‘Mobile Wallets 101’: Your guide to the future of cardless transactions
Financial institutions understood early on the importance of being “top of wallet” when it came to winning the “plastic war.” Make your ATM, debit or credit card the go-to item for transactions and you’re solid with that customer or member.
FIs have been slower to grasp the arguably greater importance of being top of wallet in the mobile war. But with increasing consumer uptake of smartphone-based payments and cardless ATM transactions, the importance of a branded mobile wallet in competing with both tradition and nontraditional providers will only grow.
Recent studies have shown that banks currently have an edge in the competition, due to their reputation with consumers as a trusted financial provider. Those banks and credit union that are the earliest movers will have the best opportunity to capitalize on this advantage.
For FIs currently considering a mobile wallet rollout, Mobile Payments Today offers “Mobile Wallets 101,” a free introductory guide to types and capabilities of mobile wallets. Following is an excerpt from the guide.
Types of mobile wallet
There are three types of mobile wallets that can be used at the point of sale.
Financial institutions such as banks, credit card issuers and credit unions may develop a mobile wallet for use by their cardholders in retail outlets.
Intermediaries such as Apple, Google, and Samsung have developed mobile wallets that can contain cards from multiple issuers.
Retailers may decide to develop their own mobile app that features a mobile wallet capability
To be able to use a mobile wallet, consumers need a smartphone running either Apple’s iOS operating system (Apple Pay works only on the latest iPhones and Apple Watch at the point of sale), Google’s Android platform, or Windows Mobile. They can also download mobile wallets to certain Blackberry devices.
According to the Pew Research Internet Project, as of October 2014, 64 percent of American adults owned a smartphone, up from 35 percent in Spring 2011.
Smartphone ownership is especially high among younger Americans, as well as those with relatively high income and education levels, Pew Research Center says.
A survey conducted in December 2014 by the U.S. Federal Reserve for its “Consumers and Mobile Financial Services 2015” report found that 87 percent of the U.S. adult population had a mobile phone, and 71 percent of mobile phones were Internet-enabled smartphones.
“The share of smartphone users who reported having made a mobile payment in the 12 months prior to the survey has increased to 28 percent, up from 24 percent in both 2013 and 2012,” the Federal Reserve says. “Among mobile payment users with smartphones, the most common type of mobile payment was bill payment through an online system or mobile app (68 percent, up from 66 percent in 2013). More than one-third (39 percent) of all mobile payment users with smartphones had made a point-of-sale payment using their mobile phone in the 12 months prior to the survey, in line with the 39 percent reporting such payments in 2013.”
Consumer adoption of mobile wallets
Despite a huge amount of media attention in recent years, mobile wallets have largely failed to gain mass consumer adoption. However, this began to change with the launch of Apple Pay in October 2014. According to Apple CEO Tim Cook, more than one million people had registered their credit cards with the service in the first three days.
An April 2015 survey by Blackhawk Network of U.S. consumers found that 25 percent of respondents had an app incorporating mobile wallet capability on their smartphones. The survey also found that 14 percent of respondents had made a mobile payment from their smartphone or tablet, and that 18 percent of consumers had used alternative payment methods such as mobile wallets, Apple Pay or Bitcoin. Also, 68 percent of mobile payment users reported that they were using alternative payment methods more in 2015 than last year.
However, a survey published by Gallup in July 2015 said that mobile wallets are a low priority for consumers, with only 13 percent of 17,000 U.S. consumers surveyed having a wallet on their smartphone.
“Security concerns top the list of reasons why consumers shy away from proximity mobile wallets,” Will Hernandez, Mobile Payments Today’s editor, wrote. “Some 55 percent of (Gallup survey) respondents were concerned about some kind of security issue such as a hack or losing their phone. Some 21 percent of respondents don’t know enough about mobile wallets to make a decision about them.
Mobile wallet adoption is being hindered by lack of merchant acceptance. According to Blackhawk’s Where it’s at: connected consumer study, 54 percent of consumers would likely use a mobile wallet instead of a physical wallet if it were accepted everywhere.