Creating a competitive market for interoperable Mobile Wallets* - An SPA Position Paper - Feb 2015
In recent years we’ve seen the emergence of a ‘Mobile Wallet war’ with Google Wallet, SOFTCARD, MCX, Visa’s V.me Wallet, MasterCard’s MasterPass, Apple Passbook, PayPal and American Express’ Serve products all making a play to dominate the market, capture consumer hearts and minds, and garner widespread retailer acceptance.
The battlefield expanded last year with the 2014 launch of Apple Pay. And coming right up to date, February 2015 was a big month for wallets. Samsung announced its acquisition of LoopPay, while Google confirmed its Google Wallet app would come pre-installed on Android phones offered by major US carriers AT&T Mobility, T-Mobile USA and Verizon Wireless. Both pieces of news have ratcheted up the competitive pressure.
Enthusiasm for Mobile Wallets from both traditional payment players and new OTT entrants is hardly surprising. While the market may be in its infancy, the potential to capture new revenue streams, tap into rich data streams on consumer preferences and shopping habits as well as the ability to ignite NFC payments, makes Mobile Wallet an incredibly attractive proposition for many.
The real value of the Mobile Wallet lies in its ability to link a mobile device to a variety of payment cards and other payment instruments. It is therefore possible for consumers to manage different mobile payment instruments resident within the mobile device – or held on a remote server - alongside their own personal credentials.
This all has the potential to usher in a new era of convenient ‘on the go’ payment, lifestyle and financial management possibilities that embeds issuers into customers’ everyday tasks and lifestyle preferences.
Mobile Wallet holders would be able to make online and offline payments, use e-banking services, utilise a local wallet or e-purse, redeem e-money – and take advantage of additional services covering their day-to-day needs such as transit, vending, ATM, loyalty and location-based features.
However, while Mobile Wallets have been in active use since 2010, no single wallet solution appears to dominate today. It’s a scenario that’s incentivising new entrants - to try out new business models backed by aggressive marketing campaigns. All of which, of course, is creating significant market fragmentation.
To date no one wallet issuer appears to have found the right combination of appealing features to enable mass adoption. Today’s consumers already have a number of electronic payment methods at their fingertips – and any new payment method must demonstrate clear advantages.
It’s not just about the consumer, of course. Merchants need to be convinced that hardware and software investments are worthwhile.
Samsung’s LoopPay is interesting here. Describing itself as the ‘most accepted Mobile Wallet on the planet’ the technology offers intriguing possibilities with its ability to allow retailers (particularly in the United States) to convert their existing mag-stripe readers into contactless payment receivers. br/> While, according to a recent survey from Boston Retail Partners, nearly 40% of all US large retailers plan to support Apple Pay by the end of the year.
Regardless of which platform or technology is involved, wallets need to be ‘open’ and interoperable, work on most mobile devices and payment networks, and be accepted by most merchants. They also need to offer a friendly customer enrolment process, enable ease of application provisioning to boost transaction numbers and guide users in how to act before and after transactions. Not only this, wallets must ensure fast processing of mobile financial transactions as well as other non-payment applications, be stored in a secure environment and deliver full interoperability.
Designing the ‘ideal’ wallet isn’t necessarily a guarantee of success, however. Consumers and merchants are conservative and expect the highest levels of data and payment protection.
Ideally, Mobile Wallet access should be protected by an authentication hardware device that’s under the direct control of the holder – and stored in a Secure Element which emulates a multi-application contactless card. Combined with the Trusted Execution Environment (TEE) that is resident in a mobile device, this would deliver end-to-end security by enforcing protection, confidentiality, integrity and data access rights.
Unfortunately, the plethora of wallet platforms currently on the market – each featuring their own non-interoperable standards – is hampering consumer adoption. The present lack of a global standardization framework means a new standard – which establishes a minimum set of additional functionalities, defines security and data protection requirements, and elaborates on existing specifications - needs to be established as a priority.
A global standardization framework would pave the way for that all- important interoperability – which in turn would fuel mass consumer and merchant acceptance and take-up of Mobile Wallet market propositions.
Ultimately, the technologies and business models will succeed or fail on user and merchant acceptance. This is by no means a foregone conclusion due to the sensitive nature of payments and a fundamentally conservative market. That said, with recent research from Boston Group Partners suggesting 38% of all large US retailers plan to support Apple pay by the end of the year, and some 46% planning to do the same with Google Wallet within 3 years, there is, at least, growing evidence that the Mobile Wallet proposition is gaining real traction.
*This paper discusses the nature and expected functionalities of the ideal Mobile Wallet. With respect to terminology, digital wallet’ is sometimes used to refer to a wallet stored in the Cloud; this paper does not differentiate between Mobile Wallets and Digital Wallets. The object of this paper is not to discuss access methods to the Wallet ie. NFC, HCE.