The Green Sheet Online Edition

July 08, 2013 • Issue 13:07:01

Understanding mobile wallets

By Michael Gavin
Merchant Warehouse

A mobile wallet is an electronic account denominated in a currency and held on a mobile phone that can be used to transfer money. Mobile, or digital, wallets are most commonly linked to a traditional credit card or a bank account, and the point of interaction, or payment, is between a smartphone or tablet and a payment acceptance device.

Mobile payments rely on new technologies, such as near field communication (NFC) and quick response (QR), and require an enabled smartphone or tablet for the consumer and a mobile-enabled acceptance device for the merchant. Currently, smartphone penetration exceeds 55 percent within the United States, but only one in six POS terminals in the United States are equipped to accept mobile payments, according to MobilePaymentsToday.com.

Preparing for the future

Even though mobile payments and digital wallet usage are still in their infancy there's no denying that a convergence point is upon us. In fact, according to a survey conducted by Carlisle & Gallagher Consulting Group, 48 percent of consumers are interested in alternative payment options, and 27 percent are interested in using technologies such as smartphones and tablets to enhance the overall shopping experience.

Peter Olynick, Carlisle & Gallagher's Practice Lead, Cards and Payments, predicted that, "Within five years, half of today's smartphone users will be using mobile wallets as their preferred payments method."

Preparing for the mobile wallet revolution can be a daunting task, filled with a vast amount of requisite research. Even armed with the latest information and predictions, there is no crystal ball as it relates to mobile payments and which platforms, wallets or commerce applications will gain mass adoption and usage among consumers.

Currently, there are hundreds of mobile wallets with offerings from card issuers (MasterCard Worldwide, Visa Inc.), wireless carriers (Sprint Nextel Corp., Isis), individual retailers (Starbucks, Merchant Customer Exchange), online enterprises (Google Inc., PayPal Inc.) and startups (LevelUp, Lemon Inc., Square Inc.).

And, according to comScore Inc., while consumer awareness is higher for recognizable brands like Google, PayPal and MasterCard, no clear-cut leader has emerged yet.

Comparing the contenders

Some industry analysts even argue that, much like their practice with traditional credit cards, consumers will adopt more than one digital wallet with usage preference driven by value and convenience. A review of just a handful of mobile wallets, with their varying form factors and technology challenges, indicates the driving value for both consumers and merchants is still unclear. Following is a description of several contenders:

• Google Wallet: This is a mobile payment system that allows consumers to store credit and debit card information and make payments through NFC technology. Google Wallet is a free mobile app compatible with mobile devices that feature NFC capabilities, as well as special secure element chips to encrypt financial information. Currently, consumers can use Google Wallet in-store anywhere NFC payments are accepted - estimated to be more than 200,000 merchants across the United States.
• PayPal: In an effort to distinguish its offering from the competition, PayPal classifies its solution as an "empty hands" digital wallet. The wallet works by allowing users (PayPal reports over 110 million in total) to link their PayPal accounts and pay for purchases by entering their phone numbers and PIN codes into retailers' existing POS terminals - no smartphone required. One interesting feature of the PayPal wallet is that customers can change the method of payment after making a purchase.
• MasterCard PayPass: The PayPass Wallet offers tap-and-go, NFC-enabled payments that work via PayPass-enabled (NFC) phones, cards, key fobs or mobile tags at more than 441,000 locations worldwide. MasterCard's PayPass Wallet is an open solution allowing consumers to add their Visa, American Express Co. and Discover Financial Services cards, whether credit, debit or prepaid.
• Isis: A national mobile commerce venture backed by AT&T Mobility LLC, T-Mobile USA Inc. and Verizon Wireless, Isis is a mobile payment wallet that is software based and organizes credit and debit cards, loyalty cards and special offers in one free app. Mobile payments are contactless using NFC, and the app can store card information for three major credit card issuers: AmEx, Capital One Corp. and JPMorgan Chase & Co. So far, Isis has only been launched in Austin, Texas, and Salt Lake City, with a broader rollout expected in 2013.
• LevelUp: The LevelUp mobile application for iPhone and Android devices allows registered users to securely link a debit or credit card (any issuer) to a dynamic QR code displayed within the app. To pay with LevelUp, users simply scan the QR code on their phones at LevelUp terminals located at local businesses that accept LevelUp as a form of payment. LevelUp currently boasts over 1 million users and 5,000 acceptance points across the United States.
• Square Wallet: Unlike mobile wallets that require NFC, Square Wallet allows users to pay with their mobile devices through a mobile app. Using the app, consumers search the Square directory to find businesses and then tap the "Pay Here" button to pay with their names. When it is time to pay, a user simply tells the merchant his or her name. The merchant will see the individual's name and picture on the POS register's display and then accept payment with the tap of a button.
• Starbucks: Starbucks launched its mobile app, which features an integrated wallet, in January 2011. Users link a credit or debit card to prefund an account that can be set to refill automatically or on demand. As of the first quarter of 2013, mobile payments accounted for 20 percent of all credit and debit card transactions among more than 7 million users for the global retailer.

Going beyond payments

In reality, mobile commerce is about much more than just processing payments. Its true value lies in its potential to completely transform the customer experience and enhance relationships between merchants and their customers.

The mobile wallet enables merchants to combine the ease of mobile payments with integrated loyalty and rewards programs. With consumer expectations high and competition at every turn, loyalty marketers can engage and retain these customers by delivering a complete shopping experience - one that includes payments, loyalty redemption and ongoing relevant communication, both before and after a purchase.

Merchants can take advantage of mobile wallet capabilities to provide a highly tailored and personalized experience to their customers. Because every mobile device is connected to a single individual with a unique profile and history, merchants have the opportunity to deliver offers and communications that are relevant, attractive and timely at the individual customer level.

Unlike the traditional retail experience that separates the advertising, communication, payment, loyalty, special offer and discount experiences, the mobile wallet has the ability to integrate all of those touches through a single device, or interaction, providing a far more relevant, positive and enticing customer experience.

As Merchant Warehouse Senior Vice President, Sales, Michael Gavin is responsible for day-to-day management of the company's direct sales, as well as leadership of all sales activities within the company's agent channel. He has served as a key leader within the organization since joining the company in late 2000. Merchant Warehouse's Genius Customer Engagement Platform is a single, intuitive platform that integrates every transaction technology, loyalty program and more. Contact Michael at mgavin@merchantwarehouse.com. For more information on the company, visit http://merchantwarehouse.com.

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