It feels like every retailer, bank and non-financial institution is out releasing their digital wallets. Non-financial services institutions like retail-giant Walmart, CVS, and even restaurant chain Cheesecake Factory have all launched their mobile payment solution that integrates payment, loyalty programs and drive digital convenience. Device manufacturers and operating systems providers including Apple, Samsung and Android, have also launched their wallets in their own efforts to dominate the payments space.
Despite its recent popularity, there are limitations to the adoption and growth in this space. Digital wallets lack a technology standard, and user experience remains limited. With an ever-growing number of NFC-enabled merchant terminals however, the non-physical card market is now growing fast and the market predicts an increase in transactions over are predicted to surpass physical card transactions.
Traditional payment providers, such as MasterCard and Visa, are set to lose out on fees from processing payments via physical card transactions, and thus have begun to explore the use of their own wallets and devices (e.g. the bracelets launched by Visa and Santander Spain for the Rio Olympics). Digital wallets must offer security and user experience to achieve success. This is where Apple Pay has become the clear market leader. They introduced fingerprint biometrics, on-device storage, and has appealed to banks and consumers by offering a simple, fast and private way to pay.
In an interesting reversal of the trend towards ‘remote’ payments, what we are seeing with digital wallet and contactless is that ‘presence’ is redefining payments – at least at the low-value, regular transaction level. Perhaps banks and payment service providers can make use of the richer stream of data around customer behaviors that these trends are providing to tailor and adapt services to become even more relevant.
Banks have traditionally been the natural owners of the payments ecosystem, but they must follow clear strategic imperatives in the space if they wish to remain relevant as a broad range of players accelerate innovations and enhanced services (e.g. bracelets, enhanced functionality, greater security, biometrics and deeper customer insights) around how consumers move their money, manage their money and make payments.
Oriol Villalante, is a Senior Consultant at Axis Corporate.