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Emerging Payments

Banks Should Seek Teammates in the Mobile-Wallet Race

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Banks have at times been urged to design their own wallets instead of working with third parties — but going it alone may not always be the best approach.

The mobile-payments race is likely to have more than one winner. Even if a bank-run app offers the same features as an Isis or a Google Wallet, consumers will still use those other mobile-pay apps and expect to see their bank represented.

This makes it extremely difficult for "one wallet to rule them all," says Zil Bareisis, a London-based senior analyst for research firm Celent, and author of the report, "Digital Wallets: Crossing the Chasm Between Online and Offline Payments."

Because one wallet likely can't eliminate merchant or consumer use of several others, banks would be better off ensuring their payment credentials are available in those wallets most likely to win a specific market share, the report states.

The Celent report's conclusion that banks should avoid introducing their own mobile wallets "in today's fragmented world of digital wallets" runs counter to the advice of some industry consultants

"As I say in my report, consumers are going to have their payment credentials registered in multiple places – with digital wallets or directly with the merchants, and they will decide what to use and when depending on what's most convenient and valuable to them at a specific time," Bareisis says.

Banks must recognize this consumer behavior, Bareisis says.

"The banks should ensure that they make it easy for their customers to register their cards with various wallets, including even cloud-based wallets," he adds.

Some examples of wallet developers seeking the best of the online and physical retail worlds include online giant PayPal, which plans to boost its point-of-sale presence in a deal with Discover

In addition, Visa and MasterCard use their strength in physical retail to develop digital wallets, Bareisis states in the report. 

However, with more than 100 digital payment systems currently seeking consumer and merchant attention, banks should at least begin to understand the wallets' differences and positions in the marketplace, the report adds.

The wallets that have captured the most consumer and merchant awareness, according to the report, are Google Wallet, Isis Mobile Wallet, LevelUp, O2 Wallet, PayPal, MasterCard's PayPass Wallet, Quick Tap Wallet, American Express' Serve, Square Wallet and Visa's V.me.

Banks can differentiate wallets based on their payment and security models, such as whether they operate with secure elements in handsets or with cloud-based storage. But wallets also differ on the types of accounts they use to settle with the merchant and how that settlement account is funded, the report says.

Some of these wallets use a virtual prepaid account to make payments to the merchant, whereas others pass along details for the cards consumers link to them.

The original Google Wallet offered both approaches, making the choice explicit to the consumer. Google has since updated the wallet, phasing out the Google-branded prepaid card and adding a virtual MasterCard account that is largely invisible to the end user. 

PayPal, Square and LevelUp operate through funding in advance or at the time of the transaction. Square and LevelUp typically use regular cards for funding, while PayPal can also debit a bank account or arrange instant credit via its BillMeLater unit.

"Most wallets are good for some types of payments but not for others, and rarely for both online and offline," Bareisis says. "I didn't really subscribe to the view of 'one wallet to rule them all' even before this research, but working for this report highlighted the gap and how difficult it might be to close it."

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