January 5, 2014
As discussed in part 1 of this series, m-wallets are in the early acceptance phase and there is no clear winner in terms of which technology or business model will be used, and, until now, no simple way to analyze the market.
Banks and retailers are confounded by how to tap into the m-wallet opportunity offer by the intersection of Mobility, Cloud, Commerce and innovations in Money, and consumers are unaware of the payment possibilities.
To clarify a muddy pool of players, LTP has designed a rubric by which to analyze the mobile wallet industry. Our framework comprises four primary parameters: merchant acceptance, solution cost and functionality, user acceptance and company credentials, and future potential.
Exhibit 1: Mobile wallet evaluation framework at high level without going into sub-parameters
Source: LTP research and analysis
Merchant Acceptance: Merchant adoption or in simple terms, stores accepting the wallet and its geographic reach across all US states is the key driver of wallet success. Almost all wallets (Except few such as Starbucks, Dunkin Donuts, and Google) are yet to be launched across states. That provides a good apparatus to differentiate one from another. Thus a wallet’s ability to roll out quickly across the US would be a key ingredient for success in 2014. As mobile wallets are evolving, enabling technology remains key determinant of wallet success. LTP believes that retail/proximity oriented technologies such as NFC (and now HCE based as well), BLE Beacons, QR codes would compete with age-old Swipe based solutions (Coin, OmniCard) and pure internet (app+cloud) based mobile wallets. Omni channel wallets (and Omni-Channel retail concept) would provide a strong value proposition for merchants and thus provides wallet companies with more chance of success than restrictive single channel options, in 2014. Wallets such as Google (now with Debit card, iOS app, HCE), FIS, Kuapay with multi channel transaction options are also going to provide a better chance of success than restrictive single channel options. The problem is that none of the current solutions (NFC or QR codes based) really solve the issuess that exist. Winning solutions need to create a compelling consumer value proposition. Solution which can offer Lower or Zero cost of adoption (and integrate seamlessly) to merchants would be expected to drive merchant adoption faster. E.g., maybe a solution that simulates credit card swipe via smartphone on existing magstripe machines and card readers.
Solution cost and functionality: Apart from set up costs, Transaction costs on mobile wallet is a key decision enabler for both merchant and customer adoption. Wallet like Starbucks with 0% transaction charges have seen huge traction and payments shift to mobile wallet. If solutions also integrate discounts and loyalty, its even better. Discount programs driven by Google or ISIS may kick start stronger adoption in 2014. From end user’s point of view, a mobile wallet to be the true substitute of actual wallet, needs to provide additional functionality and integration of all the services. Mobile wallets with strong functional integration (Integration with Retailers’ CRM) and loyalty, rewards, location, and analytics apart from payments, would be an ideal combination for success in 2014. Starbucks and Dunkin Donuts have been particularly successful in 2013 because of loyalty and CRM functionality their wallets have been able to deliver. ISIS, PayPal and MCX are the other multi functional wallet to watch out for in 2014.
User acceptance: Driving user adoption in 2014 will be critical driver for any mobile wallet company. Discounting, multifunction solutions and strong marketing engine would be need of hour for mobile wallet companies. Mid rung players with an initial customer base like Level up, Dwolla and Lemon would be strong dark horses in 2014.
Company credential and future potential: Strong funding and backing would essential for wallet companies in 2014. With mobile wallets in early acceptance stage and continued emergence of new player, greater spending depth and a strong branding would go miles in helping wallet companies to emerge winners. Strong credentials are necessary in driving the next level of merchant and customer adoption. Square, Paydiant, Level up, Clinkle and Dwolla have got more than USD 20 Mn funding. These companies emerge as strong contender along with wallet backed by Banking/Technology/Payment giants.
Illustrative Mobile Wallets list:
LTP has shortlisted more than 70 mobile wallets (filtered from a bigger list) on the basis of above four areas and several sub-parameters. Below is an exhibit that talks about it:
Exhibit 2 : Illustrative list of Mobile Wallets from 75+ under consideration
Source: LTP research and analysis
Last but not the least: In 2014 we mobile wallets need to put Consumer at the center of the universe. Wallets that integrate commerce, loyalty, offers with payments and make them work smoothly will win. They will hide the complexity/technology behind the solution and make end-customers enjoy the experience, infact (in a way) forget it by providing great consistency and flawlessness.
Early adopters both from implementers and end-customer’s perspective want to know and see the cream of the milk. We are going to call the upcoming analysis LTP Mobile Wallet Rankings. We will soon come up with Top 7 list for the US. Its an indepedant, expert-led ranking (for the US) based on analysis and research. For more details and/or to help us out as an expert, please reach out to us through the Contact form
Also Read Part 1 Mobile Wallet Analysis (Part 1)