Bankers Dominic Venturo and Marc Warshawsky discuss the promise and difficulties related to developing and implementing a mobile wallet payment solution.
By KENNETH CLINE
“Mobile wallet” is arguably the most exciting buzzword in mobile banking right now – despite the lack of widespread agreement on what the term actually means.
In general, it can be said that mobile wallet refers to an application that securely stores payment information in a mobile device for use at a variety of merchants, although the underlying technology and methodology may vary. While there is, as yet, no functioning mobile wallet system in the U.S., major banks and organizations such as Google, Isis, Visa and MasterCard are busily planning or implementing pilots. Most experts agree that the mobile wallet will likely evolve as the key to moving mobile payments from a niche-based activity to the broad consumer market.
As an indicator of the intense industry interest in mobile wallets, this year’s BAI Retail Delivery will feature a panel discussion on the topic, rather appropriately as part of the “Global Game Changers” summit. We asked two of those panelists – Dominic Venturo, chief innovation officer, U.S. Bank Payment Services, and Marc Warshawsky, senior vice president, mobile channel executive, Bank of America Corp. – to provide their pre-conference take on the current situation with mobile wallets in this country and their own banks’ responses to the issues involved with rolling out this technology.
Q: What exactly is a mobile wallet?
Venturo: There’s no generally accepted definition, although we’ve seen mobile wallet described as an element that allows you to store payment credentials. The concept is that you have a repository called a mobile wallet that would enable a payment application, or enable multiple issuers to personalize payment credentials into that wallet so that, if a consumer had a couple of accounts with different financial institutions, they could access those accounts through the wallet.
Another view is that it’s more a bank-specific application that would include payment credentials. We don’t yet necessarily know what the mobile wallet will look like but I think you may see both options evolve – a bank-specific or issuer-specific application and also more of an open/generic wallet with multiple payment brands. Right now, the banking industry is in the pilot stage with mobile wallets and most of what we’ve seen has been bank- or payment brand-specific. We have seen announcements by Google and Isis that their platforms will support multiple payment brands and multiple issuer capabilities but none of those are live yet in the market so we don’t know exactly what they will look like.
Our own view at U.S. Bank is that we don’t really have the ability to control – nor should we – the virtual wallet that the consumer uses in a mobile device. The consumer, after all, chooses the physical wallet that they carry in their pocket or purse. What we see evolving is the ability to issue our payment credentials securely into multiple types of devices and/or wallets, providing that the commercial relationships are in place.
We don’t think there’s any one answer; we think we have to take it from a more open perspective and be able to participate in all of the different opportunities that exist to help consumers conduct their business. That doesn’t mean we may not have our own version of the mobile wallet, just as we have our own online banking application. But we do anticipate that there’s a real need for the industry to work together across the platforms to make things more seamless for the consumer.
Warshawsky: We’re always looking for ways to improve the customer experience, so Bank of America was among the first to commercially test a mobile wallet, back in 2009. The goal was to leverage mobile technology to provide a richer, more secure purchase experience than standard mag stripe cards and customers have responded very favorably.
We continue to actively test this technology today and just recently completed a mobile wallet trial in New York, San Francisco and Atlanta. As the solutions and the technology landscapes mature, we do see more players understanding the value and convenience that a mobile wallet can offer.
Q: What is the consumer looking for in terms of the mobile wallet, keeping in mind that they haven’t actually seen one yet?
Venturo: I don’t think it’s easy to know what consumers necessarily want, but I think it’s a pretty logical conclusion that if they’re doing banking activities on a mobile device that they didn’t do two years ago the payment extension is a pretty logical one.
Warshawsky: When people talk about mobile wallets, mobile payments are often the most recognized aspect but there’s really more to it than that. Mobile wallets are about integrating all aspects of banking and commerce, such as payments, purchasing, loyalty offers, and combining them into a single experience. The integrated experience for customers is more convenient and secure than how we operate today.
Q: Speaking of loyalty offers and rewards, will those be key drivers for consumer adoption?
Warshawsky: We think bringing together those capabilities into a mobile wallet adds value for customers. In the testing that we’ve done, customers have responded very favorably to the overall mobile wallet experience and the richness of it, so yes, we think that will be a key win for customers.
Venturo: I would say, “maybe.” I don’t know if rewards necessarily need to be integrated into the wallet itself. There’s quite a bit of shopping-related activity that already happens with mobile, whether it’s specific applications that enable a consumer to scan a bar code in a store and get more information about a product or to see if there’s a cheaper version online. There are a host of companies that are doing deals and presenting offers that are mobile-specific but are completely independent of the wallet. You could have offers on your mobile device and be perfectly happy with that or connect them with payments, as in a mobile wallet, so they work seamlessly at the point of sale.
Q: What are the major technical obstacles that the financial industry faces right now in terms of mobile wallets? Right now, for example, there’s the lack of Near Field Communication (NFC) capability on mobile phones, although most experts expect that to be available soon.
Warshawsky: Mobile wallets require technology integration to reach critical mass. If we want to drive this improved customer experience, we need to see more retailers accepting mobile payments and more phones that support the technology. Perhaps most importantly, customers must feel confident that the wallet they’re using is safe and secure.
The mobile wallet is an emerging capability and a lot of things have to come together to make this a viable solution. But we’re bullish on the capabilities and the experience that it can create for customers.
Venturo: The underlying payment infrastructure has been upgraded, across all the major payment brands, to be able to handle NFC payments, or contactless payments.
There is a problem – and it’s not trivial – pertaining to issuers being able to personalize mobile devices. Financial institutions need to change the way that their systems work so that they can actually associate a payment with a mobile device and send those credentials securely and manage that whole account life cycle across the mobile device. That requires a brand new infrastructure for financial institutions because the old system was designed for plastic cards, which are issued for a specific time period.
The other piece of the puzzle, and one more relevant to the consumer, is the ability to actually use the mobile devices to make payments. It’s a chicken-and-egg issue involving, on one hand, payment information personalized into mobile devices and, on the other, places that are equipped to actually accept those payments. For merchants, accepting contactless payments requires, in many cases, a change at the actual point-of-sale hardware. And acceptance levels are still, in our estimate, pretty low for widespread commercial adoption.
Q: So, the really critical issue is on the merchant side?
Venturo: They’re both pretty important but the merchant issue is the one that will matter most to consumers at the end of the day. The other piece is just something that financial institutions have to do; it’s not trivial but really transparent to everybody else outside of the financial institution industry. The merchant side of it is where the rubber hits the road in terms of whether or not we’ll see good consumer traction. That said, there is a lot of movement in the marketplace today as a result of device manufacturers saying that they’ll start to support NFC payments and loyalty programs.
Mr. Cline is managing editor of BAI Banking Strategies. He can be reached at firstname.lastname@example.org.