The myriad of mobile wallets being introducedinto the market is expanding on a daily basis. Companies old andnew, large and small, well-funded and running on a shoestring, areall vying for the potential payoff of being The Wallet, TheTechnology, The Next Big Payment Form, and capture a piece of therevenue generated by consumers wanting to use their mobile devicesto make payments. Even though we believe that the tipping point formobile payments isn’t even on the horizon yet, we are beginning tosee some of the early signs of stability around the near termbusiness model for mobile wallets.
In a report just published, Mobile Wallets: The Business and the Brand,Mercator Advisory Group examines this early stage from theperspective of how mobile wallets are shaping a new business modeland how they might impact existing issuer and acceptance brands inthe market. What are the specific constructs of sustainable mobilewallet? Anything that closely mimics the behavior of a physicalwallet such as containing both cards and credentials and allowingdynamic consumer choice at the point of payment, being form-factorindependent (meaning it supports QR codes and NFC), and operates ina highly secure environment on a device resistant to failure. Howto get there is what this next decade in the payments industry willbe all about.
In addition, we see the revenue model emerging from the mobilewallet segment as one less dependent on interchange fees and moredependent on value-based fees. Cost structures will be high atfirst and come down as the segment scales and technologiesconsolidate, most likely by the convergence of legacy and emergingstakeholders where each borrows from the other to reshape theindustry over time.
How do these factors impact payment brands? We see deliverychannels where the impact of mobile wallets on branding will bemost visible. Financial institutions and card networks stand togain or lose brand equity based on the ability for new marketentrants to create a more valuable, competitive mobile walletproduct either through their own efforts or by leveraging expertplatforms and their ability to respond in kind. Thus brands such asIsis, MCX, and Apple, all of which place a unique corporate brandahead of any issuer or card network, threaten to disrupt thecarefully controlled brand acceptance standards and introduce newmarks for consumers to explore as they subjugate original brands tofunding source status.
What these new entrants are beginning to find out, however, isthat introducing new acceptance marks to consumers and gainingtheir trust to adopt them is no small task. Further, theorganizations that have not yet weighed in broadly with their ownmobile wallet products are financial institutions. In fact, webelieve, at least in the United States, the mobile wallet marketremains the financial institutional segment’s to lose. Thelong-term advantage that financial institutions have in the mobilewallet market is the potential of owning more of the consumer’soverall wallet (i.e., payment types and forms along with financiallifestyle information) than any individual merchant or outsideentity can reasonably obtain. The fact that consumers trustfinancial institutions to provide safe, secure products shouldn’tbe underestimated. Yet, the competitive market will not be docilein the face of these advantages, and while institution-drivenstrategies slowly play out, consumers will be gaining experienceand becoming opinionated on the wallets and mobile payment typesthey’re test driving.
Here’s an excerpt from the report mentioned above:
The biggest unknown in the evolving mobilewallet business model is the most important component-the consumer.Consumers have not even begun to weigh in on what constitutes asustainable mobile wallet strategy since they’ve had so few tochoose from, their early experiences have been niche-oriented ornot compelling, and the products they do use are primarily pointsolutions. Yet this fact alone points to the possibility for thefuture of this market where consumers’ digital wallet preferenceswill adhere to a preordained set of simultaneously rational andirrational payment behaviors influenced by an often mysterious mixof preferences and emotions. The quest will be to corral these ontoone product, under one brand.