Since late 2010, one of the hottest topics that everyone in the payments industry is talking about is digital wallet solutions. Many of the major players including the networks (Visa, MasterCard, Discover, and American Express), issuing banks (Citi, Bank of America, JP Morgan Chase, & dozens more), and processors (such as FIS) have announced upcoming solutions or partnerships to support this new pay method. All of the major telecommunications providers are on board in some capacity and tech giants including Google and PayPal have already plotted their own strategy.
Many experts believe this is the future of payments and all parties involved in the payment chain stand to benefit from a digital or mobile wallet. Theoretically banks could see reduced costs from not issuing plastic, a potential reduction to fraudulent transactions, and an increase in speed to getting a new customer up and running. Merchants stand to benefit by being able to provide coupons or offers to consumers in a more efficient manner. And consumers can get rid of all the plastic they carry and feel more secure that if they lose their new ‘wallet’ that their credit or debit account could not be easily used like a credit card could.
So the big question is when and how is this all going to come to fruition and go mainstream?
Earlier this year Gartner research forecasts that globally mobile transactions will reach $617 billion by 2016. That’s quite a large number but consider that many countries, especially those in the Asia, are far ahead in mobile adoption than the United States. All of North America likely represents less than 20% of that number or around $123 billion, which is a small percentage of overall spending.
The adoption of digital wallet payments has been slower than expected. There are two main contributing factors for the delay. One is that people are still too attached to their plastic cards and cash, and secondly, and perhaps more importantly is that there is no clear cut solution that all consumers can wrap their head around to get on board with.
There is a race going on right now between dozens of major companies trying to get their solution to be the standard in digital & mobile payments. There are no less than 5 various technology solutions being used or proposed including NFC (where you tap your phone to a device at checkout), SMS based transactions, applications that run out of a cloud computing, and dozens of others. And all of these players are either pushing forward on their own or forming partnerships with one or two other entities.
The transactional ecosystem is already extremely complex without mobile payments. Take a look at this infographic from Payfirma on just a sampling of the various providers involved in making transactions work.
The consumer selling point behind a mobile or digital wallet is to make it easier, faster, more convenient, and more secure. Basically hassle free. But the way things are shaping up in this race right now that is not the case. All of the applications and services launched thus far only give consumers bits and pieces but not an overall, simplified solution. Everything out there right now limits the customer on what payment type can be used, which phone or device they work on, and what merchants accept it. There have been no viable solutions launched or announced where I can take my Visa Debit Card, Discover Credit Card, & MasterCard Gift Card and use them digitally on my iPhone to be accepted EVERYWHERE.
Until the major issuing banks, debit & credit networks, big telecom, technology providers, and national retailers come to some sort of cooperative or agreement on standards, mobile payments may be like the $2 bill. Neat to have, but it can only buy you so much.