Until recently, mobile wallets could count on getting at least some boost from exclusivity. If you were on Sprint, you could use Google Wallet but not Isis. If you were on AT&T, Verizon or T-Mobile, you could use Isis but not Google Wallet. If you had an iPhone, you could use neither, but you had your pick of software-based mobile wallets such as LevelUp and the Starbucks card.

With the introduction of Host Card Emulation and other workarounds, these barriers have been blown away. Google Wallet is now on all carriers' handsets that run the latest version of its Android operating system. Isis has even made it to the iPhone with its Cashwrap sleeve, which adds the missing Near Field Communication hardware necessary for contactless payments.

One of the few success stories in mobile payments, the Starbucks card, attributes the app's performance to its rewards program, which CEO Howard Schultz has characterized as a "currency" with a significant amount of untapped potential.

Other mobile wallet providers are trying to tap the same vein by improving their loyalty and offer systems, but this is a delicate balancing act. If loyalty is not well integrated, there is no incentive for consumers to pick a mobile wallet over cash and plastic cards. But if the mobile wallet provider is too aggressive about its loyalty program, it runs the risk of scaring off its merchant partners, as happened to Bling Nation three years ago.

That said, the current batch of offers still has room for improvement. Google Offers, which launched alongside Google Wallet, does not actually require users to pay with Google Wallet. Isis has put out some aggressive offers, such as savings on AT&T phone accessories or free drinks at launch partner Jamba Juice, but it has relatively few offers overall.

Both mobile wallet providers have taken steps to address these pain points.

Google Wallet recently added a feature that notifies consumers when they are near a store for which they linked a loyalty card to the Google Wallet app. The company also made it easier to link reward cards by using the phone's camera to scan them.

Isis' mobile wallet has launched some significant promotions tied to its card issuing partners. Customers who link a Wells Fargo card to the Isis wallet can get 20% of their purchases refunded as statement credits for up to $100 per month. They also get a $20 credit just for linking the card. This promotion went live after Wells Fargo signed up with Isis in December.

A similar offer from American Express provides 20% back on purchases made with a linked Amex Serve prepaid account, for up to $200 in credit.

Are these moves enough to get consumers to finally forget their plastic cards?

In Google's case, maybe. Retailers report that it sometimes takes coaxing to get consumers to pull out their loyalty cards when making a purchase. By enabling the loyalty card to pop up automatically before the shopper even enters the store, Google Wallet has cut through some of this friction. And since the shopper already has the phone in hand to use the loyalty card, the simplest course of action is to keep the phone out to pay.

Isis' issuing partners are trying to encourage recurring transactions by providing a hefty reward. It's a proven tactic—in 2004, Citigroup offered a free iPod mini to new customers on the condition that they make regular bill payments online. At the time, the iPod mini was in such short supply that even Apple stores had trouble keeping them in stock. 

New Citi customers could also opt to receive $200 in cash, the same amount Amex is offering to Isis users today.

Citi's strategy was seen as particularly Web-savvy and attracted a significant number of online-only customers. After it began these promotions, 40% of Citi's online applications came from people living beyond the reach of its 1,000 branches, the bank said in 2004.

Consumers respond well to hefty cash and technology-based incentives, but Citi was urging along a transition to online banking that was already well underway. The case for mobile payments is not as clear.

Today, many consumers still do not think of mobile payments as a compelling alternative to cash and cards.  In a consumer survey published in September by Phoenix Marketing International, only 20% of respondents showed significant interest in mobile wallets, despite 70% of respondents showing awareness of the technology.

And if consumers read the fine print on how products like Google Wallet work, they'll see that their banks may not properly apply rewards earned on the card used to fund the Google Wallet purchase. This means that the consumers who care the most about rewards may be the least interested in switching how they pay.

Daniel Wolfe is Editor-in-Chief of PaymentsSource