The need for financial institutions to embrace mobile wallets

The payments landscape is leaning towards mobile-first channels. Financial institutions need to stay ahead of the curve and develop a mobile wallet strategy that emphasizes security and convenience.

Mobile wallet momentum is growing. Younger generations, especially, are more inclined to reach for a smartphone rather than a wallet when it comes to making payments. Just as with physical wallets, digital wallets are vying for the top spot with consumers.

In-store mobile payment app usage has reportedly grown 29% since 2020. Apple Pay is currently topping the leaderboard, as the top mobile payment player with a whopping 43.9 Million users this year.

Despite expected upcoming growth, mobile wallets have faced an interesting, uphill battle. While consumers have been exposed to a number of mobile wallet options, payment habits have been slow to change in that space. The momentum of mobile wallets has only recently begun to grow, fueled by the pandemic and other notable tendencies of today’s customers — like the need for improved security measures and convenience.

Financial Institutions Edge in on Mobile Wallets

For financial institutions, the focus is on getting consumers to choose their card (both physical and digital versions) over other options. Educating consumers on the benefits of using their cards within digital wallets is the first step. As with most emerging technologies, consumers need continued reinforcement of the idea that this payment method is secure, easy to use, and more convenient than other options.

Rewards will also play a role in the adoption and regular usage. Loyalty programs too can spur interest in mobile wallets. By rewarding users with points for every use, you can further prompt cardholders to opt for mobile wallet payments more frequently.

Yet another consideration is how to engage consumers in mobile payments. Some financial institutions opt for a standalone app for payments that lives outside of the mobile banking app (think: Chase Pay). Others add on NFC-based mobile payments features within the mobile banking apps themselves.

Mobile Wallet Security

There are several reasons why mobile wallets are safer than physical cards, though some consumers don’t think so. Part of the reason for slow adoption rates thus far is the distrust of mobile wallet security. For financial institutions looking to surmount this doubt, consumer education around security features will be essential.

Unlike other payment methods, mobile wallets employ tokenization to restrict exposure of sensitive, personally identifiable information (PII) and account information during transactions. This is made possible by replacing actual data with virtual information instead. In the case of a breach, the hackers would only gain access to this virtual information rather than the actual account data.

Digital wallets also implement multi-factor authentication, requiring users to present two or more pieces of evidence that they are, who they say they are. For example, a user may enter a PIN (something the user knows) along with a mobile device (something the user has) or with a fingerprint (something the user is). This type of authentication also enables smart devices to collect other information via GPS, such as location, date, and time.

Cashing in on the Mobile Wallet Opportunity

While financial institutions face staunch competition from third-party players and OEMs, consumer sentiment is in their favor — that is, if they act now.

Developing a payments app puts financial institutions in charge. They have control over the end-to-end customer experience and can also implement advanced security options to put users’ minds at ease. Each financial institution also knows its customers best, enabling it to develop an app that meets the unique preferences of its customers.

Tailoring an experience that speaks to consumers will be a winning strategy for financial institutions, just as it has been for non-banking entities like Starbucks, which has been hugely successful in the mobile wallet space. Financial institutions need to look at customized options like spending controls, card on-off switches, and real-time alerts to gain and keep the trust and loyalty of customers using their mobile wallets.

Wrapping up

Financial institutions will want (and need) to get in on the mobile wallet momentum early. With projections showing a marked increase in mobile wallet use over the next 18 months, those that invest in educating consumers and incentivizing mobile wallet behaviors will be in a better position than those that do not. Frontrunners are already investing in marketing to help push their card to the top of the pile, giving them a head start as consumers begin to more readily adopt mobile wallet payments.

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