The payments landscape is leaning mobile. 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 contactless payments are projected to reach $2 trillion (15% of all point-of-sale transactions) by 2020. Roughly $3 billion of that will be facilitated via mobile device providers. ApplePay is currently topping the leaderboard, responsible for half (50%) of original equipment manufacturer (OEM) wallet payments. A Forrester report estimates that 35% of the urban online U.S. population has an interest in or is currently using mobile wallet features.
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 began to grow, fueled by tendencies of younger generations, improved security measures, and greater numbers of merchants that accept contactless and mobile wallet payments.
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 card 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 adoption and regular use. Loyalty programs can spur interest in mobile wallets by rewarding users for using that payment method over plastic options. Points can be awarded for every use, prompting cardholders to opt for mobile wallet payments.
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.
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 hinges on this 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 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 multifactor 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 (someone 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.
While financial institutions face staunch competition from third party players and OEMs, consumer sentiment is in their favor—if they act now. One report noted that the majority of consumers (65%) said they prefer to have one payment app on their phone—and that their bank be the provider of that app.
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.
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.