The term "mobile wallet wars" has been part of financial services lingo for several years, with banks, merchants and software companies fighting for control of digital payments. But the real battle is taking place in an entirely different arena.
The truth of the matter is that the payments industry is not the one leading the charge. This is an industry that still distributes paper checks, magstripe cards and other decades-old technology even when it boasts of recent advancements such as EMV and tokenization. Rather, the biggest advancements are coming from the mobile industry, with little regard to whether the financial services industry can keep up.
"The payments industry doesn't make changes on the dime, even if it's the card networks or PayPal and Venmo," said Larry Berlin, vice president with Chicago-based First Analysis Securities. "Nothing is instantly ... replacing, by tomorrow, something that is already there."
While there are countless companies bringing their own mobile wallets to market, none have overwhelmingly misplaced the tried-and-true methods of payment. "The pace of introduction of change is always pretty dramatic, but the pace of actual change is slow," Berlin said.
Perhaps the clearest example of this is the design of Samsung Pay, a Near Field Communication-based wallet designed to be compatible with older terminals by also simulating the signal created by swiping a magstripe card. This technology — which Samsung added through its early-2015 acquisition of LoopPay — was added solely as a concession to the slower pace of technology in the financial services industry.
Many of the most forward-thinking mobile wallet makers in the banking industry still found themselves waiting for handset makers to innovate first. For example, products such as RBC's and Capital One's mobile wallets operate only because Google added technology called host card emulation to its Android operating system in 2013. These banks never brought the same capabilities to iPhones because Apple never brought HCE to its platform.
In the example of Samsung Pay, the security put in place by the handset maker is actually making it harder for banks to support its mobile wallet. Some Samsung Pay users are finding out they can't add payment cards to the application with device encryption enabled on their phones. This strikes many as odd, considering encryption is considered a key security layer for sensitive data stored on the device.
Though it's likely just an unintended consequence of Visa and MasterCard rules related to use of their encryption services, the Samsung Pay example illustrates the kind of world that banks and merchants have to deal with now, said Tim Sloane, director of emerging technologies advisory services for Boston-based Mercator Advisory Group
Technology changes are going to be "fast and furious" from a user interface perspective, Sloane added, but the acquiring side of payments has a relatively well-defined environment.
"You can change technology regarding how a credential gets passed at the point of sale, but for the most part there are well-defined standards and formats for passing that information so the POS can identify it," Sloane said.
The future "open battlefield" in mobile technology will be where providers begin to address security in a mobile handset in such a way that a consumer will be able to use budgeting tools and other features for multiple accounts from different financial institutions.
"That's a layer above what anyone can think about now, but Apple and Google will want to make sure their operating systems can support that," Sloane said.
As Apple and Google established themselves as key mobile wallet providers, they upped the ante for banks and merchants that want to support mobile payments, said Galen Baggs, chief operating officer and financial officer for Marlton, N.J.-based OpDecision, which monitors the mobile industry.
"The real challenge for a company is having a resource that is dedicated to these mobile operating systems, as they require constant upgrades," Baggs said. "For companies that have not yet allocated resources to this area, it will be a huge challenge."
The mobile operating networks are not going to slow down technology advancements any time soon, Baggs added.
"Consumers want things that work well and are easy," Baggs said. "And most upgrades are moving toward these types of changes."
Consumers have been getting technology upgrades for several decades, Baggs said. "It's just that it has shifted from constant updates on our desktop computer to updates on your phones and tablets."
If a mobile payment system such as Apple Pay becomes strongly entrenched among consumers in the coming years, it would mark one of the biggest changes in the modern mobile industry, Baggs added.
And therein lies the rub for the marriage of payments and mobile technology. Despite the new platforms that mobile technology enables, U.S. consumers largely prefer to use cash and checks, especially for person-to-person payments.
"People migrate to the easiest thing," said Berlin of First Analysis. "Sometimes the easiest thing has already been invented."