Consumer Mobile Payment Adoption is Pressuring Banks
Evolution is occurring rapidly in mobile payments. While the innovation headlines are being made by the digital innovators and new industry entrants, banks still have a window of opportunity to take strategic advantage and preserve their traditional payments franchise.
The rapid adoption of mobile payments by young consumers, the inroads being made by the digital brands, and the enduring trust reputation of banks defines the competitive landscape. Our most recent consumer research study spotlights the strategic challenges faced by banks.
Mobile money-related transactions have become a common occurrence for younger consumers in recent years. From making P2P transfers and ordering takeout, to purchasing everyday items and paying for lunchmobile is transforming shopping and payments among consumers under the age of 35. As demonstrated by our most recent survey, 63% of the 18-25 age group, reported making a mobile money-related transaction in the previous month, while the same was true for 56% of 26-35 year-olds. These young consumers are the front edge of a dramatic change in payments.
While banks have held an advantaged position as the preferred provider in mobile payments as defined by the providing of the shopping-enhanced digital wallet, we are witnessing the steady rise of digital brands as credible providers of mobile payments as they aggressively launch new mobile shopping and payments capabilities aimed at meeting the needs of today's increasingly mobile consumer.
Given the progress of the digital brands, and the continuing slow response of banks, they are arguably in the process of ceding their advantaged position as the preferred provider of the digital wallet. For the first time in our survey, the most preferred provider of the digital wallet has shifted from consumers' primary bank to PayPal.
In addition to PayPals ascendance as the preferred digital wallet provider, our most recent survey shows Amazon coming in fourth, followed by Google, with Apple placing seventh. Primary bank has fallen to second place. Visa and MasterCard rank third and sixth, respectively. Both Google and Apple show steady gains over the past several years, though not as dramatic as PayPal. (Amazon was added as an option in the most recent survey).
While the consumer perception trends should be alarming, banks still hold a trust advantage when it comes to safeguarding personal data and using data in the best interests of their customers. Although this is true for consumers overall, wide variations are emerging across age cohorts with the trust advantage of banks over digital brands among younger consumers shrinking. If the current trends continue, banks could be at risk of losing their trust advantage among these younger consumers.
Digital brands are viewed quite differently by consumers when it comes to trust, with wide variations in trust levels across digital brands like Amazon, Google, Apple and Facebook. Each will have their unique challenges to overcome as they seek to compete with retail banks and PayPal as the trusted digital payments provider.
With new digital/mobile shopping and payments innovation announcements coming every day from a wide range of players, the competitive landscape is quite fluid. From PayPals dramatic gains as preferred digital wallet provider and Amazons stealth merchant wallet, to Apples much-anticipated digital iPhone wallet, one thing is certain; consumers do/will have many options to choose from.
The question is, can banks move quickly enough to leverage their current trust advantage? It is time for the banking industry to recognize that consumers are not going to wait for banks to deliver the kind of new innovative shopping and payment services that they are coming to expect. The payment franchise is the banking industrys to keep, but only if banks start to move in that direction and with the pace that todays consumers expect.
Bob Hedges and Teresa Epperson are managing directors at AlixPartners.