Banks ignore mobile wallets at their risk, despite slowed adoption rates

Banks ignore mobile wallets at their risk, despite slowed adoption rates

By December 4, 2017 Research No Comments

Is consumer interest in mobile wallets waning? That’s what a recent research report by JP Morgan and Forrester seems to suggest, showing that mobile wallet adoption and acceptance rates have remained largely static since October 2016. But it also demonstrates that a more nuanced conclusion is that adoption has merely paused as consumers wait for more convincing features to arrive before signing up.

The arrival of these features represents the much talked about ‘tipping point’ for mobile waIlets – i.e. growth beyond the current userbase of habitual early adopters. In Europe, the incoming PSD2 legislation could help to trigger this.

A major legislative step forward for open banking, PSD2 mandates that banks must open their data to use by TPPs (third party providers) – a danger to the monopoly banks currently enjoy on many services, but also an opportunity to enhance their ‘stickiness’ with consumers by integrating TPP services for an improved customer experience.

What features do consumers want from mobile wallets?

The JP Morgan report shows that respondents particularly valued mobile wallet features such as ‘Order ahead and pay’ and ‘Self service pay at the table’, and would be incentivised to use a particular wallet by their availability. Both features are currently supported by leading wallets Apple Pay, Android Pay and Samsung Pay – but the offering on each is fragmented, with functionality only available either via single-store apps from chains such as McDonalds and Starbucks, or via a number of startup apps with disparate and limited ranges of restaurant partnerships.

A wallet that integrates these features, includes a range of providers and eliminates the need for multiple additional apps could be a draw for consumers. A bank embracing open banking principles by providing third parties with a toolkit to create services using its infrastructure would be in a position to offer this – particularly as the report shows that another major draw for consumers is the presence of ‘more and better security features than payment cards’.

While more and better features are a major draw, security is as essential as ever. Banks’ long history of consumer trust and institutional and technological expertise in this area means they are well placed to bolster third party offerings and ensure their own relevance by supplying this core infrastructure.

Younger people want mobile wallets more

Just as important as the evolution of the wallets themselves is the evolution of the customers using them. Millennials currently dominate mobile wallet usage – 59% of regular mobile wallet users in the JP Morgan report are in the 18 to 34 age group. As millennials increase in financial significance – and as ‘centennials’, the generation currently in their teens, follow them – it’s likely that providing a compelling, feature complete offering in the wallet space will be increasingly important to banks.

Mobile wallets should be a priority for banks

While mobile wallet adoption growth may have slowed recently, two factors demonstrate that banks who do not prioritise them risk being left behind:

  1. The arrival of open banking via PSD2 and other similar legislation, and the associated opportunity to create far more sophisticated and useful digital wallets
  2. The continued accumulation of wealth by millennials – the group keenest to adopt digital wallets – and their commensurate increased significance as bank customers

For proof, there’s no crystal ball required. In China, digital wallets Alipay and WeChat Pay have been quicker to integrate broader ranges of features, and acceptance has exploded thanks to the simple, QR code based payment mechanism. The impact is clear, with 76% of metropolitan consumers using digital wallets regularly, versus just 36% in the US.

These figures should act as a wake up call for Western banks, particularly with PSD2 and its incentives to join the open banking revolution lying just around the corner.

Vipera are helping a number of banks integrate digital wallets and prepare for PSD2 compliance. Find out how we can help you – contact us.