As I said on Friday, CTIA invited 50,000 of its closest friends to gather in NOLA for its big International Wireless show. I moderated a panel on mobile commerce, plus wandered the exhibit floor and sat in on some sessions. Here is my second post in a series of three – this one captures my musings on what I saw, said, and heard about mobile wallets.
A Wallet by Any Other Name …
Any mobile show worth its gumbo must have at least one discussion about the mobile wallet. CTIA did not disappoint. Not only was there discussion of wallets, they were on full display. Both Visa (V.me) and MasterCard (PayPass) had its digital wallets available for demo in their booths. And, wallets were the topic of conversation on several of the panels. Here are a few of my observations and insights.
This might be stating the obvious, but I just want to make sure everyone understands this basic point. V.me and PayPass are acceptance marks just like PayPal. So, as these wallets get diffused, you’ll start to see “Pay with V.me” and “Pay with PayPass” presented along with other payment options at checkout. The proposition is that consumers will load all (and they mean all) of their payment cards and loyalty products into these wallets and will have the ability to toggle back and forth between card types as desired at checkout to make a payment. Ease of use/convenience and security are the key value propositions. V.me is live today with Buy.com and PacSun and MasterCard has launched with Barnes and Noble and American Airlines.
The MasterCard PayPass wallet though has decided to take a slightly different approach with its wallet vision. MC has launched not just a wallet but a digital wallet platform that will enable any other wallet or app to connect to it and operate within its PayPass wallet environment. It enables this via a switch that routes these transactions via its rails to the appropriate endpoint. An API enables wallet and app providers to easily connect to this platform. PayPass is envisioned to become the consumer’s uber-wallet – the ability to have many wallets/apps within a single PayPass wallet.
Here’s how they describe a potential use case. Say that Merchant A has its own mobile app that is payment enabled. It can hang out on smartphones as its own mobile payment app and/or it can connect that app to PayPass and have customers access it within its PayPass wallet container. A merchant might want to do this to make it easier for consumers to have all of the apps that they use at the point of sale conveniently organized in one container. Merchant A might also want to incent consumers to use its app to enable payment at other merchants too. Merchant A, in this case, gets the benefit of being in the PayPass wallet of its customer (and used more conveniently), and also potentially, acceptance across multiple points of presence enabled by the PayPass wallet that they could otherwise never get easily.
This uber-wallet concept could spawn an interesting mashup of technology/loyalty and business model innovation – potentially catalyzed by MasterCard - as it aggregates more merchants and volume via its wallet platform. I’m told that merchants pay nothing extra to be part of this wallet platform and that monetization opportunities will come later as other value added services are developed and made available to customers of the platform. The issue of how data moves between wallet providers and consumers and merchants is still a work in process – and of course, subject to all of the privacy and security issues that relate to payments. Here is a peek at a demo if you haven’t seen it.
The devil is in the details of the execution, of course, and as many in this space have discovered, it is not all that easy to get others with their own wallet ambitions to play together nicely in the mobile wallet sandbox. How likely it is that we’ll see a V.me or Serve connect to PayPass is unknown – but hey, Serve just connected to ISIS so stranger things have surely happened in this space. How this gets answered will depend on thorny issues like business model and data sharing and that good old issue of perceived and real customer ownership (a biggie). It will also depend on how well preserved another wallet’s functionality is in the PayPass environment. Will PayPass just enable a payment transaction that is enabled by another wallet/app linked to its wallet or will it also host and display and aggregate all of the other important goodies like offers, rewards, and balances attached to that app or wallet? PayPass could be an interesting wallet play, perhaps not so much for the payment aspect as for the potential business model opportunities enabled by uber-aggregating of lots of single “apps” into its wallet infrastructure.
Who’s on First?
Here are a few other thoughts after having seen the wallets and thinking further about the digital wallet space.
One pretty big insight is that in the mobile/digital wallet world, pretty much everyone is at the starting line at about the same place. Digital wallets aren’t just little spiffy icons on a mobile phone – they are acceptance marks – and merchants have to agree to accept them at the point of sale. And that’s not trivial - just ask PayPal who has been slogging it out for about the last 13 years. Granted, for MC and V to be added as a tender type isn’t as headache-inducing as asking merchants to enable NFC at the point of sale, nor even as involved as adding a new network like PayPal to the lineup, but it is still something that merchants have to agree to do and allocate technology resources to get done. And now, these merchants have like a zillion players knocking on their doors asking for some version of the same thing and all about at the same time: Visa, MasterCard, PayPal, Google, Discover, ISIS, and American Express along with all of the emerging people who want some of the action too.
So, when merchants go to answer that door, who should they decide to let in? Well, the player that can bring lots of good stuff to the table, naturally. So, what is defined as good stuff? Well customers are good stuff – you might say they’re really great stuff if you are a merchant. If that’s the case then it’s really only PayPal, with consumer accounts tied directly to its wallet, that can credibly sell merchants the proposition of a 100M+ potential customers. PayPal has also worked hard to flip consumers to ACH so, in theory, they are able to work with large merchants on pricing – another really good thing if you are a merchant. (Visa and MasterCard have to think thru how they will handle card not present pricing - a real biggie – it’s not really not in their interest to want to flip consumers to debit much less ACH transactions.) If you’re MasterCard and Visa, you have the prospect of bringing many, many and many millions of customer relationships to merchants but they belong to the issuers and then they and the consumer have to be given an incentive to want to play in their wallets. Doing all of this is clearly not impossible to do, but it’s just another step and another layer of coordination.
When looked at in those terms, it must sort of make the network guys little nuts but then again, it’s always been a mystery as to why it has taken them so long to develop a digital wallet solution to compete with PayPal and to reduce transaction time online.
But there’s a flip side to all of this when it comes to how many players even get as far as the merchant front door – and this is where the incumbents have a real advantage. The incumbent networks may not have direct customer relationships, but they have something also very valuable - merchant relationships and that is goodness of a different sort. They have these relationships directly thru their global merchant services groups and with issuers via co-branded cards. They have a decided leg up in going to merchants and negotiating acceptance, that will at some point likely include how they choose to address the CNP pricing issues, too. Now, merchants still have to agree to do all of this and the integration still has to happen, but the large incumbents can sort of jump the line. This dynamic might also make a PayPass wallet aggregation capability that much more attractive to apps that need payment/wallet enablement – a value proposition to simply connect to PayPass to get functionality and acceptance could be quite powerful.
All of this made me wonder even more about the viability of ISIS. When evaluated in this context, what on earth does ISIS have to offer merchants or consumers at this point? They don’t have consumers, they don’t have merchants. They don’t have pilots with traction. They also ditched the notion of being a closed merchant network a while back. So what are they offering when they go a knockin’ on merchant front doors? My view is that the launch of incumbent wallets simply put another nail in their coffin - they appear to have nothing to offer merchants or consumers that these well-established networks with their own well-formed and functioning wallets can’t and in fact don’t already have.
The U Zone
Oh, one other point worth mentioning is ubiquity. I sat in on the Citibank mobile payments discussion. The point made by Rich Clow, and that has been widely reported in the press, is that wallets won’t take off unless they are ubiquitous. I interpret that to mean available to be used everywhere – just like cards. I don’t agree.
First off, let’s define what is meant by “wallet.” My definition of a wallet is something that aggregates multiple payment types, can also aggregate loyalty information and offers and can be used at the digital or physical point of sale. My definition puts merchant “wallets” like Starbucks in the payment enabled mobile apps bucket. If you agree, then what makes the whole mobile wallet ubiquity discussion interesting is how easy smartphones make it to have and access multiple apps and wallets.
My problem with the ubiquity argument is that, as Starbucks has shown us, people will use apps that are accepted at only one place because it is convenient for them to do use and even to top up. (Most people top up their Starbucks app while they are waiting in line for their lattes.) And as apps like Uber and LevelUp have shown us – both of which are not widely accepted or available but have loyal users - is that the ease of use is in the ability to link a single card that can be used at the places that these apps are accepted - not having them all in one place to access. So, maybe the new definition of ubiquity in the digital world is having a card that is accepted everywhere linked to an app that enable usage at any merchant location that accepts that app. But I digress. Will there be a threshold for how many wallets and apps people actually download and use? Of course. Will there be a single wallet that consumers use? Hard to see why that will be. I get that people have a single leather wallet today and that everyone wants to replicate that same analogue in the digital world. Smartphones make it easy, and likely, that consumers will use multiple wallets just like they use multiple cards today. Yes, in theory, wallets will aggregate all of the card options that people carry around in their physical wallet today but until there is a value proposition that moves well beyond the user experience of scrolling in a digital wallet versus scrolling on a smartphone, consumers will play around with a bunch of wallets and apps. Will they play around with 100 apps and wallets? Probably not. Will you need more than two hands to count the number of wallets and apps they will settle in and use? Again, probably not. Well, at least that’s my view. What’s yours?
My final piece for tomorrow will focus on my most awesome mobile commerce panel discussion. I guarantee you, it is a must read! The panel did not hold back! See you tomorrow!
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