When JPMorgan Chase introduced Chase Pay, its proprietary mobile wallet solution, experts in the industry regarded their decision to spurn ostensibly “neutral” third-party payment solutions from Apple and Android as a bold but understandable move. It represents the first real and significant response to the tech/non-bank invasion into the mobile wallet space by a traditional card-issuing player.
Chase may feel significantly threatened by the mobile wallet introductions from outside disruptors, but they are simultaneously well poised to respond, with 94 million card-carrying customers and a wholly owned merchant-acquisition business. Chase does not want to lose the near daily interaction that its customers have with its card products to the likes of Apple or Google.
The challenge to achieving widespread mobile wallet adoption — for any competitor brave enough to enter the space — is driven by five key factors.
1. Merchant acceptance. Many merchants, especially the biggest, have been reluctant to accept mobile wallet solutions. They have had their own alternative payment scheme in development (Current C) for some time.
2. POS technology. While not 100% true, the mobile wallet solutions making the most news (Apple Pay/ Android Pay) rely on NFC technology to complete the transaction. For many years, only a fraction of US merchants were NFC-enabled. However, it is anticipated that POS upgrades being made to accept EMV chip cards will bring will also include the capability to process NFC transactions. We will know soon if, in fact, that happens.
3. Integration with loyalty programs. With very few exceptions, the most popular mobile wallets don’t integrate with customer loyalty programs. Those programs are very often the reason a customer chooses a particular form of payment, and this is seen as a significant vulnerability of the new wallet contenders.
4. Customer adoption. The reality is that pulling a credit card out of a purse or wallet is not the hardest thing most people do in their daily lives. Both Apple Pay and Android Pay do a nice job handling the user experience, but the marketplace was not screaming for a solution to a minor inconvenience — extracting their plastic cards.
5. Device/technology dependence. Apple Pay is only available on the most current iPhone/ iPad models (a situation that will fade over time as new models replace old). Android Pay is more widely available, but lacks Apple’s slick biometric access interface.
It seems, at least today, that it’s nearly impossible to craft a mobile wallet solution that addresses all of these challenges and meets stakeholders’ key requirements. A solution acceptable to merchants could likely come at the expense of the user experience. Loyalty integration may be problematic for merchants, as most will proceed with caution when it comes to information sharing with a company like Google.
While both Apple Pay and Android Pay offer very slick technology-driven solutions, the (very) early results for customer adoption/ usage are disappointing — at least for Apple Pay, with only about 17% of potential Apple Pay users having ever tried the service, according to a recent study from PYMNTS.com. Merchants have not rushed to embrace either Apple or Google. And to be fair, the merchant acceptance issue will likely change dramatically after the October EMV chip upgrade. Apart from the novelty of the transaction and some early adoption impacts, customers are not forsaking plastic for their smartphones in significant numbers. The most common reason given for the low adoption is their “credit card worked just fine.” There needs to be a compelling reason to change long-entrenched behaviors.
Satisfying Merchants While Motivating Customers
Chase Pay is taking a very different approach with its offering. Chase understands that success in the payment business requires keeping both merchants satisfied and customers motivated. While full details of the service haven’t been disclosed, its solution integrates loyalty and rewards which will give customers a reason to use Chase Pay. This will motivate Chase’s high-spending customers to migrate to Chase Pay.
On the other side of the cash register, Chase is working with merchants to ensure those customers will have plenty of places to use Chase Pay. It has not fully disclosed terms, but merchants will pay less for Chase Pay transactions than standard credit card swipes. Chase has also partnered with MCX (Merchant Customer Exchange), a giant retail consortium that includes Walmart, Target, and Best Buy, and as a result will have more than 100,000 (and many of the most popular) merchants almost immediately. The point is that Chase recognizes the importance of appealing to both of the key participants in a retail transaction.
As stated earlier, it’s difficult to meet all of the challenges mobile wallets present. Chase Pay’s shortcomings appear to be in the user experience. On the plus side, because Chase Pay is an app, it is smartphone-agnostic and therefore can be used by almost everyone with a Chase card. However, because it’s an app, accessing the wallet isn’t going to be as easy as Apple Pay and Android Pay. The user will need to unlock their phone and open the app. Conducting the transaction is also a bit clunky, as it involves generating a QR code which is then scanned at the POS. QR codes have never really caught on in the US, so it will be interesting to see how this experience fares and how Chase evolves it over time.
The mobile wallet market seems to change on a daily basis. It is wise for Chase, with such a powerful market position and so much to lose, to develop its own solution. It has chosen a smart approach by solving both important merchant and customer issues. However, it will be interesting to see if the less desirable user experience inhibits wide adoption.
Chris Murray is Vice President of Financial Services Strategy at Merkle. Chris has more than 25 years of issuer and agency experience in senior roles in all facets of card marketing — new customer acquisition, existing customer management, and new product development. He has held senior marketing positions with Citigroup, Sears, and JP Morgan Chase. Chris has led virtually every functional area in the typical credit card marketing department including acquisitions, existing customer management, new product development, and e-customer loyalty.