By Brandes Elitch
CrossCheck Inc.
There are many challenges to being a retailer, but perhaps the most difficult and important is predicting consumer behavior. Even the most sophisticated companies with strong consumer marketing history have, at times, completely misunderstood consumer wants and needs – think Sony Betamax, New Coke, Windows Vista, and, yes, even Donald Trump's venture: the US Football League. Here in Sonoma County, Calif., our consumer marketing revolves around the wine business. Remember, our motto is: Napa is auto parts; Sonoma is wine. Wine brokers and distributors and retailers order wine months in advance, and they place big bets on what consumers will want and what they will pay for what they want.
Even the savviest wine experts can make big mistakes. For example, last year our local producer Truett-Hurst, one of the very few publicly traded small wineries, scored a trifecta of product failures. First, the winery's unique "Paper Boy" product, using a cardboard bottle with a plastic liner, failed in the marketplace and was recalled. Then, the highly touted wine spritzer product sold exclusively at Kroger Stores failed and was taken off the shelves. And then, Truett-Hurst's Winecraft brand, which offered a mixture of red wine and fruit juice in single serving cans, failed as well (what were they thinking?). Taken altogether, this must have been a sobering (I couldn't help the pun) experience for them.
Remember back in 2010, all those predictions about how quickly mobile wallets would take center stage in the world of consumer payments? Yes, mobile phones have displaced cameras, MP3 players and even books for some people, so it was easy to predict that the traditional wallet would become obsolete, too. People would use radio frequency identification, Bluetooth, and NFC technologies to pay with mobile devices, and it would be easy to satisfy the five corners of the payments equation: ubiquity, speed, cost, security and added value. Except that it wasn't easy after all. According to Gallup's research, only about 13 percent of all adults have digital wallets on their smartphones, and 75 percent of those have never even used their mobile wallet once, or at most never used it to make a purchase in the previous 30 days.
Mobile payments come in three flavors: online or in-app payments, which correspond to digital purchases on mobile devices; in-store payments, which handle purchases in the brick-and-mortar environment via near field communication (NFC) or host card emulation (HCE) built into the phone for Apple and Android devices, respectively; and e-commerce checkout like PayPal.
Here we are six years later, and the whole experience to date might be characterized as "notgonnahappen.com," at least not yet. Yes, Apple breathed new life into NFC, previously characterized as "not for commerce," but the number of consumers who use their Apple devices at merchants with fully operable NFC terminals is a miniscule percentage of POS payments. Part of this is because the consumer has to have a specific Apple device, and the merchant has to have a working NFC terminal.
A recent study by Phoenix Marketing International showed that one third of all Apple Pay credit card transactions occurred within a merchant app, not within the store. This makes sense because so few merchant locations are NFC enabled. Phoenix estimates that there are only 1 to 1.2 million locations that are NFC capable, but half of those are vending machines. This performance is on par with the dismal performance of the Europay, MasterCard and Visa (EMV) rollout, which even how is only about one-third complete, five months after the deadline.
Another big player is Google, with the Google Wallet card, issued by The Bancorp. As writer JJ Hornblass said, "There has been perhaps no venture in digital payments that has pivoted as much as Google, since its launch of Google Wallet in May 2011. Killing off the debit card would be Google's fifth payments pivot, by our count – that's got to be some sort of record."
Perhaps part of the problem was that while Google was rolling this out, the mobile carriers made Google Wallet transactions difficult because they were building their own solution, called, yes, Isis, later called Softcard, which was later bought by Google. The problem was that consumers found using Google Wallet on their phones was not an intuitive experience.
Meanwhile, as Jimmy Durante would say, "Everybody wants to get into the act." There are at least 100 mobile wallets, with more being added every month. The most recent include Wal-Mart and Target. Mobile wallets come in five flavors: technology company driven, such as LevelUp and Boku; mobile carrier company driven, such as Sprint and Softcard (ATT&T, T-Mobile, Verizon); retailer and merchant driven (Stabucks); bank and financial institution driven (American Express Co., Moven); and payment processor driven (Vantiv, Magtek, Apriva). The goal seems logical enough: replace all those pesky plastic cards in your wallet with virtual cards stored electronically on an always-on, ubiquitous smartphone. Yes, over the long run (say the next three years) it seems logical that mobile payment volume will be quite impressive. Even in 2014, about one third of MasterCard Worldwide and Visa Inc. revenues were generated by mobile payments. PayPal Inc. alone processed $46 billion in mobile payments in 2014.
The proliferation of wallets has caused a dilemma for the consumer: which wallet do you use at which merchant? To state the obvious, you cannot use TargetPay at Wal-Mart, or vice versa, and you cannot use Apple Pay when there is no NFC enabled terminal. Dwolla is accepted at only about 70 merchants.
Banks have to decide whether to launch a standalone payment app or add mobile HCE payment capabilities to an existing bank-branded app. Banks also have to decide if they want to participate in third-party wallets, such as Apple Pay, Android Pay, Samsung Pay and CurrentC.
I think we can safely conclude that mobile wallets are still in the early-adopter stage. Consumers are still on the sidelines because they have to choose which wallet to use at which merchant. However, it is probably just a matter of time before someone provides a ubiquitous, value-added product that resonates with consumers.
One solution is the Urban Airship Wallet. It allows the merchant or financial institution to create loyalty cards, coupons, offers, event tickets, ID cards and gift cards. You can create a new pass or expire and update existing passes. The sponsor can send passes via a variety of channels, both inside and outside of an app. You can download passes via e-mail, multimedia message service/short message service, social platforms, or through the sponsor's own app via push notification, in-app messaging and message center.
Assuming that the big issue – that is, making the payment part of shopping seamless for the consumer by developing a consolidated wallet to use for every purchase – is ultimately solved, there are still other issues to resolve. The big one is consumer confidence in the security of mobile technology. Many studies have shown that mobile banking apps for iOS and Android devices are vulnerable to hacking and cybercrime, and a breach can expose sensitive information.
Some tested apps could be installed and run on compromised devices, and it is clear that cybercriminals are focused on this space. Bank regulators have stated that banks will have to manage the security of their own apps containing banking and payment credentials, rather than relying on third-party wallet providers to protect their consumer data.
We are back to the same old issue of getting consumers to change their personal preferences. Right now, most consumers don't see paying for something as a problem that needs to be fixed. Some observers have gone so far as to state categorically that the mobile wallet is trying to fix a problem that doesn't exist in the first place. And until the driver's license is electronified, you are going to have to carry a physical wallet anyway, and that isn't going to change anytime soon. I would even speculate that by the time that all 50 states are issuing digital driver's licenses, EMV will be fully rolled out to all merchants at the point of sale. 
Brandes Elitch, Director of Partner Acquisition for CrossCheck Inc., has been a cash management practitioner for several Fortune 500 companies, sold cash management services for major banks and served as a consultant to bankcard acquirers. A Certified Cash Manager and Accredited ACH Professional, Brandes has a Master's in Business Administration from New York University and a Juris Doctor from Santa Clara University. He can be reached at brandese@cross-check.com.
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