The third party wallets, or the “pays” as they are called, are failing to make a splash. Mobile wallets which let you pay any merchant from your smartphone are simply not a reality today.
Why? It's infrastructure. There are not enough of the “right” smartphones and Point Of Sale (POS) card terminals. Some experts try to estimate when the infrastructure will be ready.
One year? Two years? When? It is an irrelevant question. Someday the infrastructure will mature. It is inevitable. But it is not today. And consumers already know this. It does not require a technology degree to realize you simply can’t pay with your smartphone today.
So, what do we do today while we wait? The answer is to focus on business mobile wallets. Think Starbucks and Walmart, not Apple Pay and Samsung Pay.
Think about the convenience of paying your favorite businesses and using their cool mobile apps. Think about this as an alternative to mobile wallets. The Starbucks app is purely a mobile wallet. Yes, it does many things that customers love; but, its main purpose is to make payments and allow them to go from expensive processing (cards) to cheap processing (ACH and stored value). And Starbucks has succeeded wildly, with more than 20% of its payments coming via the app.
Starbucks didn't wait. It went out and started solving their own problem rather than waiting for a systemic, industry-wide solution. And, they are now the “sign-post” for our immediate future, which includes more businesses launching their own payment apps. Walmart Pay and the Target Red Card are the next to come. These are not “consolidated” mobile wallets, but single-business mobile wallets. A model that is hugely viable and out there today.
Business mobile wallets are interesting too in that they push a different payment processing model not based on cards, which are expensive for the business to use.
Businesses have been trying to move away from card processing fees for some time. The “Pays” are very, very card-centric, thus not merchant friendly. Stand-alone business mobile wallets can change this dramatically, such as in the case with Starbucks. A business can save money by proactively managing how payments are processed and by moving customers to a channel (their business mobile wallet) that makes it easier for them to pay while the business gets paid faster. Everyone wins; most importantly, the business. They get a cool way to interact with their customers. They lower their cost of processing payments. And by putting a mobile wallet app in the hands of their customers, they get paid faster.
Who can help businesses – those without the resources of Starbucks – to publish payment mobile wallet apps? Who can help businesses get paid faster and cheaper? Who can help businesses define their own mobile strategy? Local banks and credit unions, that's who.
It might seem as though, with business mobile wallets, everyone wins except for the bank servicing the consumer, which loses interchange fees when the cards are no longer used as frequently. But in fact, business mobile wallets present an opportunity for community financial institutions. Consider this: local banking is all about local businesses; most local banks start out as commercial lenders, and this is a strong relationship area for them.
There simply is no better avenue to local businesses than through their local bankers. Banks can provide immediate legitimacy to a business’ mobile app and, given they are already helping businesses get paid with other receivables products, this is a natural. And, local banks and credit unions already have the technology to do it as, wrapped up in their mobile banking offerings, is what is needed, provided their technology partners are prepared, and they should be.
The “pays” have failed to make a splash and they have failed to align with the convenience consumers seek and the processing costs businesses prefer.
This has left room for business mobile wallets to flourish, and so they shall in the coming 12-18 months. business mobile wallets are here to stay and will provide a serious challenge to consolidated mobile wallets that try to pay everyone.
Robb Gaynor is chief product officer of Malauzai Software, Inc.