Which Banks Will Benefit Most From a Mobile Wallet Surge?

The long anticipated surge in mobile wallet usage seems to be underway, as more consumers are reaching for their phones instead of their wallets to make payments. The question is, which card is in the 'top of wallet' position? And how can they stay there?

Contactless payments will exceed $1 trillion for the first time in 2018, according to a report from Juniper Research. By 2020, in-store contactless payments are expected to reach $2 trillion, or 15% of all point-of-sale transactions. Of this $2 trillion, 15% ($3 billion) will be enabled by mobile device providers such as ApplePay, Samsung Pay and Google Pay according to the report, Contactless Payments: Payment Cards, OEM Pay & Mobile Wallets 2018–2023.

Combined, these mobile wallets users will reach 450 million by 2020, with Apple Pay leading this surge, accounting for 50% of original equipment manufacturer (OEM) wallet payments, as opposed to a third-party app.

“We believe that growth over the next five years will continue to be dominated by offerings from the major OEM players,” said the research’s author Nitin Bhas. “Additionally, we now have the likes of Huawei Pay and Fitbit Pay launching in several markets.”

Beginning of a Trend?

Over the last half dozen years, consumers have had a number of digital and mobile wallet options presented to them to change longstanding payment habits. These include mobile wallets from financial institutions, retailers such as Starbucks, and mobile manufacturers.

But expanded options haven’t automatically led to increases in mobile wallet use. In fact, while in-app and P2P payments have skyrocketed, most mobile wallets have not gained momentum … until recently.

For example, in a TSYS study, 68% of respondents who have already loaded a payment card into a mobile wallet or are definitely or likely to do so, indicated that within two years they will make 50% or more of their in-store purchases using a digital wallet. “With this study, it’s really the first time we’ve seen meaningful numbers of consumers saying they plan to use digital wallets within the next year or two,” stated Gavin Rosenberg, Senior Director of Product Marketing at TSYS, in an interview with Mobile Payments Today.

While there is usually a variance between intent and actual use, the marketplace experience has definitely improved recently with more and more merchants accepting both contactless payments and mobile wallets. Not surprisingly, TSYS found that, in general, consumers between 25-34 are most likely to be interested in or already using P2P and mobile wallets.

In fact, the increased emphasis on promoting P2P payments (such as Zelle) within financial institutions is having a positive impact on all mobile payment options. One major change has been the increased emphasis on emerging technologies, such as biometric authentication, encryption and tokenization.

Increasing Adoption of Mobile Wallets

As the momentum begins to shift around use of contactless payments and mobile wallets, the challenge for most financial institutions is: How do I get consumers to place my card in the #1 position in both the physical and mobile wallet?

While financial marketers can’t do much to move the needle with regard to merchant acceptance of mobile wallets, people are beginning to demand this functionality. What banks and credit unions can do is change their communication of the benefits to pay with a mobile phone versus a credit or debit card. This communication cannot be left to a one-time communication — it must be reinforced over and over again in all channels.

Remember, old habits are hard to change.

The benefits of “simple, convenient, and secure” must be emphasized and reinforced at every opportunity.

  • Simplicity: As consumers continue to use their mobile devices for virtually every other daily interaction, the concept of simplicity will come with frequent use. There’s no reason to pull out your wallet when you already have your phone in hand.
  • Convenience: As the integration of mobile banking and real-time updates becomes more common, consumers will embrace using a mobile app that not only makes payments, but provides instant record-keeping.
  • Security: Consumers not only demand secure transactions, they expect them. As more biometric security options become available, consumers will better understand the increased security provided by mobile payments that don’t come with a piece of plastic.

The Power of Rewards

Surveys indicate that the lack of mobile wallet acceptance in the past was less about the mobile wallet itself, and more about lack of consumer interest. This could change with the addition of integrated loyalty programs and other potential add-ons. The added benefit of rewards can set your payment option apart from your competition, even if it’s only for a limited time period, .

As with other traditional card programs, cardholders can earn extra “points” every time they make purchases using their mobile wallet instead of plastic. In other words, the more the consumer uses their mobile wallet, the more rewards they earn. The foundation of this concept is driving user value beyond the benefits stated above. To differentiate a mobile wallet rewards program from a traditional rewards program, you makes rewards available instantly to consumers through your digital wallet.

Consumers have responded well to this type of incentive in similar programs. For instance, Samsung Pay used incentives and doubled its transactions. In addition, the number of people using its app on a daily basis increased by 25%. This type of activity obviously goes a long way towards changing consumer behavior.

Why Does It Matter?

If you are a mobile payment or mobile wallet user, when was the last time you changed which card you would use to make a payment at an online merchant, for an in-store purchase, or for a P2P transaction? Most likely, it has been a while. This is because old habits are hard to break. If you don’t regularly use mobile payment apps, this habit is also ingrained in your daily routine.

Acceptance of mobile wallets appears to be gaining momentum. So changing consumer behavior becomes more important than ever, whether the shift is from plastic to mobile, or to your payment option as opposed to your competition. Look at the amount of marketing the biggest financial institutions employ to promote the use of their mobile wallet. Look at American Express.

Financial marketers face a classic “limited-time opportunity” here. Those large players are spending money now because changing consumer habits is easier now than it will prove in 12-18 months.

Are you ready to catch the wave of mobile payment acceptance? Or will your organization be relegated to a secondary position?

Jim MarousJim Marous is co-publisher of The Financial Brand and publisher of the Digital Banking Report, a subscription-based publication that provides deep insights into the digitization of banking, with over 150 reports in the digital archive available to subscribers. You can follow Jim on Twitter and LinkedIn, or visit his professional website.

This article was originally published on August 2, 2018. All content © 2018 by The Financial Brand and may not be reproduced by any means without permission.

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