If you left for work without your wallet, you’d turn around and go back for it. Same with your mobile. No matter how simple your phone is, being without it puts you at a loss.
That’s why the concept of the mobile wallet is so compelling and why, if banks can satisfy lingering concerns about security, consumers will find it hard to resist the convenience of a device that enables them to leave their physical cash, cards and change behind. Experts surveyed recently by Pew Research Center and Elon University predicted that by 2020, most consumers will have largely abandoned physical cash and will swipe smartphones to make purchases. But rather than approach the mobile wallet as an opportunity to create more profitable relationships with their customers, many banks seem content to be supporting partners to merchants such as Starbucks and payment platforms such as PayPal or Google Wallet.
Retail banks will be able to capitalize on mobile wallet applications only if they consider them holistically, as one element in a broader multichannel strategy that is based on:
Utility: Traditional wallets contain access to a broad range of services – pretty much whatever is needed to get through a day. Mobile wallets should do the same.
Mobile screens are a battleground for consumer attention. Poll your co-workers and you’re likely to find that their contacts, calendar, social networking, music and perhaps a game occupy the prime real estate on their home screens. If they have a mobile banking app, chances are it’s not front and center. With some exceptions, mobile banking is still limited to a set of dry transactions: check a balance, pay a bill, find an ATM, etc.
These are all essential features, to be sure, but they’re commodities. Meanwhile, merchants and platform vendors, including telecommunications carriers, are providing mobile wallet capability as a value-added service. Load up your Starbucks account with virtual cash and swipe your phone to pay the barista. Manage your accounts at multiple banks with a free app from AT&T. Use your mobile to buy groceries at Tesco.
Retailers and telecoms are pushing the envelope on mobile wallets. For example, Starbucks, in its deal with software provider Square, makes buying its coffee even more convenient by linking its loyalty and payment program to a transaction system available to any merchant. Customers can use Square to manage transactions with many retailers through a single app, without even taking out their phones.
What’s more, value-added services can be lucrative. Telecoms that offer mobile wallet functionality may make money in a variety of ways, including per-transaction fees, or from the spread built into the exchange rates of international money transfers. In fact, an entirely new business model for telecoms has emerged that is built on mobile wallet technology. One of these new mobile virtual network operators, Europe’s Lebara, offers mobile payment services through a partnership with MasterCard. None of these services are complex, but they have one thing in common: they pair financial transactions with some other tool or function that consumers access frequently – in some cases, multiple times per day.
Banks should approach the mobile wallet similarly, deploying the technology as the entry point to a set of value-added services that compel customers to engage with the app – and, by extension the bank – as many times a day as they open their physical wallets. If a customer is using a banking app to pay for movie tickets, buy lunch, or lend $20 to her brother, the bank will presumably have her attention when she wants a car loan or is considering ways to invest her savings. A recent report by Mobey Forum, an organization led by banks to promote mobile financial services, suggests that without value-added services, mobile wallets won’t be as successful.
Partnerships: Consumers don’t care about transactions; they want bundles of complementary, value-added services.
Some of the services available through mobile wallets may resemble consumer retail offerings more than classic banking services. Banks could, for example, partner with merchants to offer their customers special deals or extra loyalty points, if they pay with their mobile wallets. Merchants already offer these types of services. For example, Royal Ahold teamed with Shell-branded service stations to offer gasoline discounts to U.S. customers who hold loyalty cards for Ahold’s Giant and Stop & Shop grocery stores.
The fragmentation in the market for mobile wallet services offers banks an opening if they’re agile enough to seize it. A study by Carlisle & Gallagher Consulting Group found that consumers place high value on offers and incentives, but need help tracking and managing them. Sixty-five percent of respondents surveyed said being able to make the best use of loyalty programs and reduce their interest payments is the mobile wallet service they value most. Banks, which customers already trust to hold their money, can potentially extend that role to helping customers manage other finance-related activities.
Customer Relationship: The mobile wallet (done right) takes banks out of their comfort zone. They need to figure out what they want to be to their customers and fulfill that for the segments that promise both growth and profitability.
Within these parameters, of course, there’s plenty of room for banks to tailor a mobile wallet offering that makes sense for them. Doing so depends, however, on knowing who their customers are and how mobile banking fits into a multichannel business strategy.
Although revenue from mobile wallet services may come directly through fees banks charge customers or service partners for transactions, banks mustn’t forget that mobile wallets aren’t financial products in themselves, but platforms for engaging customers who use financial products. Consumers don’t use any device or channel exclusively and so mobile wallets must be integrated with other mobile offerings as well as online, branch and ATM services. A bank that serves the mass market in an advanced economy will balance those services differently than a bank that primarily serves high net worth customers or underbanked populations.
Specific technology decisions such as when to roll out money transfer via near-field communications chips may be driven by such factors as local smartphone adoption rates. But whether banks can use that capability to attract and retain customers depends on multichannel integration. If a customer uses digital cash to buy a pizza, he should be able to see that payment reflected immediately in his savings balance, so he knows whether he has enough money to top off his stored value account or pay his electric bill once he gets home from work.
Few banks today can deliver that level of real-time information because they haven’t figured out how their mobile channel fits in with their long-term business strategy – or even what that strategy is in the first place. To make the most of mobile wallet investments, banks have to commit to a strategy and define the relationship they want with their customers. Then, a robust mobile wallet becomes yet another reason for customers to choose a bank or, at the very least, not abandon it for a new player in the financial marketplace.
Ms. Hamel is solutions manager for mobile banking at Germany-based SAP. She can be reached at [email protected].