet for the most part, these core systems are antiquated and have required workarounds and wrappers over the years to meet the changing needs of the market.
Banks should review their existing core systems and plan for renewal to keep ahead of competition, be agile and maintain operational efficiency. Banks that update their core transaction processing capabilities today will be ready to provide the improved transaction and shopping experiences in their mobile wallets tomorrow.
Build, buy or partner to have the shopping features that consumers want. The mobile wallet of the future must connect value propositions between consumers and retailers. This mutually beneficial relationship must add value when bringing the buyer and seller together. Enhanced shopping features and experiences for mobile wallet users will create strong growth in this segment as security concerns are addressed. The inability to offer these features will drive consumers to alternative mobile wallet providers.
Recognize and plan for the tools and apps available to the mobile wallet consumer. Mobile wallets and other “Smart Disclosure” apps will provide the consumer with the ability and information to optimize their payment selections – making the best choice for this particular consumer, on this day, at this merchant and for this purchase. Banks need to proactively think about how they will stay top-of-wallet as consumers use these improved tools to elevate their payment decisions. Step one is to redefine product offerings under the assumption that consumers possess these apps to make better choices.
Align segmentation strategies with consumer behaviors. Our survey identified two strong behavioral differences between consumers: consumers interested in shopping, and consumers interested in payment optimization features. Interestingly, these two groups did not display strong demographic variances. Banks should take a new look at customer segmentation based on valued mobile wallet services, e.g., real-time incentives, managing receipts, search and shop, social experience and loyalty programs. Second, they need to consider how the consumer wants to use these products and target the marketing and servicing to fit those needs.
Make security a non-issue. Security will act as the gatekeeper to mobile wallet adoption by consumers. Currently, banks enjoy a perceived security advantage; however, other providers are working hard to mitigate concerns. Banks should expect that any current security lead is short-lived and need to be working to compete more effectively on functionality and usability.
The speed of consumer adoption of the technical devices that will support mobile wallets (e.g., smartphones and tablets) has been impressive. This rapid pace of change makes a “fast follower” strategy for mobile wallets dangerous since it will be difficult to catch up to the market leaders. Rather, banks should be working now to deliver the services required to ease the consumer pain points within their current product suite and to build the foundation to quickly support mobile wallet features as they become more technically supportable.
Mr. Olynick is card and payments practice leader for the Charlotte, N.C.-based Carlisle & Gallagher Consulting Group. He can be reached at [email protected].