How Many Mobile Wallets Are Too Many?

For many years, the mobile wallet landscape was filled with small niche offerings that tested some important ideas, but never really gained much national traction. However, over the past 15 months, four major players have introduced their wallets and the tipping point for widespread mobile wallet adoption appears close. Apple Pay, Android Pay, Samsung Pay and Chase Pay have extended the technology and functionality of those early wallets and have started to close the gap on a wallet that would deliver value to the trifecta of stakeholders: consumers, merchants and the wallet providers.

Should every bank be preparing to support one or more of the existing mobile wallets? CG sees five prerequisites for widespread adoption of mobile wallets.

1. Better security. Consumers have well documented doubts about the security of mobile payments versus more traditional payment methods. Mobile wallets must implement improved authentication processes (e.g., biometrics, account number tokenization) to allay these fears as the price of admission.
2. More large-scale mobile wallet providers. The recent addition of providers (including Chase Pay) offers the market a wide range of mobile wallet options and a key move toward critical mass for merchant acceptance.
3. More smartphones. By 2020, there will be 6.1 billion smartphones in the global market (most with biometric security features). That’s a stark difference from the 2.6 billion smartphones in today’s market—most of which do not have biometric capabilities.
4. More merchant acceptance of contactless payments. Many of the new terminals that merchants are implementing support both contactless payments and the EMV chip.
5. A good reason to keep using the mobile wallet. The new wallets either have or are planning to implement rewards programs into their product, which will give consumers a compelling reason to habitually use their mobile wallets.

Each of these prerequisites to mass adoption is trending in the right direction, which means every bank should be working to support one or more of the large mobile wallets as part of their future strategy.

Many banks seem content to support the provisioning of their card accounts into Apple, Android and Samsung. The announcement of Chase Pay at the payments-focused conference Money20/20 in Las Vegas in October sent shock waves through the 10,000 conference participants. If Chase felt it needed its own proprietary wallet, will other large banks follow?

The decision to invest in a proprietary wallet should be based on three key elements in each bank’s strategic direction.

1. Does the bank have a customer profile that wants a mobile wallet offering and would that group prefer a proprietary wallet over a large national wallet like Apple or Android?
2. Does the bank have the internal resources or external partnerships required to develop and sustain a wallet in a very dynamic environment? (The wallet of 2020 is likely to be very different from the wallet of 2016).
3. What are the banks’ competitors inclined to do and how will their actions affect the banks’ customers?

Each bank must consider its own strategic differentiation when determining whether to build or borrow. What distinguishes it in the marketplace and how might that change in the future? What will draw new customers to the bank in the next five or ten years?

One feasible strategy is to let others pave the way in developing new products and then figure out when and how to offer them to your own customers. It’s an approach that can minimize risk without necessarily jeopardizing the reward.

The bottom line is, mobile wallets are coming. (We really mean it this time.) Most banks must allow their card accounts to be provisioned into at least some of them. Some banks (but not most) should offer a proprietary wallet, but only if it fits into their larger strategy. Add the wallet to fit your strategy; don’t change your strategy to fit the wallet. Focus on your strategic differentiator and ensure that most of your future effort and investment are focused on the differentiator and not spread across all the possible initiatives in which you could invest (including wallets).