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Wallets and wedges

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[Dave Birch] Earlier this year we began see to a strategic refocus away from mobile payments as the basic element of competition in the sector and towards the mobile wallet. I notice today that the UK operator consortium "weve" (formerly known as Project Oscar) has decided to follow this path. 

NFC payments are to play second fiddle to mobile advertising in the business model drawn up by the Project Oscar consortium of UK wireless operators, who have rebranded their combined platform as Weve.

[From Finextra: NFC plays second fiddle to advertising in UK mobile consortium plans]

This is for a variety of well-known reasons that we don't not need to rehearse here. It is worth noting here, though, just how quickly mobile payments are growing in any case, whether part of a wider mobile wallet proposition or not.

PayPal’s evidence on the appetite for mobile payments is compelling. It has several applications for the iPhone, Android phones and BlackBerry that allow users to send and receive money directly into their accounts.

In 2008, PayPal’s various mobile applications processed $25m in payments. In 2009, that figure was $141m. Last year, the number grew to $750m, and this year the company expects $1.5bn.

[From FT.com / Reports – Smartphone wallet a step closer to reality]

PayPal are only one of the players, of course, but their evolving roadmap is worth studying. The opening of the API, the idea of the "Commerce Identity" and the strategic shift to mobile are all tactics that will be emulated by a great many other players. So how will the competition shape up? Forrester say that there are three main factors that will are relevant:

Hardware-agnostic mobile digital wallets face fewer hurdles than NFC-based wallets and will have faster adoption.

Digital wallets will be a wedge between card issuers and consumers, and the wallet operators will charge them for the privilege.

Winning wallets will be convenient to use, contextually relevant, with a compelling experience.

[From The Digital Wallets Wars Are the Next Phase of the Payments Industry Transformation – Forbes]

Let's look at these factors.

  1. Well if you need hardware, the argument goes, it's going to be more costly and complex to deploy. True. But look at Square and M-PESA for counter-examples. Sometimes, hardware makes the overall consumer proposition better. The Square dongle and the M-PESA SIM made the consumer proposition simpler and made the system as a whole work more effectively. The assumption that software-only solutions are always going to be better, quicker to market, cheaper etc needs challenging. Therefore, in my version of the evolving roadmap, I assume that wallets that need some form of tamper-resistant hardware will provide a more secure platform than software-only alternatives.
  2. It's certainly true that wallets will sit between card issuers and consumers, but that's not the same a driving a wedge between them. On the contrary, a wallet might well facilitate continuous and relevant communication between issuers and consumers. Remember me talking about following my debit card on Twitter?
  3. Yes wallets have to be easy to use, but the issue of relevance is, to my mind, key. This is why I suspect that retailers have the upper hand. I'm not sure that I would call my Starbucks app "compelling" but I don't see how a telco or bank could make a more compelling experience in Starbucks than Starbucks can. At the Money2020 discussion panel on the Merchant Customer Exchange (MCX), Mike Cook from Walmart said that the idea was to build a great mobile commerce experience and then add payments.

MCX is, of course, some way from putting products into the marketplace, whereas the competitors are up and running. Visa, for example, is steaming ahead with its "V.Me" web-based wallet.

The service will be made available through Visa’s member banks and will initially be accessed through the internet browser on a PC, laptop, tablet or smartphone.

[From Visa Europe confirms V.me digital wallet launch date]

This has already launched with the first couple of banks in the USA and Europe, as has the ISIS mobile wallet from the US operator consortium.

ISIS, the joint mobile payment venture that is backed by AT&T (T), T-Mobile and Verizon (VZ), announced on Monday the official launch of its Mobile Wallet service in Austin, Texas and Salt Lake City, Utah.

[From ISIS mobile wallet service launch: Austin and Salt Lake City | BGR]

An important observation to make, though, is that so far these initiatives are about using mobile to exploit the legacy infrastructure as the banks, schemes and mobile operators find ways to work together that maintain, perhaps even lock-in, existing products, services and relationships. But there are people who think that this cannot be the long term impact of the shift to mobile – surely the technology will disrupt?

Apple, Google, Facebook and Amazon are locked in a tech-driven cage match to win in the greater innovation arena.

And one of the biggest battles is off to a heated–if not always clean–start: controlling the mobile pay market. The reasons why the Big Four are grappling so, can be understood by looking at a single number: By 2016, mobile payments could be a trillion-dollar industry all its own.

[From The Great Tech War Of 2012: On The Mobile Pay Front [Updated] | Fast Company]

I couldn't help noticing that this well-worth reading Fast Company piece didn't say anything about Citi, Visa or PayPal in the lead-off paragraph. The implicit message seems to be that these payment dinosaurs are doomed now that the mobile meteor has hit. Yet one of the new mammals, Google, has been actively developing and enhancing its own wallet proposition, although not without a controversy that (I suspect) adumbrates discussions in what would once have been smoke-filled rooms between MCX and the schemes over some form of decoupled debit proposition as part of the MCX framework (although more likely than not to be ACH-based). 

But not only Visa is said to be unhappy with the new cloud-based approach by Google for its wallet. American Express and other big issuers do not like it either, because they lose their direct connection with their customers, say observers. AmEx also has an acceptance brand to protect. [Google] collects the transaction data related to the purchase, which it then plans to use to create targeted promotions to consumers. Google believes that that will more than cover for its loss on interchange of roughly 1% of each Google Wallet transaction and its potentially greater losses from liability for fraudulent Google Wallet transactions.

[From Google to Make Wallet Announcement; Deals with Opposition from Visa, Big Banks, to Cloud Model | NFC Times – Near Field Communication and all contactless technology.]

What is going to shape the path through the evolving roadmap mentioned above? Is it all about collecting data for marketing? At the Smart Payment Forum in October, Alex Reid (the head of Mobile Wallet Services at Vodafone UK) put up a slide showing that the highest added-value would come from downstream identity management and access control services rather than from the immediate opportunities in loyalty and coupling and I'm pretty sure he's right about this. As the preceding paragraphs presage, we're entering a period of confusion… and opportunity.

In addition to the newly announced Merchants Customers Exchange, the other big names in mobile payments include Google and Isis. A wide-open field poses a dilemma for consumers, since nobody wants to get stuck with the mobile-wallet version of Betamax.

[From Do You Need a Mobile Wallet? – Real-Time Advice – SmartMoney]

Well, yes, but… if all of these wallets stick to standard interfaces (e.g., NFC for proximity payments) then there's no problem. After all, I can use a credit and a debit card in the the same terminal, even if they come from different issuers (indeed, different industries). If Alex is right, and it's all about identity, then a simple interface that exchanges identity data at the point of purchase will suffice, since everything else can be pushed off to the cloud somewhere.

Today we’re releasing a new, cloud-based version of the Google Wallet app that supports all credit and debit cards from Visa, MasterCard, American Express, and Discover. Now, you can use any card when you shop in-store or online with Google Wallet.

[From Use any credit or debit card with Google Wallet]

These are the sort of issues sure to be discussed at M for Mobile's Mobile Wallet Summit in London on November 28th and 29th 2012. The wonderful people there have given us a delegate place worth an astonishing ONE THOUSAND FOUR HUNDRED AND NINETY FIVE of your British Pounds to give away as a prize on the blog. So if you are going to be in London on those days and want to come along and meet a variety of experts (and me), then enter the competition! All you have to do is make a non-spam comment on this post on the Tomorrow Transactions blog (don't e-mail me – that doesn't count). A week from today, we will close off comments and then make a genuinely random draw amongst commentators and the winner will receive the delegate place! Good luck and see you there.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers

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5 thoughts on “Wallets and wedges”

  1. klajdi.turlla@mpay.al' klajd says:

    The Google Wallet propositions seems compelling since it includes more than just payments which is essential in convincing customers to use the mobile wallet, on the other hand NFC is not really taking of and that makes MCX maybe the biggest player.

  2. klajdi.turlla@mpay.al' klajd says:

    MPESA needs a specific SIM card

  3. rskattum@gmail.com' Bob Skattum says:

    This is a great synopsis of a number of the issues facing the eventual implementation of a consistent and device/payment product agnostic solution. If Google or Apple, or someone else for that matter, can create a true replacement for my payment cards, identification cards, loyalty cards (or the card I carry with all of the different membership numbers listed … electronic and/or paper), and provide for the user the security and on/off capabilities mentioned, then we will have started down the road to full acceptance.

    But the plethora of competing systems seem to be at this point simply jumping onto the payments bandwagon because they feel that they need to. And when they have to make the system(s) work day in and day out at the very highest levels of uptime, security, and simplicity … and generate the transaction volumes that utilize the network or cloud capacity … the execution seems to fail or not meet expectations. It also one thing to talk about the massive potential size of the market, you must actually do all of this while you continue to build the merchant network and defend it from encroachment, dilution and lack of use.

    At some point, the future winners will realize that it comes back to making the process easy to use and understand for both consumer and merchant, making it cost-effective (as well as profitable) for both the merchants and providers, communicating to all constituents the value-added by the solution(s), and making that value sufficient to keep them in the mix of offerings. Otherwise, I am afraid that many of the innovative and disruptive product offerings will go the way of other prior wallet and payment solutions that were looking for a problem that did not yet truly exist in the real world.

  4. yann.ranchere@gmail.com' Yann says:

    I agree with a lot in this post but don’t really buy the hardware argument. Both examples don’t really match in my view:
    Square: the dongle is a brilliant customer acquisition strategy, but Square Wallet is entirely hardware free and cloud based.
    MPESA: if I am not mistaken, any Vodafone SIM can be used for MPESA (please correct me if wrong, I am not familiar with the details of the architecture).
    In both cases, while there is a hardware platform, they tend to be open and generic. I don’t think the current push of some of the industry toward controlled hardware solutions (SE in NFC case) will prove successful.

    [Dave Birch] “I don’t think the current push of some of the industry toward controlled hardware solutions (SE in NFC case) will prove successful’ I agree with you, but that’s a slightly different argument.

  5. mfk@cfir.dk' Mikkel Krogsholm says:

    Can’t technology disrupt on top of existing legacy infrastructure?

    “An important observation to make, though, is that so far these initiatives are about using mobile to exploit the legacy infrastructure as the banks, schemes and mobile operators find ways to work together that maintain, perhaps even lock-in, existing products, services and relationships. But there are people who think that this cannot be the long term impact of the shift to mobile – surely the technology will disrupt?”

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