In the U.S. point-of-sale retail environment, consumers are accustomed to looking for Visa, MasterCard, American Express and Discover’s acceptance marks at cash registers and on entry doors. But as payment cards bearing these legacy network imprints get rolled into mobile wallets, their brands may fade into the background, according to a report from the Mercator Advisory Group.
“The mobile wallet brand, such as LevelUp, Lemon or Isis, becomes an acceptance mark in its own right, and the payment credential that consumers use within the mobile wallet becomes subordinate to that wallet brand,” said Patricia Hewitt, director of Mercator’s Debit Advisory Service and author of “Mobile Wallets: The Business and the Brand.”
And because mobile wallet branding is a complicated mix of new and legacy brands, the report noted, many of the largest U.S. card issuers are forced to participate in multiple wallet formats to prevent the exclusion of their brand.
Large U.S banks are trying to figure out how to fit mobile wallets into their mobile banking and payments strategies, Hewitt said. “They are testing mobile wallets, for example through participating in mobile wallet initiatives such as Isis or Google Wallet,” she said.
The Mercator report warns that the mobile wallet market, at least in the U.S., remains the financial institution segment’s to lose.
“Financial institutions and card networks stand to gain or lose brand equity based on the ability for new market entrants to create a more valuable mobile wallet product either through their own efforts or by leveraging expert platforms,” the report said. “New market entrants in this category include Isis, MCX and Apple, all of which place a unique corporate brand ahead of any issuer or card network.”
Banks enjoy a key long-term advantage in the mobile wallet market, the report added, by potentially capturing more of a consumer’s financial services lifestyle than any non-bank mobile wallet issuer can achieve.
Another advantage for banks: consumer confidence. “Our research has found that U.S. consumers trust their banks to hold their money,” Hewitt said. “This trust gives banks an advantage over non-bank mobile wallet issuers, especially once consumers start to store identity credentials such as driver’s licenses in their mobile wallets. This will really up the ante for mobile wallet security.”
The only long-term solution for FIs to maintain brand equity is to launch their own mobile wallet or become a major component of an industry-leading platform, the Mercator report said.
“Banks should only get involved with truly open mobile wallets that are able to store any type of payment card held by a consumer, along with loyalty and membership cards and identity credentials,” Hewitt said.
In the short term, banks can build high-value mobile banking platforms to stand in for fully-fledged mobile payments wallets, the report added, and these platforms will provide a ready customer base when banks launch their own mobile wallets.
Hewitt noted that the term “mobile wallet” means different things to different people. The Mercator report identified the five types of mobile wallets currently available to consumers: card containers; card and credential containers, digital bank accounts; mobile payments products; and true mobile wallets.
Card containers (think Apple’s Passbook) passively store a consumer’s payment and loyalty card numbers as a form of back-up. Card and credential containers, such as the Lemon Wallet, have dynamic capabilities, Hewitt said, auto-filling merchant checkout pages with the payment, loyalty and identity credentials that they hold on the consumer’s behalf.
Digital bank accounts, which are offered by branch-based banks, online-only banks such as Simple and U.S. prepaid card issuer PreCash’s FlipMoney, are used for bill payments and for P2P payments via smartphone. These accounts presently do not offer a mobile shopping payment capability, Hewitt said.
Mobile payment products access a primary or private-label payment account offered by a single merchant or merchant aggregator. Examples include PayPal and Starbucks’ mobile app, which links its prepaid card to a smartphone.
True mobile wallets are interactive, virtual forms of physical wallets that let consumers select a specific payment type, such as a credit or debit card, to use at the point of sale. Examples include Paydiant, which just won a contract to supply mobile wallet solutions to Pulse network participants, Visa’s V.Me and MasterCard’s MasterPass.
In the near term, according to the report, the wallets posing the greatest threat to traditional payments industry brands are those such as PayPal, which act as a proxy for payment accounts. In a PayPal-style mobile wallet, the brand tied to the underlying funding account for the payment disappears once it is registered to the wallet.
“As PayPal’s mobile wallet has only been available in the U.S. for a year, it’s too early to tell what consumers’ response to the platform will be,” Hewitt said.
Container applications like Passbook and Lemon pose the least threat to legacy payments industry brands, the report added, because they contain a representation of the original card and are not designed to replace the card as a payment form.
Hewitt sees a widening gap between mobile wallets designed for mainstream financial services consumers and wallets that target underserved or unbanked consumers. “With mobile wallets, there’s no ‘one size fits all,'” she said.
Last September, PreCash launched FlipMoney, a mobile wallet targeting underbanked consumers. FlipMoney is linked to a prepaid MasterCard issued by PreCash and allows consumers to deposit checks to their smartphones, send money to friends and make expedited bill payments.
According to the Mercator report, PreCash could widen FlipMoney’s mobile wallet functionality beyond its current range of services once users become accustomed to mobile financial services.
Just this month, PreCash launched PreCash PayConnect, a mobile and online bill pay platform that lets consumers make payments to 10,000 billers using debit cards or cash. To pay bills online using cash, consumers need to purchase a load pack such as RELoadit at a store and enter the details on the PayConnect Website.
Mobile wallet issuers are cautious about creating barriers to consumer adoption and thus far have not charged users, according to Hewitt. “I envisage mobile wallet issuers charging users for premium features such as expedited bill pay, receipt management, and budget or money management in the future,” she said. Lemon has already begun charging users for receipt management, she added.
She predicted that mobile wallet revenue models will move away from interchange toward value-based fees such as charging for services and advertising, and for offering reduced fraud risk.