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Will Mobile Wallets Ever Achieve Mass Consumer Adoption?

Posted by Brandes Elitch | Mon, Feb 22, 2016 @ 11:00 AM

Mobile-Wallets-CrossCheck.jpgHow do you get consumers to change their habits, preferences or even tastes? Well, if you have ever tried dieting, then you know how difficult it is to change a habit. Here in “wine country” where CrossCheck is located (Sonoma County, Calif.) we have seen some subtle changes in consumer preferences for our preferred beverage: wine.

For example, over the last 20 years, people have developed a “sweeter tooth” due to the enormous amount of sugar in processed foods. The Millennial wine drinkers consume much more sugar than their parents, and also have biologically less developed palates, which predisposes them to sweeter food and drink (study by Virginia Utermohlen, Cornell University, 2010). This hasn’t affected our premium wines, but it has affected the less expensive wines from the Central Valley. Consumer preferences have changed drastically in other industries as well.

In the world of payments, for example, one of the biggest challenges is getting consumers to adopt a mobile wallet. Let’s face it: all those predictions and projections made over the last few years about how the physical wallet or purse will be replaced by a mobile wallet have fallen flat. Remember, at the beginning (2010) when banks, mobile operators, smartphone manufacturers and SIM card suppliers each had their own vision of the “right” business model for mobile payments, and nobody could agree on how to move forward together? Even today, there is fragmentation as evidenced by the main players: Apple, Android, ChasePay, WalmartPay, SamsungPay and MCX. There are at least 100 mobile wallets in the American market today!

After all, what incentive is there for consumers to change their normal and customary behavior? As writer Kelly Passey said, “Simply paying for things doesn’t need to be fixed.” It’s still faster to whip out a debit card and you don’t have to worry if it will be accepted or if it will take more than a second to swipe it. Yes, many people carry an iPhone or Android device, but despite massive efforts by PayPal, Google and Apple, these two devices (debit card and smart phone) have not yet become one.

“The Apps these firms created are attempting to solve a problem that doesn’t necessarily exist,” says writer Kyle Chayka; he calls the wallet “a portable tool for living.” And as writer Kevin Roose pointed out in the case of smart watches, very few people outside of the Silicon Valley (a two-hour drive south of CrossCheck’s headquarters in Petaluma) are clamoring to adopt digital-only wallets.

Payments marketers are driven by two beliefs: it is “inconvenient” to carry multiple cards in a physical wallet, and consumers just want to carry one card — and it had better be their brand too! But if the consumer has to use a Samsung card because the retailer’s POS device is not NFC enabled, and then use an Apple device when it is, well that is the start of fragmentation of the mobile market. According to Elena at the LongTermPayments blog, “Each wallet creates a proprietary island, out of which the wallet would be irrelevant … Clearly, nothing gets consolidated. The growing number of wallets creates more islands. It is doubtful if all those wallets can find a place in one’s phone at the same time.”

People like to carry real wallets and have for centuries. Over the ages, wallets have held money, calling cards, tobacco and small treasures. Today, our wallets hold bills, debit and credit cards, a gym pass, receipts, business cards, a health insurance card, and even a donor card. As for the drivers license, that still hasn’t been electronified, and won’t be for years. The next time I am stopped for speeding, am I going to hand the officer my phone? I think not.

Remember the old saying “It’s everywhere you want to be,” referring to the Visa card? Well, there are plenty of merchants that prefer taking cash over paying interchange or installing a custom cash register that supports all the alternatives out there, including NFC which until a year ago was called “not for commerce.”

A more appropriate solution for “It’s everywhere you want to be” is cash, of course, or even checks for high dollar purchases where merchants dislike paying a 2% or 3% interchange rate which may equal their net profit on the sale.

An often neglected statistic is that a large number of Americans have little or no open-to-buy on their credit cards in the first place and are revolving their balances. It is a carefully constructed fantasy concocted by the card brands that everyone pays with a credit card: at least a quarter of the American public doesn’t even have a bank account, and another quarter has no open-to-buy on what cards they do have. Let’s get real here. And of course, there are still issues with security, tokenization and authentication in the mobile phone environment.

Research firm Forrester has reported that there were $52 billion in mobile payments in 2014, not a lot when you consider that over two billion people have smartphones.

The real question is: “What type of value-add can mobile provide that drives consumer adoption and continued engagement?” Well, I can think of two for starters: (1) a loyalty program providing real time points or discount coupons, and (2) a search capability to find bargains or things on sale in the immediate area where the consumer is located. Americans love a sale and they crave a bargain, even if they have to drive 50 miles to get there. And they will do it if they get a push on their mobile device that tells them there’s a special sale or awards loyalty points, uses beacons in the store to push and pull data directly to them in the aisle, or enables them to check out without standing at the register.

Mobile-Wallets-Check-Guarnatee.jpgMerchants need to think about how to capture sales when consumers are interacting with them on smartphones, tablets, internet-connected devices or even smart appliances. Technology has created the connected consumer; now the challenge is for the retailer to interact with them. This could be with a buy button on Facebook, Google, Pinterest or Twitter, and will require a mobile specific streamlined e-commerce experience such as Visa Checkout, Masterpass, Alipay or PayPal.

Consumers are all in a hurry, and there are two verticals where a contactless payment would work better than swiping a card: quick-service restaurants and transit. These merchants will get the early adopters to use a mobile wallet to store text messages and email messages that deliver special offers — consumers like digitized coupons while ordering their Big Mac, particularly if they can get free fries with it.

There are two types of “touch-based” mobile payment services. One is of course embedded into the operating system of the mobile device (usually a smartphone). Here, the payment can be authenticated by a fingerprint as all the information about the consumer has been saved on the device. The second is linked to an existing payment service provider – a trickier maneuver because the consumer needs to have already opened an account with the payment provider and elected to stay logged in for future purchases.

But we are still back to the issue raised earlier, fragmentation. Consumers don’t see much value in having to carry multiple wallets. Each different wallet actually performs the same functions; it just works at a different set of merchants. When a wallet works at any and all merchant locations, then the true potential of a mobile wallet will be realized.

In the meantime, we have seen growth in the use of cash in the US payments system, and the volume of checks remains robust. We have reached the apex of the hype cycle regarding “buy buttons” and FinTech solutions, but there are many situations where cash works best, and this is not going to ever change.

As for checks, we can see that checks absolutely work best for buying a car or paying for an expensive service over time (like auto repair, vet bills or funerals) without having to apply for credit or pay interest – a feature of the CrossCheck Multiple Check product. This makes it easier for consumers to buy what they want, and when they want it (right now) — isn’t that the same goal of mobile payments?

hold check, multiple check

 

Topics: Technology, Brandes Elitch

Written by Brandes Elitch

Brandes Elitch is Director of Partner Acquisition for CrossCheck Inc. A certified cash manager and accredited ACH professional, he garnered a Master of Business Administration from New York University and a Juris Doctor from Santa Clara University.