Mobile wallets are all the rage. But legitimate questions remain as to whether they will ever truly replace their leathery counterparts.
Mobile wallets, which use NFC-based technology to allow customers to make contactless payments at the point of sale, already have begun to make their presence felt. Mountain View, Calif.-based Google launched a digital wallet this past fall. The search giant has agreements with Visa, MasterCard, American Express and Discover to make the Google Wallet available to the card companies' account holders, and there even are some NFC-enabled terminals in use across the U.S. that can accept it, including at many mass transit stations.
Meanwhile, Isis, the mobile payments venture formed by AT&T Mobility, T-Mobile USA and Verizon Wireless, is set to launch this summer in select U.S. markets. That venture, which also has partnerships with the major card schemes, recently announced that it has reached agreements with Chase, Capital One and Barclaycard to enable their credit, debit and prepaid cards to be placed into the Isis mobile wallet.
And mobile wallet ventures are cropping up around the globe, as well. Telecom companies including Vodafone and Telefonica announced this year wallet initiatives in Africa and Latin America. But mobile wallets still face many hurdles before they can gain widespread adoption, experts say, including the rather difficult task of getting consumers to change long-held habits.
Despite their proliferation, however, there is not widespread commercial use of mobile wallets, except in Japan and South Korea, says Kumail Tyebjee, senior principal of the mobility and digital practice at Infosys, an IT services company based in Bangalore. Tyebjee notes that Japan is well ahead of the curve when it comes to mobile wallets; Tokyo-based mobile operator DoCoMo, which has more than 59 million customers in Japan, launched a digital wallet nearly 10 years ago, in 2003. But everywhere else, he contends, they remain, at best, a little-used novelty.
If It Ain't Broke?
According to Tyebjee, customers need to be incentivized if they are to embrace mobile wallets, especially in the U.S., where the current electronic payments system works just fine. "Our system is not broken," he says. "It works really well. I can take out a card, swipe it and in an instant can transmit funds to a merchant." Tyebjee suggests several ways to entice consumers to embrace m-wallets, including making targeted offers as part of the mobile wallet experience based on a consumer's prior purchasing history; tying in mobile wallets with loyalty cards and programs; and allowing consumers to use them as a kind of e-ticket to enter stadiums, arenas and other venues.
Banks, Tyebjee says, can engage m-wallets in several different ways. First, they can take a "driving role, where they are investing in the technology and creating standards around safety and security." But banks also can be an active participant in a digital wallet initiative, partnering with a telecom company or other nonbank entity, rather than serving as the lone driving force. Finally, a bank could decide to be a "passive participant, where maybe you're dipping your toe in the water," Tyebjee notes. "You might not have the investment to play a driving role, but you still don't want to be disintermediated."
Ultimately, which one of those paths a bank goes down depends on how big it is and how much money it has to invest, Tyebjee explains. One thing a bank cannot do, though, is ignore wallet products altogether, he insists. "That's a nonstarter."
Spirit of Cooperation
One ingredient that is essential to the success of any mobile wallet effort is cooperation between financial institutions and telecommunications companies, adds Adil Moussa, senior analyst with Aite Group. He points to the Isis deal with Chase, Capital One and Barclaycard as a sign that mobile carriers are willing to work with financial institutions on mobile wallets. "Isis is being very open to having all the players come in and get a share of the buy," Moussa says.
But, Moussa adds, banks are unlikely to be content with just being partners with telecoms and other providers in mobile wallet ventures. "Some banks will want their own wallet," he says. "They'll want to completely own that experience."
Further, Moussa continues, in most countries it would be impossible, due to regulatory concerns, for nonbank entities to operate mobile wallets without the involvement of banks, guaranteeing that banks will always play a part, however big or small, in m-wallets. "Any provider that wanted to do it without the banks, they would have to reinvent the wheel," he says. "I don't think that's the way it's going to go."