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‘Battery Life Low, 20%’. Ok, do I buy that soda or check email until I can charge my iPhone?

February 15, 2013

Mobile payments and Digital Wallets are every Banker’s latest technology dream.  They are new, and something to advertise while creating a customer lock-in (you have to use their checking accounts and credit/debit cards, exclusively).  It even uses existing backend technology and credit card ‘rails’ for processing.   Is this the dream product that may disintermediate them?  Once the general public starts to accept the reality of having a general Digital Wallet, they’ll realize the owner of the actual application (which is all a Wallet is) just has to be a trusted source, not necessarily a bank (better as it would accept all issuer’s cards and accounts – Google Wallet’s deal with a major bank for exclusivity yielded only 5000 users and was recently terminated).  Given the low trust people currently hold for banks in general, an alternate source could be attractive.

For instance, the fastest growing segment of eBay is PayPal, who is the default general digital payment processor for most people. The digital research firm, comScore issued a report recently based on 2 surveys conducted in November, 2012, involving over 1 million US consumers where 49% of US consumers were not even aware of other digital payment wallets than PayPal. In fact, the percentages drop off the awareness cliff dramatically after PayPal:

Consumer Awareness and Usage of Digital Wallet Offerings
November, 2012
Source: comScore Digital Wallet Road Map 2013
Digital Wallet Percentage of Total Respondents Aware of Digital Wallet Percentage of Total Respondents Who Used the Digital Wallet
PayPal 72% 48%
Google Wallet 41% 8%
MasterCard PayPass Wallet 13% 3%
Square Wallet 8% 2%
V.me by Visa 8% 2%
ISIS 6% 1%
Lemon Wallet 5% 1%
LevelUp 5% 2%

In our recent experience, you would think accepting another form of cash surrogate would be easy given the proliferation of plastic and ecommerce, but  Digital Wallets seems to have some high hurdles:

  1. Changing an already acceptable daily human buying behavior, i.e. why use Digital Wallets at all when it’s so easy to use credit cards at the point of purchase, and ecommerce works just fine with them, as-is?
  2. Security, including what happens if their phone is lost or stolen?

Changing a proven human behavior, such as carrying a credit card in a physical wallet is not easy.  We’ve all done this successfully for over 30 years. Credit cards have a host of consumer protection laws, the form factor is universally accepted, it does not weigh much and other than being subject to breaking (and you have to try hard to do this), it can be screwed up by a nearby magnetic field, but that’s about it: billions of cards have proven themselves in dry and rain.  Why change? Even the Digital Wallet providers require consumers to enter banking and credit card info during setup.  If I already have my info on file with Amazon and PayPal, and have a functioning credit card, why do I have to enter this info once again?  What is the added convenience of taking out my phone, entering the password to unlock, launching the Digital Wallet app, unlocking the Wallet via another password and, finally, taping it to a terminal or displaying a bar code, vs. taking a card out of my physical wallet and then swiping the card, especially now that many smaller value payments do not require signatures. And let’s not forget, the transaction will hit this same credit card, anyway.

One school of thought involves providing Offers.  There are 2 kinds, Push (to get you to buy) and Get where, once you pay for something, a related offer is sent to your phone. Offers are geo-fenced so they have high immediate value.  For example, standing in a store, I can receive a coupon enticing me to buy, then and there, rather than use the same smartphone to stand and compare online to other stores and websites. Is there a potential issue with everyone in the store getting a different price for the same item?  If I’m the brand owner, how do I control these offers and will this be a big problem to manage, versus emailing or printing a standard coupon?  The adoption issue is getting consumers to make the psychological hurdle from accessing a website where their info is already stored (ex: Amazon) vs. using the phone and its newest Offer as the payment device itself.  This also does not address people getting loyalty coupons from the stores themselves, lending itself to flash sales which may not be very profitable as an SOP.

The Pew Internet & American Life Project recently published a set of activity levels across all cell phone users, as of September, 2012:

Email

Texting

Take a picture

Access internet

Health information

Check bank account

50%

80%

82%

56%

31%

29%

If people will rarely check a bank account via their phone, the thought of making a payment over that phone seems remote, at least for now. They already have an easy payment mechanism.  Digital Wallet providers will have to give them more. The impact on the Digital Wallet issuer’s website will be a requirement to focus on fewer ‘gee whiz’ graphics and layout, with much more attention given to the text as the means to persuasion for adoption and use, perhaps by lower transaction fees or a beneficial interest rate, again, a potential revenue hit.

Security is an obvious concern.  comScore found 93 percent of consumers would prefer to use a digital wallet that has to be unlocked before use, but only 57% of survey respondents, after reviewing the Digital Wallet’s website information, realized the wallet had an ‘unlock before use’ feature.  They’re still not comfortable with the security.  If a consumer feels they have to lock and unlock a wallet before/after use, what’s the benefit over whipping out a credit card and swiping it at a terminal?

Theft, at least in large Metro areas, is a very real factor.  The NY Police Dept. (NYPD) recently released some statistics showing iPhone and android thefts rising dramatically as they become virtually ubiquitous.  In a service with the local NBC news affiliate, the NYPD allowed a former thief, now ‘consulting’ to the NYPD, to say how he stole iPhones, for which he could get $300 within an hour of having stolen it:  He said crooks look for people who are distracted, and maybe holding their phones a little loosely. “You are sitting there. You are entertained. You are not gripping your iPhone, you know. And it’s a split second … My attention is focused on you. There is that split second you take your eyes off your phone. That’s when I strike,” he said. From our perspective, you’re standing by the checkout register at the store, phone in hand, thinking about the transaction and wham – he’s running with it out the door.  Attention Blackberry owners – you’re safer – having no resale value, they are virtually ‘thief proof’, so he says. Now losing your music, contacts and pictures is inconvenient and can be restored, but also to lose your Digital Wallet, with its ’tap and go’ or remote payment capability is an entirely different matter.  Is it different than being pickpocketed?  Not in the physical sense of losing payment instruments, but why double your risk?

Mobile Payments and Digital Wallets will thrive over time, mainly because the heaviest mobile phone social networking users are under 50 years old and probably more comfortable with sophisticated, non-game mobile applications integrated into daily life.  For now, the baby step for Digital Wallets could be increased introduction of proprietary mobile apps specific to a particular business (in conjunction with their online ‘store’), where you have previously stored your payment instrument information (what the Fed calls a BAN payment type) rather than a general capability. The future may be in not a feature rich full-blown downloadable Digital Wallet, but being issued an NFC tag for your key ring, which has been linked by you to payment information via the Bank’s online banking site.

It will take the public a while to warm up to this new mega-Instrument since we have long solved the non-cash payments process. For now, the focus has to be on content persuading doubtful potential adopters over feature bloat, answering the question, “what’s in this for me?”, not “look at that cool animation when I checkout”.

Richard Eichen is the Founder and Managing Principal of Return on Efficiency, LLC, http://www.growroe.com and is one of their senior turnaround leaders/CROs, Program Rescue and Interim Executives with over 25 years’ experience reshaping companies, Operations, IT/Systems Integration and key initiatives. Return on Efficiency, LLC specializes in those companies and initiatives where technology is the primary means of service delivery and revenue creation.  He can be reached at richard.eichen@growroe.com

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