A Finextra member 23 July, 2013, 11:04 0 likes

A wallet is a storage of payment instruments (e.g. cards) as well as tickets, IDs and "references" - transit and lifestyle tickets, loyalty and membership cards, driving licence, coupons etc.

Most importantly, a true wallet allows its owner (not some third party!) to decide what goes inside. If I cannot take a banking card of my choice or any of the tickets I have and put them inside a device, it's not a wallet per se.

As one swallow doesn't make a summer, one prepaid card doesn't make a wallet...

A Finextra member 23 July, 2013, 13:18 0 likes

I have to agree with Alexander here. A wallet is something the consumer controls, and it will have a lot more in it than just a payment card, and the ablity to check balances.

Users already check balances through their mobile banking webistes or apps, so there is no real added value there. In addition, using an NFC case, not a great option, do they really think people want to be limited to that case?

This solution also suffers the same problems that all NFC based solutions suffer, that is the need for added hardware, the security issue perception and the fact that, payments contactless or via a solution like this do not add any value or deliver anythign extra to a business, or even a consumer. As a merchant this does nothing I cannot already do, and as a customer, it hasnt removed my wallet nor replaced any multitude of apps on my phone.

Daniel Smith - Raisin Technology Europe and USA - New York & Madrid 24 July, 2013, 08:29 0 likes

Hi Alexander - the whole area of mobile, NFC, virtual wallets and cards is not really my field so as always, following your posts is educational and enlightening.

As part of my ignorance I'm curious if maybe you can help me out on a doubt I have.

If a wallet (and similar services) is something that should be consumer driven and managed - is the concept of contactless stickers really going to work?

I saw the other day a "Bank Innovation / Finovate" article about someone recently receiving their Moven debit card and sticker. However, this same user already had a Discover sticker glued to the back of their smartphone.

Are we therefore headed to a world where we all have to collect stickers and cover our phone with multiple stickers to be able to choose what, where and how we want to make our purchases?

Obviously - I don't get it - but I have that choice today with my real wallet and a set of cards.

I guess what I'd really like is a single intelligent physical or virtual card with all other cards "embedded" that allows me to choose at the POS which underlying or related card or bank I want to post the transaction against. Anyone working in this field?

A Finextra member 24 July, 2013, 08:49 0 likes

Thank you for your kind comments, Daniel.

The problem with the sticker - there can only be one (because of collision). Hence, it's no different than taping your card to the phone (or sticking it under the phone cover). Little value for consumers as most of us do want to use more than one card on a regular basis.

"I guess what I'd really like is a single intelligent physical or virtual card with all other cards "embedded" that allows me to choose at the POS which underlying or related card or bank I want to post the transaction against. Anyone working in this field?"

We do. Our MultiPass card does exactly what you described (and much more). Intelligence comes not from the card itself, but from our GSM uber-wallet in which MultiPass card "lives". Everyone is trying to get rid of a wallet by adding "crutches" to a phone. That's futile, for many reasons (e.g. https://www.finextra.com/blogs/fullblog.aspx?blogid=7931). We are aiming to replace dumb leather "suitcase" with an uber-smart, slim and sexy "iPod"... Market is already moving towards alternative form factors, including wearables (unfortunately, you cannot stick a card into a smartwatch).

Daniel Smith - Raisin Technology Europe and USA - New York & Madrid 24 July, 2013, 09:06 0 likes

Thanks Alexander.

Glad to see it wasn't such a dumb question or idea..! :-)

A Finextra member 24 July, 2013, 09:12 0 likes

I want to just add to this thread that cards themselves and the card schemes are in many ways an issue for moving to virtual wallets. There are so many fees associated with cards no matter how you implement them, the fact is if you run a transaction on the VISA / MasterCard rails then the experience of the consumer (no matter the wallet form factor) could always be improved on.

The same applies for the merchant, what added value does any mobile wallet provide to a business if its tied to payments only, or to a card scheme. The fees alone for many micro and SME businesses are an instant turn off, and thats not just related to SMEs. Look at Starbucks, their whole loyalty scheme on your phone is all about off railing transactions from the card schemes, and with massive success for them, saving them millions each year....

Card schemes and that infrastructure is not designed or built for the digital age, mobile provides a chance to move away from older technologies and older ways of doing things and move forward. That is what we firmly believe at CloudZync and why our mobile wallet services have nothing to do with card schemes...

A Finextra member 24 July, 2013, 09:40 0 likes

Things are not that straightforward when it comes to card schemes. Yes, they are a barrier to mobile wallet innovations (even mightly Google has been struggling, primarily because of the schemes...)

Yet, they do offer great value too. Consumer-merchant interface is not hard to design (to bypass the schemes). What about ubiquity, brand recognition, trust, reliability, security, reconciliations, cross-border payments, settlements, global infrastructure, etc. etc. etc. ?..

It's not the schemes, btw, but the issuers who benefit most from the status quo (and the interchange rates)... Add to the fact that the major issuers heavily influence the schemes...

A Finextra member 24 July, 2013, 11:11 0 likes

Interesting that you raise a lot of these issues. I perosnally believe that most of what you raise isnt as important as it might first seem on the surface, especially to younger generations and SMEs.

Brand recognition, granted that is important, but I'm not sure it holds the same weight as typical brand recognition does, after all, I don't often get a choice from my bank or issuer as to what scheme Im with...I receive either a VISA card or a MasterCard. So that brand recognition, isnt that important as it typically would be.

Trust is always an issue, but again consumer trust here is not with the card scheme, rather the merchant they do business with. Most people drop out of a transaction (especially online) because they dont feel comfortable with the company they are purchasing from, even if that company accepts VISA, MasterCard, even PayPal. So that trust is more important with the business, and we all know that VISA etc doesnt vet the busienss I spend my money with...Unless you mean trust in the "wallet", in which case, if that is the most important thing, then we would only see Wallets provided by the banks being successful.

Security, again a great issue for merchants. And contactless doesnt really give any feeling of real security from the consumer point of view and not from the point of view of the merchant. Even in a mobile wallet situation, we see issues with security and trust when card schemes are involved. Security processes could be drastically improved with the use of modern technology and thinking on the actual workflows that are in play during a transaction.

Reconcilliations could be easier than they are, and most small businesses complain endlessly that it takes too long to receive their money, that they pay too much and that reconcilliation should be simpler.

Global infrastructure is also interesting, as I presume you dont include Africa, South America and numerous other markets where card schemes dont really exist. I would also add that that global infrastructure is old, and costly, and in terms of performance can be beaten quite easily with todays technology.

So while you mention all these points, none of them are as important as they first seem, and are by no means a barrier to other providers of visions on how we make payments.

I agree that the issuers whant a status quo to some extent, as they do receive money for each transaction made. But we have Pingit and other offerings from Banks which do off-rail transactions from the Card Schemes, so why would they be doing that....There are a lot of businesses that need to get paid in a card based transaction, one more if you throw in the "wallet provider".  We have the wallet provider, the aquirer, maybe a PSP, the card scheme and then, the issuer. In europe we also have to remember that the banks all agree the interchange fees with the card schemes, so this isnt going to change much, and why should it? If these costs are slashed (which I know the EU is trying to do) how can these companies operate, especially when the infrastructure is old and costly.

I think companies like Starbucks who want to off-rail us from cards are making decisions based on good business sense, which can only spell trouble for cards in general and the way we currently think a transaction has to be processed.

A Finextra member 24 July, 2013, 11:24 0 likes

Andrew, of course many of the things you listed are doable (in theory, at least). The question is: what REAL problem do all those alternative methods solve? Did I ever walk out of a store without a purchase because I didn't have an m-wallet?.. Did any retailer ever lost a sale because they didn't accept (proprietary!) m-payment?..

All the alternative m-wallets out there offer just one value proposition - lower processing cost. That's a dangerous ground to stand on - once the operations reach certain scale (and attract fraudsters), opex goes through the roof.

As for the ubiquity and convenience, how is "All you need is your Smartphone [AP: still 20-30% of the market]. [AP: 1- Unlock your phone. 2- Launch Zync app.] 3- Enter your PIN into your Zync Wallet and 4- select ‘make a payment’. This generates a QR code on the screen for the cashier [AP at participating merchants only] to 5- scan." any better than the current "chip&PIN" user and merchant experience?..

It's wrong, in my humble opinion, to extrapolate isolated cases of M-Pesa and Starbucks to the global payments market.

BTW, I am (greatly) surprised with your comment re "South America and numerous other markets where card schemes dont really exist" - all majors plus several local card schemes are present in almost every country in LatAm.

A Finextra member 24 July, 2013, 12:00 0 likes

Agreed, just cheaper processing costs is nothing, no added value at all. And thats also the problem with any mWallet solution, especially one that uses card scheme rails. Thats why we havent seen contactless or wallets really gaining massive transaction, and why companies like Tesco publicaly state that NFC is past its sell by date. The payment process isnt broken, so for businesses to adopt mobile and consumers, it has to offer something different. If all that you say was spot on, Google Wallet should have been a massive success and be dominating the world of mobile payments right now...

The actual transaction process for us is just something that is simple, quick and cheap for the merchant. But thats not the proposition. Its all about the added value we bring to a transaction. That added value comes in many many many different formats, of which popular ones obviously include seamless and intelligent use of deals, loyalty schemes, using your mobile to complete transactions no matter the sales channel and many many more. I must also stress that the merchant (especially an SME) need only a mobile to process the transaction, with no additional hardware. The value is not the saving in the transaction at all, thats just an added benefit and for most of our businesses, they dont pay anything for a transaction...The experience for both the merchant and user is therefore far wider reaching than just a payment. So in terms of user experience, its far improved on chip and pin while being far more flexible.

Though Starbucks is an isolated case, agreed, it still makes up the vast majority of mobile based transactions. Therefor their own business case should be taken very seriously and it can be applied to any business that want to process a transaction. That business case is very different to a case for global payments agreed, and thats a big issue. The mobile payments market doesnt align with business needs, especially those of SMEs. At the end of the day, the most important element of all this discussion, is the merchant. Not the wallet, not the schemes, not the banks, its the actual business that requires to get paid for thier products and services.

Interesting debate...

A Finextra member 24 July, 2013, 12:08 0 likes

"At the end of the day, the most important element of all this discussion, is the merchant. Not the wallet, not the schemes, not the banks, its the actual business that requires to get paid for thier products and services."

Spot on! I'd add consumers to that equation too - you can only lead the orse to water...

As for "Google Wallet should have been a massive success and be dominating the world of mobile payments right now..." - if Google brought out their companion (physical) card, that would have been exactly the case. Globally indeed! It was not Google's call to drop the card, though... Despite what the media says... Several companies got really scared (and not without a reason) and nipped it all in the bud...

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 24 July, 2013, 14:16 0 likes

As mobile wallets go, the one from Starbucks is #1. However, among the various payment methods Starbucks accepts, its prepaid mobile app is hardly a success: According to my calculations here, it's used by only 1 out of 25 of its own customers. Mobile wallets not based on card schemes - in other words, closed loop mobile wallets - might save money for the merchant but I've never understood their value proposition for the customer who is used to getting deferred payments and rewards with card networks based open-loop card payments.

A Finextra member 24 July, 2013, 14:26 0 likes

Ketharaman, I have different pictures, courtesy of Brett King. It's not so much re app as their card, but the "off rails" principle is the same:

With 35% of their in-store payments handled by mobile app in the last 12 months, Starbucks generated more than $2 Billion in deposits on their niche app (digital gift card).

To put that in perspective, Starbucks garnered more in deposits last year than 70% of the 7,500 financial institutions in the US, all of whom hold $1 Billion in deposits or less.

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 24 July, 2013, 16:06 0 likes

@AlexanderP: Plastic cards - open and closed loop alike, from Starbucks and zillions of others - have been around for decades and there's no question that they're extremely popular. Given the title of this article, my comment is restricted to mobile wallet only. I've heard those same figures about money loaded into Starbucks mobile app but, frankly, I've found them to be obfuscatory: While computing the mobile app's popularity among Starbucks' customers in comparison to other modes of payment accepted by the company, revenue and # of transactions are the only two valid metrics, not deposits (either in absolute terms or in comparison with that held by so many banks). Going by revenues, Starbucks gets < US$ 500M via mobile app as against a total revenues of US$ 13.3B via all methods of payment combined. The ratio of these two numbers simply doesn't support the claim that 35% of instore payments happen via mobile app. In fact, according to this article, Starbucks card - by which I understand plastic + mobile wallet - accounts for 25% of the company's sales, so it's impossible for the mobile app alone to have a 35% share of instore transactions.

A Finextra member 24 July, 2013, 16:30 0 likes

@Ketharaman the mobile app is not available in all of their stores. When it was first launched it was with a limited number of stores in the USA and Canada. There has been a lag moving the app to all their stores, there was many months passed before it was available in the UK. So the figures of 35% of in store transactions are carried out using a mobile device is probably correct for the stores its available in. We must also remember that the app for a long time wasnt available on Android, and still isnt available on BB or WP8.

No matter what you beleive, the business case / ROI on it for Starbucks cannot be in doubt, nor can the size of the number of transactions that are off railed for them. Its widely reported that in terms of mobile payments, the starbucks app makes up the vast majority of all mobile app transactions made.

Also the value for the consumer is pretty simple and compelling. Use your loyalty scheme to purchase coffee, and get free coffees. Thats easy for the customer to understand. Benefits from card issuers are, well not that great and are limited to a few schemes, which makes it hard for consumers while offering nothing back to ther merchant. Defferred payments only exist on credit cards, and most people dont purchase a coffee on a credit card. American Express is probably the only scheme that offers real rewards these days, but is not accepted everywhere and is a even more expensive for merchants

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 24 July, 2013, 17:37 0 likes

@AndrewS:

I haven't made any comment about ROI of Starbucks card program. ROI of retailer closed-loop cards has never been in doubt - Starbucks is not the first, nor will it be the last, retailer to launch a closed-loop card. That said, I'm not sure if Starbucks has gotten any additional ROI from its mobile app that it didn't get with its plastic card. 

In my calculations of share of Starbucks mobile app compared to all other methods of payments accepted by the company, I've actually attributed 100% of all mobile wallet spend - not just majority - to the Starbucks app. So, there's no argument that Starbucks' mobile app is popular as mobile wallets go. Its popularity is only in question as a method of payment within the company.  

Multiple platform development, extra infra requirement, uncertain ROI compared to plastic - these are precisely some of the hurdles facing mainstream adoption of mobile wallets by merchants. So, excluding them and arriving at a 35% mobile wallet transaction share doesn't really say much and frankly sounds somewhat like "Ferrari has a high market share among people who want a Ferrari and can afford one". I doubt if the day will come in my lifetime when Starbucks will report 35% mobile wallet share of payments without any qualifications but I'm happy to be proved wrong.