GUEST OPINION Mobile wallets: the value is not the money
Jon Worley, Director of Business Development – Customer Interaction – at The Logic Group explores how mobile wallets are not about the money consumers put in them, but how they become part of loyalty programmes, marketing strategy and easy payments
O2, Barclaycard, Google and most recently RBS, have announced their plans to persuade the consumer to ditch physical wallets and join the mobile revolution. In perhaps the biggest push to date, Visa showcased mobile and card NFC payments at the London Olympics, hoping to prove that the mobile wallet is here and it means business. All the marketing noise behind the mobile wallet means it has the potential to be a real game changer in the retail market.
However, NFC-enabled mobile payments only scratch the surface in terms of the services mobile technology can offer to retailers. For the true value to be recognised, businesses need to understand that it isn’t in the ability to just offer a payment service – it is in the customer interaction opportunities it creates.
The term ‘mobile wallet’ is generally referred to payment services operated under financial regulation and performed from or via a mobile device. A recent report by Gartner highlighted that mobile payment transactions are expected to exceed $600 billion worldwide by 2016, up from $172 billion this year.
Despite a huge potential market, focusing on the mobile wallet from a pure payments perspective massively undervalues the impact mobiles can have. It could be said that tapping a phone is as useful as tapping a card, and as such, there’s no real benefit to the customer. However, if a consumer is tapping a phone for payment and simultaneously providing loyalty details and/or redeeming a money-off voucher, while using it to get additional in-store services, it is a bigger incentive for customers and retailers alike.
The mobile wallet enables the collection of valuable data to create customer interaction opportunities for retailers, marketers and advertisers. These interactions can include in-store customer loyalty programmes, vouchers, or location based services for customers. For example, with an NFC-enabled mobile phone, a customer can tap a poster or product label to view promotional and product information as well as offers and complimentary items for cross selling.
Moreover, offers can be tailored to suit an individual's shopping habits. When a customer taps a poster with their phone, a repeat customer at a certain store can be offered something different compared to a first time shopper, due to the information gathered from previous mobile interactions. Retailers will be able to use this technology to tailor offers to the individual and build a personal loyalty package and shopping experience for the customer.
Despite the benefits, the concept of mobile in retail has left many retailers worried, as customers use their mobiles for in store 'price checking' – where customers view a product in store and then simply go online and buy it elsewhere for less. While this is a growing challenge, it can be used to the retailer’s benefit. John Lewis, for example, offers free Wi-Fi allowing customers to compare rival online prices and then price match in store. This has proved beneficial for both John Lewis and more importantly the customer.
For retailers data is one of the key benefits behind customer mobile use. The more you know about your customers, the better they can be targeted with promotions and offers, resulting in a better ROI. Take voucher sites for example. There are now many sites that offer coupons and money back to an anonymous customer making it difficult to tie that back to the person who redeems it. Alternatively, if this is issued through a mobile, it is unique to that handset, so you know the demographics of who is using the voucher, their location and when they use it. Retailers can instantly know if the unique voucher code has worked or not, and by who. By accessing this sort of data it gives the retailer much better control over the marketing budget. But it’s not simply the data they collect on consumers – it’s also the data they can provide to their customers for future tailored deals.
Mobile phones remain a key pain point for the market as there are only 12 or so NFC compatible phone models currently available. Apple often bides its time before diving in to developing tech markets, which explains why it's largely been on the sidelines in the mobile-wallet game. However, last month, it unveiled a service called Passbook that pulls together loyalty cards, tickets and coupons. But Passbook drew coverage for what it doesn't do: it can't link directly to credit or debit cards, so consumers can't use it to replace their wallets. While Apple has revolutionised a number of industries, it isn't often the first mover, choosing instead to wait for others to work out the kinks in a market. Once the next Apple iPhone is available, which is expected to have some sort of NFC capability, an integrated mobile wallet is expected to help drive adoption. Meanwhile it is anticipated that other suppliers will significantly increase the population of available NFC compatible models by the end of this year.
Adoption is really all about consumer education and that needs to start by addressing the underlying security concerns. Once users understand and have the confidence that a mobile is safer than a plastic card, due to all the security measures built into today’s mobile devices, we will start to see better traction. Consumers will also need the reassurance that they will be not liable if they fall victim to fraud, it’s down to the banks. The industry can then begin to reinforce the value proposition by introducing vouchers, loyalty services and targeted media.
Major retailers and merchants are already rolling out new pin entry devices (PEDs) that incorporate NFC technology - if only for the contactless credit and debit cards – the same technology can be used in mobile phones. Either way, the Payment Cards Industry Data Security standards (PCI DSS), hold a list of allowable terminals. For security reasons, PEDs must be replaced after a certain period of time, as they fall out of support timeframes. Therefore, most non-NFC PED terminals will be replaced in the next few years.
With the business need for ROI, new costs that can be delayed will often be disregarded. Despite this, the retail landscape will be very different in 2-3 years. Even if NFC payments don't quite take off this year, retailers will still need to upgrade their infrastructure; otherwise they face being left behind competitors.
Any new adoption requires justification as to why it is needed and most importantly how much it will cost. Thus, mobile strategies need to be thought through to help drive adoption, for both retailers and customers. By understanding the in-store customer journey and identifying the key points of contact with customers, the role of the mobile wallet will be easier to define and apply towards improving customer experience. Currently with the mobile wallet offerings on the market, a phone is as useful as a card, and only when an integrated offering is available with steps for education and awareness, will wider adoption be achieved.