A once-fragmented mobile wallet ecosystem has evolved into a spectrum of definitive players that intend to be the consumer’s go-to payment method in physical stores, a space loosely defined as “proximity payments”. The evolution of this space has raised a conspicuous question: who owns the customer at retail checkout? Traditionally managed offline by the merchant, the now-digitized, in-store customer experience has undergone a paradigm shift that vaulted third-party tech companies into the driver’s seat.
Meanwhile, banks, as trusted custodians of a consumer’s payment accounts, see no reason why they can’t become consumers’ “everywhere” shopping and payment companion. Just a few names to invest in wallet infrastructure include: Capital One, Chase, USAA, Fifth Third, BBVA Compass and Citi. Though online and in-app payments have garnered most attention, proximity payments remain very much in play.
With a wealth of data on spending patterns and long-standing relationship with the consumer, banks have an inherent business case to develop proprietary mobile wallets. Equally as important, banks must find a way to retain brand exposure and avoid risk of being commoditized in the increasingly competitive wallet space.
NFC and the Handcuff to iOS Contactless Pay
Much of the takeoff in proximity payments can be attributed to the ubiquitous state of Near Field Communication (NFC). NFC is the technology behind contactless payments, now viewed as the standard “rails” for mobile payments. Aside from a handful of wallet solutions that use quick response (QR) codes, the large majority of stakeholders have invested in mobile and point-of-sale (POS) infrastructure that supports contactless payments.
And despite the push toward mainstream, banks have an uphill battle when it comes to owning this NFC-dependent payment experience.
Bank mobile wallets built on NFC can be used freely with Android devices – but no such luxury exists with iPhones. If a consumer wishes to make an in-store, contactless payment with an iPhone, his sole option is using Apple Pay. This is because Apple has full control over the secure element that is embedded into the device’s NFC chip – control that it is unwilling to share with other parties, like banks.
Earlier this year, Australian banks made an attempt at democratizing this ownership of the iPhone’s secure element – and promptly lost that battle. The result is an iOS contactless payment experience that continues to reside within Apple Pay, leaving the threat of banks being relegated to a utility role.
Choosing Between Payments and Customer Experiences
Consequently, banks have delivered a number of value-added wallet features to combat the growing notion of their “commoditized” input to the payment value chain. Over the past two years, banks have implemented blockbuster functionality by historic standards, including: the ability to receive real-time purchase notifications, add loyalty cards, categorize transactions, capture physical receipts, lock a card and redeem merchant offers in real-time.
Banks’ current wallet solutions for Android devices typically include contactless payment capability on top of the functionality described above. One bank in particular has taken steps to circumvent the control that Apple has imposed on iOS proximity payments, foregoing the NFC rails and launching a QR-based payment solution by the name of Chase Pay.
Chase Pay is a multi-faceted digital wallet that supports online and in-app payments, in addition to proximity payments. The solution provides users with frictionless rewards redemption and typically offers merchants lower payment acceptance cost. In-store usage of Chase Pay, however, is limited to its network of merchant partners that support QR payments. One might ask this: would Chase make better use of its resources by developing features around the contactless payment experience rather than trying to build merchant acceptance for a totally separate payment method?
Banks must consider value delivered to the consumer at stages of the retail experience beyond the payment itself. Fundamentally speaking, consumers are interested in finding specific products in a timely fashion while ensuring that the respective cost agrees with their financial state. Most could care less about how a retail payment is executed, just as long as it’s quick and intuitive.
With a limited set of technological resources at their disposal, banks should focus on delivering a frictionless total customer experience over owning the payment itself, which tends to require arduous coordination across stakeholders.
Building a Dynamic Wallet Solution
Banks already have the infrastructure necessary to build a dynamic wallet solution that satisfies today’s consumer pain points, without needing to own the payment piece. The solution can help create a frictionless customer experience through two broad use cases: merchant marketing integration and financial management. Location-based functionality and real-time purchase notifications, in particular, play integral roles in both use cases, effectively acting as a backbone to the dynamic wallet solution.
Many existing wallet apps use a consumer’s location to alert them when a gift card can be redeemed at a nearby an outlet. Though a fairly basic use of location data, this functionality can be extended to alerting of relevant products and deals, such as a Subway coupon when a consumer approaches a store just before lunchtime. From a financial advisory perspective, location-based functionality could be used to inform a consumer of his $50 budget overage on groceries just before he enters Jewel-Osco.
On the flip side of a retail transaction, a wallet app has significant and relevant opportunity to re-engage with a consumer. With real-time push notifications, banks can instantly share the most relevant information regarding a purchase with the consumer. Amongst the most relevant may include: impact to savings goals and budgets, credit card points earned and any merchant rewards or loyalty thresholds met as a result of the transaction.
These pre- and post-purchase feedback features are just a few examples of how banks can help take friction out of the current retail customer experience. From the merchant angle, wallet apps can take away the manual labor associated with searching for a deal and reinforce loyalty toward favorite brands. The app can also help the consumer spend smarter and stay committed to savings plans. Neither use case require the bank to own the actual payment experience.
One can begin to understand the type of powerful position that banks hold when it comes to the mobile wallet ecosystem. Existing wallet apps provide valuable features to consumers but fail to address the retail customer experience outside of a traditional banking lens. Taking a more universal approach to the retail environment can open the doors for new value streams and help banks avoid losing the brand identity that is at-stake in the mobile wallet race.