Why do we have so many mobile wallets?
New mobile wallets are being announced one after another nearly every month. While the payments industry should logically move towards an integrated seamless customer experience, it is getting more fragmented. The LTP team performed a deep analysis of the mobile wallets market and the way it evolved since its inception.
There are at least 100 mobile wallets in the US market with new ones getting added at a frequency of several months. The most recent ones are Wal-Mart and Target, which shook up the MCX foundation by announcing their own mobile payment systems. Here are some of the examples of mobile wallets the LTP team has assessed previously.
Source: Mobile Wallet Analysis (Part 3), 2014
Mobile wallets started getting launched in 2010 with the growing penetration of smartphones across the US. Since then, market players started looking at replacing plastic cards with always-on, ubiquitous mobile devices. Given that in Q3 2015 30% of the global online transactions were made through mobiles, it is no surprise major players across industries are rushing into the space. Moreover, smartphone usage globally grows at such a pace that failure to leverage the trend for payments would be an unforgivable crime for companies looking to stay relevant. The number of smartphone users worldwide is predicted to be over 2.5 billion by 2019. In the US, 64% or two-thirds of Americans have a smartphone. This is a 35% rise in the past four years.
Growing smartphone adoption is accompanied by an upward trend in mobile payments. Taking a US market example, it is quite clear mobile payments have a bright future with the volume expected to surpass $140 billion by 2019.
Data source: Statista.com
The predicted growth in the volume of mobile payments year-over-year signifies a major shift in shopping behavior, forcing retailers, technology companies and financial institutions to follow the customer and develop in-house solutions to seize the opportunity for a financial gain. Apple Pay, Android Pay, Chase Pay, Alipay, Walmart Pay and, possibly, Target Pay are speeding up and tightening the race for a piece of the $83 billion mobile payments volume next year.
Financial institutions have already noticed a growth in mobile payments, reporting an outstanding growth.
In 2014, around 30% of MasterCard and Visa’s revenues were generated by mobile payments. Xoom Corporation, a Silicon Valley digital money transfer company, said that 49% of its total transactions were made via mobile devices. PayPal processed $46 billion in mobile payment volume in 2014, which went up by 68% over 2013. In 2014, 20% of PayPal’s net total payment volume was from mobile payments.
By the end of 2014, JPMorgan had 18.4 million active mobile users. This number has grown 23.5% since 2013. Bank of America had 16.1 million active mobile users; the number has grown by 15% over last year. In Q4, 2014, 11% of deposit transactions by consumers were done through mobile phones.
Wells Fargo had 13.7 million active mobile users by the end of 2014 and the number has grown by 19.1% in the last one year.
Excitement over the trend led a wide range of companies to develop in-house solutions, which created a reality of disconnected wallets. Even though the opportunities for mobile wallets are enormous, the mindless growth of the number of wallets can’t ensure a great stake in the pie of billions of dollars. All mobile wallets at the core are solving the same problem—the inconvenience of carrying several cards in an actual wallet and the constant urge to carry one in the pocket—and it better be the right one.
Convenience, outstanding ease of use and smooth experience with mobile wallets are shifting the preferences and increasing their adoption among various generations. But the experience is smooth till the moment you have to start choosing which wallet to use at a certain POS. Then the loop takes consumers to the initial problem—several plastic cards and necessity to choose the right one. In case there are more than one or two wallets that are relatively exclusive to a POS, mobile wallets stop solving any problems.
Even though some of the merchants are overlapping for different wallets, each wallet creates a proprietary island, out of which the wallet would be irrelevant. Some of the examples we took are Apple Pay, Android Pay and CurrentC. Dwolla is accepted by more than 70 merchants, almost not overlapping with any of the examples brought. Clearly, nothing gets consolidated. The growing number of wallets creates more islands. It is doubtful if all those wallets can find a place in one’s phone at the same time.
With such a tremendous growth in mobile payments and the speed with which new wallets are being introduced, one would think the adoption rates are skyrocketing. But mobile wallets have been struggling to acquire active users. According to Gallup’s research, only 13% of adults in the US have digital wallets on their smartphones. Moreover, 76% of those who have a digital wallet have never used it or have almost never used it to make a purchase from a retailer in the past 30 days.
What is more interesting is that among the consumers who have digital wallets, 38% don't see any benefits of using the technology. About 9 out of 10 consumers who don't have a digital wallet reported to Gallup that they were “very unlikely” or “unlikely” to start using one in the next 12 months (91%). This suggests that the providers either lack a strong value proposition or aren't communicating it well to prospective customers.
Let’s see how the 13% (who have a digital wallet) are distributed among providers.
Mobile wallets adoption is still at the early stage with major players having just a little fraction of the total possible customer base. Each wallet faces certain issues. A week ago, CurrentC by MCX lost one of the major members of the consortium—Walmart. Later, Target, the main force behind MCX, almost bailed on CurrentC stepping in the way to launch its own wallet. CurrentC is not the only one struggling; Apple Pay has also seen certain issues while rolling out in each of the markets.
The situation is not bright for Samsung Pay and Android Pay either. Only 14% of people who have the Samsung Galaxy S5 and S6 have ever used Samsung Pay or Android Pay. Of those people who have, only 36.17% use it once a week and 38.3% report they “never” use it. One of the reasons for low Samsung Pay adoption rates may be its very recent launch and the fact that mobile payments are still relatively new.
Needless to mention, the other players have extremely insignificant adoption rates compared to the major players. Even if absolute numbers impress, shares reveal the true story.
The mobile wallets ecosystem has two major problems—it’s fragmented and it’s incomplete. Mobile wallets have torn payments apart with their islands instead of creating a streamline. Incompletion is coming from an overall low adoption level and islands of merchants. Each wallet has a certain part of the user base depending on the merchants that accept the wallet. No one is winning in this race yet.
Disconnected islands of merchants create disjoint purchasing experiences. Each store could be accepting different payment options, which create an inconvenience of storing a variety of wallets and the necessity to put some thought and effort in choosing the right one for each merchant.
How many options does a customer have when making a payment? There is cash, debit/credit cards, gift cards, loyalty cards and digital wallets. The only universal option in the list would be cash. Ironically, with the industry moving away from absolutely universal cash to virtual wallets and mobile payments, new methods being introduced in the market are not even providing a value of the universal experience. Surely, if we compare a seamless experience of paying with mobile wallets with the EMV card “dip-keep it there-take out,” wallets are a gigantic step forward. However, the incremental value between new and “old” wallets is so insignificant that it raises legitimate questions on the usefulness. Unless mobile wallets become as universal as cash, there won't be any real value in a variety of wallets.
What could be a solution?
It is clear that customers don’t see a real value in a wide variety of wallets. Each new wallet doesn’t represent the next generation, it is just another wallet performing the same functions but with a different set of merchants.
On the contrary, mobile wallets were expected to serve as consolidators being a universal tool for customers to make the payments part of shopping as seamless as possible. Actively following the industry trends, the LTP team recently recorded a podcast with Nick Holland, where very interesting thoughts on the future of “Pays” were expressed on Apple Pay being a major disappointment and the ways wallets could evolve.
One of the opportunities is consolidation. Customer experience isn’t getting any better when they get to choose between wallets instead of choosing between cards.
Another opportunity lies in personal data usage. Whenever a user subscribes for any new service via a mobile phone, he/she has to enter data in each case all over again. However, mobile wallets already have that information. A great value could be added if mobile wallets allow the authentication of users in other apps using information that they already have. The data used for authentication in wallets can be used for authentication across other services. Nonetheless, mobile wallets are not built that way. The focus of wallets is not on the smooth mobile experience regardless of device, OS and app. Currently, mobile wallet providers are focused on performing a transaction at a particular merchant.
Obviously, the success of a particular wallet depends on the range of use cases. Wallets accepted across retailers logically have a better chance than the one exclusive to a particular retailer. Mobile wallets should increase their subscriber base among merchants and users by an intensive expansion of networks. It could be possibly reached through a consolidated base of users and merchants. In that case, each wallet will be accepted at any location, which will leave a matter of adoption of a particular wallet to marketing and design.