What's In Your (Mobile) Wallet?

The idea of paying for in-store purchases via smartphone doesn't seem quite so foreign anymore. But how will usage change customer relationships as the technology becomes more advanced and widely accepted?
Customer Experience

When Apple launched its mobile wallet capabilities alongside the iPhone 6 last year, consumers were skeptical at best. Though Apple Pay promised both greater convenience and security, users, skeptical of privacy breaches, questioned the underlying safety of such technology. But, as other innovators introduce their own mobile wallet alternatives, these solutions may serve as the battleground between banks and retailers, as each industry seeks to gain and retain customer loyalty.

As with any new technology, data safety remains the primary concern for new and potential users. Cybersecurity experts (87 percent) expect to see an increase in mobile payment data breaches within the next 12 months, for instance, yet many (42 percent) have used these tools in 2015. According to PYMNTS, consumer usage has doubled since 2013, as 15 percent of respondents have used their mobile wallet within the last six months and 22 percent expect to in the next six months. However, as companies struggle to meet the new EMV technical requirements with chip card implementations, now might be the perfect time to reinvent the customer experience and embrace methods that promise to protect sensitive customer information amidst growing hack potential.

Mike Betzer, CEO of Humanify, stresses that mobile no longer stands as the mere extension of a brand's Web presence. Mobile, especially in today's app economy, means providing customers with the functionality and ease they've come to expect from this revolution. From biometric and voice authentication, to geo-location services, mobile has the capacity to offer a more secure, personalized experience than websites were ever designed to do.

Zach Goldstein, CEO and founder of Thanx, describes the three types of mobile wallet technology available today:

  1. Prepaid Stored Value-Customers store value on mobile payment cards that they can then use to pay in store via custom barcodes within the app.
  2. Direct Mobile Payments-Customers connect a payment card to their mobile app and use that to pay in store, either via barcode, or come sort of NFC, RFID, or Bluetooth location trigger.
  3. Third-Party Mobile Platforms-Customers download an app, link the app to their bank account, and use that app to purchase via scanned barcode.

But what do these technologies mean for the future of both banks and retailers? It's bound to be an uphill battle, as banks struggle to adapt to the way consumers pay and align efforts to meet retail innovations.

Sri Ramanathan, CTO of Kony, Inc., emphasizes that, first and foremost, banks will need to learn more about user experience and how consumers actually embrace such technologies. Banks typically outsource their technology and mobile app development to vendors that don't understand mobile payments. The people who make mobile payments reality aren't even bankers, he explains. Instead, they are pure technology providers, such as Apple, Samsung, and Google, because they understand what functional user experience looks like and embed those capabilities deep into their platforms. Consumers, however, typically only consider their relationships with banks from a payment perspective, yet there's much more to it than that.

"World-class user experience will trump all in the near future and will be the determining factor in adoption," Ramanathan adds. "Consumers will adopt technology only if it is seamless, easy to use and does not result in a major price increase."

Now, as consumers choose to digitize their payment card, banks will have to fight to become the default method of payment. "Moving from physical to digital wallets changes the dynamic when banks are fighting to be the all-important top card in their wallets," says Laurence Cooke, CEO and co-founder of nanoPay. "Only time will reveal the outcome, but since customers can sign up for new cards with just a few simple clicks, churn becomes a real risk for the card business at banks. In the short term, it's clear that banks will lose some control over their customers, leaving it up to them to find innovative ways to earn that top spot with consumers."

Goldstein also notes that banks will have to fight against the changing nature of how consumers pay. Consumers are increasingly likely to link their bank accounts directly to their preferred mobile payment apps, eliminating some lucrative credit card transactions from the bank's payment portfolio. Consumers may also see additional rewards programs, as banks must fight to create the best incentive programs for customers. In this case, data remains the most valuable asset, for the comfort that consumers have sharing data, and the enthusiasm of banks to provide better incentives to consumers willing to share their data will continue to increase.

"We will see less of a focus on technology that works, and more of a focus on technology that make the process effortless for consumers and merchants," Goldstein says. "Like anything, the first iterations of technology just try to connect the dots. With the dots connected, we will then see iterations to make those processes quicker, more efficient, and better for the invested parties."

However, retailers may very well have the upper hand in this battle, for they have greater opportunity to tap into customers' affinity for loyalty programs and convenience by using mobile wallets as engagement tools that reach far beyond basic payment capabilities.

Long Live Loyalty!

Since their inception, mobile wallets have becomes important shopping companions because they store valuable coupons and loyalty cards, delivering location-based reminders when customers are near the store and allowing marketers to make static offers dynamic by managing and changing saved content in real time. John Haro, CTO at Vibes, explains that, mobile wallets give brands the opportunity to influence redemptions and create lasting, interactive relationships with customers opposed to print offers, where the customer drives all usage. Forrester Research, in fact, found that more than half of U.S. consumers put loyalty and coupons at the top of their priority list when it comes to mobile wallets. Thus, by moving beyond mobile payments, retailers have the opportunity to expand adoption by catering to the needs of their customers.

For instance, Men's Wearhouse added the 'Save to Wallet' option to its email coupon campaigns, which resulted in 10 times higher redemption rates than those campaigns without this feature. Similarly, Pep Boys enables users to access mobile wallet coupons from its mobile site, thereby allowing customers to add any coupon to the Apple or Android Pay app. In response, 30 percent of customers who save coupons to their mobile wallet redeem them in-store. Both examples validate the power mobile wallets have to nurture engagement, boost conversion rates, and strengthen customer relationships.

However, Mike Polner, director of product marketing at FiveStars, indicates that merchants need more than just rewards and points or simple punch cards to bring customers back frequently and effectively. Driving mobile app adoption is extremely hard because consumers already operate dozens of apps regularly, sparking the battle for a share of that time. By engaging customers in ways that enhance their daily routines, however, brands have the chance to boost adoption rates and advance mobile payment penetration throughout the modern market.

Starbucks, for instance, recently rolled out the ability for users to order and pay for their Starbucks drink before coming into the store. While Starbucks isn't the first retailer to offer this level of convenience, many consider its app to be the gold standard for mobile transactions because it presents users with an all-in-one platform that supports seamless experiences and loyalty growth. One report indicates that mobile payments now represent 16 percent of all Starbucks transactions, demonstrating an uptick in adoption among customers. Starbucks' Mobile Order and Pay feature adds value to customers' lives by conveniently expediting their interaction with the brand, thereby supporting retention and loyalty in the process.

"Brands must consider limiting the way that mobile wallets change how consumers currently pay," Goldstein adds. "There's a tendency with new technologies to try to totally change the game. Realistically, however, these revolutionary technologies don't work. The best technologies are the ones that take current processes and make them better. Technology has to take the friction out of a process to see massive adoption. Massive adoption will not come from technology that tries to flip everything on its head."

Goldstein explains that, as adoption expands, the best mobile payment programs will focus on customer recency, frequency, and lifetime value. Ultimately, the biggest risk retailers and banks face at the moment is drowning in too much data because, while acquiring data from mobile apps is easy, using this data effectively can be hard. By focusing on these three metrics, however, companies will find more success as they build out their strategies. But, in the end, replicating Starbucks' technology model alone won't suffice. Recreating Starbucks' focus on improving the relationship between brand and customer, however, will be the guide that helps future innovators achieve mobile payment success.