Visa and MasterCard have aggressively worked to establish their V.me and MasterPass wallets since launching both products within the past year, and both companies are trying to learn from their past efforts in e-payments.
Visa's V.me replaced Rightcliq, an online shopping system that was more like eBay than PayPal, whereas MasterCard's MasterPass is built on a 2012 product called PayPass Wallet Services. Both companies are already favored as a method for online purchases 63% of consumers say they prefer to use a credit, charge or debit card for online shopping, according to a report TSYS published last week.
The new Visa wallet "builds on the foundation of trust that consumers and merchants count on with Visa," says Sam Shrauger, Visa's head of digital for developed markets. As an alternative payment method, V.me "adds convenience and value at the edge of the Visa network."
Since Visa launched its V.me digital wallet a year ago, the card brand says it has 300 merchants in the U.S. signed on for the service, with 60 currently live. Within a month of V.me's launch, Visa had 50 financial institutions agreeing to support the new service, and it has since doubled that number.
This month, MasterCard continued its global expansion of the MasterPass digital wallet, adding merchants such as Beyond the Rack, Currys and PC World. MasterCard launched MasterPass in February, offering it first in Canada and Australia.
MasterCard says the digital wallet is live with 20,000 retailers throughout the U.S., Canada, U.K. and Australia. The merchant adoption was fueled largely by a pact with Web.com. By the end of the year, MasterCard expects to offer MasterPass in Brazil, Belgium, France, Italy, Singapore, Sweden and Spain.
"Clearly, many other wallets came out before PayPass Wallet Services," says Ed Olebe, MasterCard's head of U.S. emerging payments. "In some ways, that allowed us the benefit of seeing what was right, what was wrong and what wasn't working."
With the benefit of observation, MasterCard determined that the role it should play was fairly simple, but vital to the card brand's future, Olebe says.
"We had to help consumers buy things with the devices they love," he says. "We didn't want to develop a proprietary wallet, but a platform that others could use to offer wallet services."
In doing so, Olebe says, MasterCard is "taking a page out of the Apple and Android playbook" by making MasterPass support apps. "We asked ourselves how to enable a technology that would be better than a plastic card, allowing consumers to use the device they choose, not what we choose," Olebe says.
However, despite their constant push to expand, the card brands may still find themselves lagging behind in the race for merchant and consumer adoption with various other providers, says Richard Oglesby, senior analyst and mobile payments expert with Boston-based Aite Group.
"It's far too early to declare any sort of winners, and MasterPass and V.me are currently significantly behind several competitors in terms of merchant enrollment, consumer enrollment and transaction volume," Oglesby says.
The networks got into the digital wallet game more than a decade after the technology became prevalent and now they are "playing catch up," Oglesby says.
In addition, being successful as an online wallet is completely different from being successful as an offline wallet, Oglesby says. "While many of their competitors are working on the latter challenge, the card networks are still working on the former."
But that could change quickly, says Visa's Shrauger.
"While e-commerce continues to be one of the fastest growing industries, we believe there is a huge opportunity for V.me to simplify the payment process, particularly on mobile devices," Shrauger says.
Globally, mobile payments are expected to grow by 31% this year to $235.4 billion, says Shrauger, citing recent Gartner research.
"We believe the long-term solution has to encompass all commerce whether in-person, on a computer or using a mobile device and it must be as simple, fast and secure as the plastic 'swipe' that we all so frequently rely on," Shrauger adds.
Plus, the card brands have an advantage in working with their issuing banks because consumers trust their banks to provide secure payment methods, says MasterCard's Olebe.
The competition amongst digital wallets is no different to MasterCard than what occurs with banks, he says.
"They issue cards with different designs, colors and offers, and the consumer chooses which one works best for them," Olebe says. "We apply that same philosophy to the digital space, and our job is to build the network for it."
Regardless, the card brands face an uphill climb in e-commerce, a territory that is "undeniably dominated by PayPal," says Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.
"The card networks are scrambling to get into position, starting initially with online merchants to get their feet wet to build competency and establish their infrastructure as the 'system of record,'" Crone says.
"Without establishing that, they are struggling for relevancy," he adds.
But Shrauger sees a benefit for Visa even when alternative payment brands succeed.
"What's also important to remember about PayPal, Google Wallet, and others in this space, is that consumers are often using their Visa debit, credit or prepaid card for payments through those services," Shrauger says. "Those are still processed by the Visa payment network."
However, Crone suggests that cloud-based payments will ultimately "eliminate all infrastructures" and make it easy for someone to displace the card brands at the point of sale.
"Cloud-based payments have created investment capital floodgates in financing more than 100 mobile wallets worldwide," Crone says.
As the card brands jockey for position with their digital products in the future, creativity will remain a key, Aite's Oglesby says.
"To really make it [digital wallets] work, the networks need to develop some truly compelling merchant value propositions so that merchants are not only accepting the wallet, but also preferring it to the point that they are facilitating and promoting consumer enrollment," Oglesby says.
When a company starts from behind in a technology race, it needs to be "highly disruptive and innovative" to catch up, Oglesby says. "People don't switch to a new solution unless it's better than the old one."