As competition heats up for mobile-wallet providers, the various underlying technologies are starting to show whether they have long-term viability.
Those technologies with staying power, whether hardware-based like Near Field Communication or software-based like bar codes, will require an infusion of significant value before, during and after payment, according to a report "Why Digital Wallets Matter" from Forrester Research Inc. senior analyst Denee Carrington.
"The race is on," Carrington said in an interview. Mobile-wallet providers are "building their ships and in essence it will be exciting to see who will be able to deliver in the most effective way for consumers and merchants."
But consumer habits are difficult to change, and users are not clamoring for new technology to replace existing methods of payment.
"Neither consumers nor merchants are struggling with the swipe mechanism of traditional card payments, leading many to wonder if mobile digital wallets are a solution in search of a problem," Carrington noted in the report. "The real promise of digital wallets lies within their ability to facilitate payment (mobile or otherwise) while simultaneously enabling smarter, more efficient commerce through delivery of value-added services."
Forrester defines mobile wallets as a "digital service — accessed via the Web or a mobile application — that authorizes payment transactions from one or more payment sources and facilitates other commerce-related features, such as offers, coupons, loyalty rewards, electronic receipts and product information."
And a plethora of alternatives is vying for consumers' attention and loyalty. These include MasterCard's PayPass Wallet, the O2 Wallet from Telefonica, V.me from Visa, Google Wallet and the telecoms' Isis mobile wallet that supporters say will launch later this summer. Other players emerging in the mobile-wallet market include Microsoft, Square, PayPal and Sprint.
With all the new players entering the payments market, the potential for disintermediation is "top of mind" among the traditional stakeholders such as banks, the report notes. But that doesn't mean these companies have to lose out.
"Banks are well-positioned to leverage their existing customer relationships and mobile banking apps and develop a strategy that delivers a broader wallet experience," Carrington said in the interview.
Seventy-nine percent of those most interested in mobile payments are younger than 45, and they often use mobile and online banking as well, the report notes.
"This is great news for banks planning to pursue a mobile digital-wallet strategy, as they have direct access to their target consumers through existing mobile and online banking services," Carrington wrote.
As more options become available, consumers will try several digital wallets but will settle into the consistent use of just a few, such as one tied to an affinity and one tied to a bank relationship, Carrington said during the interview.
Soon, the phrase "top of wallet" will take on new meaning as consumers think digital wallet first and card second, if they have reason to think about it at all, according to the report.
"The moment of truth will no longer be the point of purchase but will occur earlier in the purchase journey, when consumers decide which payment accounts to link to the wallet," the report notes. "Digital wallets will effectively be a wedge separating issuers from their consumers, and the wallet operators will charge them for the privilege."