The Mobile Wallet Enigma

Following specific requirements from the MNO community, ROCCO is starting research into the banking Industry. This post by our Journalist Polina Hristova is the first of several featuring insights and discussions into the ever evolving world of Mobile Wallet globally, which is becoming more and more about Mobile Engagement.

Anyone would resurface confused after a deep dive into the world of mobile wallets – are they the next big thing or are things being blown out of proportion?

Multiple sources appear to be positive that they will one day replace credit and debit cards, stating facts after facts, giving examples with Vodafone’s M-Pesa in Africa and India’s Paytm with undeniable, yet nervous optimism, but there is one decisive factor which will determine the direction of their success – human behaviour.

The most prominent reason why the use of mobile wallets increased in India was the demonetization the country faced last year in order to hinder illegal activities, but with a steady flow of cash back in the system at the present time, the mobile wallets became a less desired alternative. A big part of the informal work force in Asia gets paid in cash and thus, sees no point in changing.

Mobile wallets were used a lot more when there was a need for them; now they are mostly utilised for micro payments, as a way of controlling one’s spending habits. The comfort and lack of knowledge required to use cash wins over the learning curve needed to use a mobile wallet. Also, a large portion of potential consumers is lost in the female gender — most are dependent on the men in the family for money.

Africa’s success story is slightly different. A mobile phone is a lot more affordable than a computer and a lack of infrastructure in certain areas makes mobile wallets a welcome commodity. It is said that many African countries skipped a technological milestone a.k.a ‘leap-frogged’ directly into using mobile phones because of their convenience and accessibility. However, most of the wallets are unbanked which means they are not directly connected to an account; the consumer has to top up their digital wallet from time to time in order to use it.

Once again, need is what shapes this behaviour, so how do you make mobile wallets attractive to those who do not necessarily have a need for them?

It will be a lot harder to conquer the West – we are too used to our cash and cards. Unless there’s added value to both merchants and consumers alike – special offers, loyalty programs, data mining – it would prove difficult to transition into this method. Another common issue is the lack of interoperability between wallet users. If you use one provider and your family another, it will considerably complicate things due to the isolated nature of the wallets. Choice is great, but in order to guarantee efficiency, there should be a certain set of standards that leaves the providers open to communication.

And even if they latch on, they will be a lot less successful than in China. Over 70% of the population owns a smartphone after the spectacular growth of capitalism, thus making it extremely easy to cater to digital financial interactions. WeChatPay and AliPay dominate a market 50 times larger than the one in the US, and we still struggle with a conservative mindset in most western countries. Cash is perceived as more secure than mobile wallets as our 3 000 years old ingrained perception dictates – this is just how long cash has dominated the market. It took decades of slow, strategic creeping into the minds of people for Visa, MasterCard, etc. to be accepted as normal forms of payment, but they are not used today because of convenience – trust, security, certainty are the main characteristics of these brands. Mobile wallets still have a long way to go.

Apple Pay was the first official mobile wallet to join the playground and was subsequently followed by the appearance of Samsung Pay and Android Pay, but Apple Pay might be just paving the path towards the normalization of mobile wallets in the West. Apple will soon enable third-party app developers to get access to the NFC chip inside the iPhone 7 and the iPhone 7 Plis via the iOS 11. But that’s not all – iMessage will be equipped with the ability to send money to friends and family which will be facilitated by payment-related alerts if there is more than one transaction involved. The iMessage will be also open to third-party apps like Venmo and Square, but many predict it will eventually take over the market.

Maybe, maybe there is still hope for mobile wallets now that Apple is expanding its activities.

You might be wondering what a NPC chip is? It stands for Near-Field Communication which, as you might have already guessed, consists of bringing two electronic devices together, like a smartphone and a reader of some kind – the phone would receive a request for payment from the reader. It is the preferred contactless payment method for smartphones, and the EMV security standard will help spread the usage of NPC.

The other alternative is Bluetooth: it has a much longer range without the need to be in direct or very close proximity of a reader and it might turn out to be a much faster process, providing the choice to complete multiple transactions at a time, unlike the NFC. However, the NFC takes less power and proves to be more useful in a crowd. Both have their pros and cons, and some are working on combining both for our maximum comfort.

It will take long years of effort and mindshare strategies to elevate mobile wallets to the reputation of Visa and MasterCard and until people are convinced that security is and always will be the biggest concern for this particular market. Transactions are “tokenized”, no traceable accounts are stored by the retailer or the vendor, but are replaced by virtual account numbers and new, unique security codes would be set up for every transaction – the measures are lengthly and heavy to explain, but they are there. It is the mindset of people that obstructs the popularization of mobile wallets and that is one tough code to crack.

Maybe in five years, maybe in a decade or two…