Rumors of the “virtual wallet” and NFC-capable phones have been fodder for iPhone blogs and other media outlets for the past several years. The space has been crowded with new upstarts entering the digital payment arena each month. Yet, as the players increase, the actual outlook has, at times, been unclear. What is certain is that mobile payments are starting to move from the speculative stage to genuine business and consumer application.
When we think mobile payments, the first thing that comes to mind is likely the ingenious Square mobile payments device, which converts any smartphone into a credit card reader. That device has ushered in a wave of new technologies across a wide spectrum of industries, all of which stand to change the way we think and act the next time we plan on paying with plastic.
We’ll offer a bit of a primer for what’s starting to shake out in the world of mobile payments, with a brief overview of 5 emerging trends:
1) NFC is finally here. Sort of.
NFC (or Near Field Communication) is currently present in an increasing amount of smartphones, including many of the top-selling phones on the Android platform (no sign of it in iPhone 5, but the rumor mill is already speculating on the next roll-out having it). All Windows phones are NFC capable. Blackberry 10 devices will soon be NFC-equipped, as well. Gartner currently has the equation set at 50% of all smart phones being NFC-enabled by 2015.
The benefits of the application are clear – customers simply wave their phone near an NFC-enabled POS to expedite a transaction. What is less clear is whether a standard will emerge that makes the process seamless and intuitive. Google Wallet arrived to much fanfare, but has struggled to gain acceptance (so far). MCX, or Merchant Customer Exchange, is a recently announced collaboration of some of the world’s largest retail players (Target, Best Buy, Wal-Mart, Sears and others) to develop a standard mobile payments platform and eventual app. It’s too soon, however, to know what that effort will yield.
Starbucks is the current poster-child, having successfully introduced a Square–based payment method into 7,000 of its stores. You can now order and pay for your latte in seconds (no instant app to speed up the frothing, however). It is important to note that Starbucks utilized a barcode reader displayed by the app, rather than NFC, because it more easily integrated with their existing POS system. Meanwhile, McDonald’s is currently piloting a PayPal-based NFC mobile payments option at 30 locations in France.
One of the important side notes in this conversation is that, while NFC-enabled phones represent a fraction of the market currently, microSD cards can be introduced to the vast majority of phones in order to bridge that gap. In early 2012, Datacard partnered with DeviceFidelity’s In2Pay® suite of solutions which use microSD technology to transform smartphones into interactive contactless mobile payment devices.
2) Seamless Conversion
One of the obvious benefits of mobile payments is the ability to expedite a transaction: the more barriers that a merchant can remove from the point of purchase, the greater the conversion rate. Visa payWave, an NFC mobile payment system, proved successful at the 2012 London Olympics. Over 3,000 systems were installed at the park and around the city, speeding up payments for food, drinks and other goods. The result? Contactless payment transactions doubled during the games, making the case for the speed, convenience and security NFC enables.
3) Moving to the “Cloud”
Security has been one of the x-factors (ahem) “clouding” the adoption of mobile payments as a legitimate solution by consumers, retailers and financial institutions. With a move to the cloud for credential storage, mobile wallets such as the Google Wallet have begun to offer some additional peace of mind, opening up the door for wider acceptance from financial institutions.
4) Loyalty Programs
Whether a digital “punch-card” or virtual “stamp,” the winners and losers of the mobile payments battlefield may be determined by who can not only enrich the POS process, but also use NFC and mobile payments as a means for building customer loyalty. Coupons, frequent customer rewards programs, push notifications and the like will be seamlessly integrated into the mobile payments solution offered by merchants who “get it.” Programs that combine mobile payments with loyalty cards and coupons have been documented by Mobile Commerce to drive an increase of over 25% in average ticket and frequency.
5) Multi-Tiered Integration.
With standards far from established, the likely winners will be those that cast a wide net and offer consumers and business/retail partners the most options. Google, via its partnership with Discover, has been rumored to be working on offering a more traditional plastic Google Wallet card as a companion to its virtual Google Wallet. This will allow consumers to use the card at locations where NFC is not accepted. On the retail side, using mobile payments in tandem with loyalty cards and coupons have netted the biggest uptick in both frequency and average ticket (both in excess of 20%).
Solutions that both embrace emerging technologies and understand consumer behavior stand the best chance of gaining immediate traction in the marketplace. A flexible, open strategy is essential – so is understanding the first-mover (or at least second- or third-mover) advantage. This represents a new channel in which to fight for share and “top of wallet” status. New channels don’t surface everyday (i.e. Internet), so it’s critical to take advantage. The expense of introducing the technology as a part of a given standard operating procedure is far less costly – in the long run – than playing catch-up or not offering it at all.
For banks, all of these strategies for mobile payments represent a completely new revenue stream and provide an instant differentiator for a financial brand. While the form factor has not been nailed down yet (combinations of NFC, cloud, bar codes, QR codes), your customer’s wallet will increasingly be turning virtual. That doesn’t mean, however, you can’t work to have your card inside.
So, back to the original question… what’s in your mobile wallet? Let us know below.