Wells Shows Why Bank Mobile Wallets Are No Longer Optional

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Wells Fargo & Co. has joined the growing ranks of banks that are building their own branded mobile wallets, pressuring other financial institutions to act quickly to keep pace.

Building a proprietary mobile app is hard work at first—and it may be out of reach of many smaller institutions—but in the long run it enables banks to save money and control the customer experience from end to end to maintain a tighter relationship, said Jordan McKee, a senior analyst with 451 Research.

“Participating in a third-party wallet is best described as a necessary evil for most issuers,” McKee said, noting there are many one-time and ongoing costs involved to participate in someone else’s wallet, and issuers have little control over the wallet’s features and functions. As a result, many issuers are looking for alternatives.

Wells’ app will enable customers to make NFC payments and ATM transactions directly from Wells Fargo’s mobile app for Android, the bank said May 24. Using the Wells Fargo Wallet, launching this summer, customers will be able to make purchases with their Wells Fargo credit and debit cards using an Android phone, by tapping the handset at terminals that support contactless payments, the company said in a press release.

Wells Fargo Wallet users also may use the app to conduct ATM transactions without pulling out their card. More than 40% of Wells Fargo’s ATMs will be NFC-enabled by the end of this year, Wells Fargo said.

San Francisco-based Wells Fargo is among the financial institutions in North America, including the likes of Capital One and RBC, that are using host card emulation (HCE) technology to develop proprietary mobile wallets that store payment card credentials in the cloud, according to analysts.

With HCE, banks are able to support tokenized mobile payments directly, instead of leaning on third-party wallets like Apple Pay, which charges banks a fee of 10 to 15 basis points, for participation.

Wells Fargo developed its mobile wallet in-house and its employees have been testing it for several months, the company said.

Analysts for some time have been predicting more banks would develop their own mobile wallets, rather than rely on third-party wallets, in a bid to bring their own brands to the forefront of their customers’ mobile payments’ experiences.

“Third-party wallets, such as Apple Pay, and more recently, Android Pay, Samsung Pay and others, are built on top of bank-issued cards, and from a branding perspective, issuers have become a step removed,” said Zilvinas Bareisis, a senior analyst with Celent. “Consumers are starting to associate the payment more with Apple Pay, than with [their] bank card.”

Celent’s research suggests banks are willing to invest in developing their own mobile payment infrastructure to remain “top of wallet,” Bareisis said.

“HCE-based wallets give issuers the opportunity to create a branded payment experience for consumers, at least on those Android devices, and we certainly expect more issuers to follow suit,” he said

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