Success of mobile wallet technology will depend on ubiquity, social acceptance

Mobile customers are still a ways away from the day when smartphones will render our wallets—and their bundles of receipts, IDs, and credit, debit and loyalty cards—obsolete. Experts expect some market breakthroughs as early as next year, but for now, key obstacles are social acceptance of the technology, as well as market fragmentation, what with such a large, and growing, number of mobile wallet services available. Despite progress, the sheer number of options available may have something to do with the holdup, as consumers and other partners haven’t recognized any of these options as an alternative with authority—at least not yet. “One of the problems, of course, is that the whole point of money is that I recognize it as money and you recognize it as money. The whole point of ID is what I think is my identification, and the guy at the airport who lets me on onto the airplane also thinks ,” said Duncan Stewart, director of technology, media and telecom at Deloitte Canada. “There needs to be mutual acceptance. It doesn’t work if it’s little tiny islands.” The idea behind a digital wallet is that, in addition to mobile payments, the technology would eventually replace other functions the wallet currently performs, such as holding ID cards and keeping track of loyalty points. Right now, while companies in Canada are rolling out mobile payment services, the ecosystem, Stewart said, is “highly fragmented.” A year ago, Rogers Communications Inc. launched a mobile application allowing its wireless customers who also have a CIBC credit card to make mobile payments using some wireless devices. David Robinson, the company’s vice-president of emerging business, said in an emailed statement that Rogers plans to launch its own mobile wallet soon. Competitor BCE Inc. said in a release in May that it would allow “RBC mobile banking customers to purchase goods and services with debit or credit by simply using their compatible Bell Mobility smartphones.” Bell said it planned to launch the service by the end of the year, while Elisabeth Napolano, senior communications manager at Telus, said in an emailed statement that company will be “bringing mobile payments to TELUS customers in the very near future.” Mobile wireless providers aren’t the only ones getting into the game. In April, MasterCard released its digital wallet MasterPass service in Canada. The company said in a release that it planned to expand “the number of MasterPass enabled merchants in Canada to 800 merchants by the end of 2013.” Other options include PayPal, which has five million users in Canada (who can access their account using mobile devices), and which in August launched a trial allowing customers to use their PayPal accounts to make point-of-sale purchases at some Toronto restaurants and cafes. Some options available to consumers in the U.S., such as Google Inc.’s Google Wallet service, aren’t available north of the border. “I think most reasonable people’s expectation is that by 2013, we’d have some trials of digital wallet, and that a few hundred or thousand Canadians, but not hundreds of thousands of Canadians, might be playing with them. Ballpark, that’s kind of where we are,” Stewart said. “One of the problems is there are partial digital wallets. There are very few that have the functions of an actual wallet,” he said. “Basically, the idea that 30 million Canadians, even if they wanted to, could do this, is not the case today.” Still, mobile payments are a first step toward digital wallets, according to Almis Ledas, chief operating officer at EnStream LP, a joint venture of Bell, Telus and Rogers. Ledas said EnStream provides “a common hub to allow credential issuers to reach not only Bell, Telus, Rogers, but also the smaller mobile network operators, to make it easy—whether it’s a financial institution, a transit authority, a government, or a loyalty card—to deliver their credentials to all the connected handsets in Canada.” He said a digital wallet could start to be adopted by consumers by the end of 2014. “The first credentials that will be deployed on phones will be payment credentials,” he said. “I think by kind of mid-2014, we’ll see multiple credentials on phones, and then we’ll start to see the need for an organizing tool, and we’ll start to see wallets appear.” He said wallets will be coming from three directions: the mobile, payments and retail industries. “The successful solution, I think, will be one that is open, and is spanning the needs of all three industries, and others, such that it would take credentials from any source and become the most useful tool to the end user,” he said. Ledus said the technology will be adopted once it has “breadth of coverage” and a compelling application. “The compelling application might be that your Air Miles card … is now stored in your phone and you can use it and automatically apply your points any time you make a payment to it, and it now becomes more convenient than presenting two cards at checkout,” he said. He said EnStream has developed and is deploying a universal platform, though it is still in the stage of connecting one carrier and one financial institution at a time. It’s once the connections are made that applications and services will start to be deployed, Ledus said. Once banks launch services, such as retail payments, that “will get some consumer excitement going,” he said. Andrea Jacobs, a senior manager at comScore Inc. who authored a 2013 report on U.S. consumer perspectives on digital wallets, said in a telephone interview there are key barriers to adoption of the technology, including low awareness and understanding among consumers, as well as concerns about security. “Consumer awareness certainly is a challenge for marketers that I believe has to be overcome. We have to be aware of a digital wallet before we can use it,” she said. “Of all the factors that we analyzed, trust and privacy were the most important.” Jacobs agreed that fragmentation in the market is affecting the technology that’s now available. “The market today is so fragmented, I think it’s just in its very beginning stages, and there’s so many players right now that all operate a little bit differently, that make it really difficult for consumers to grasp onto one particular wallet or idea,” she said. For customers to change the way they buy things every day, a significant marketing effort will be necessary, Jacobs said. “There might be a perfect solution out there that meets everyone’s needs, that’s perfectly secure, that is accepted everywhere, that is a favourable brand,” she said. “But if marketers out there don’t clearly communicate those important details to consumers, consumers will never know that it exists.” The winning technology will have to be usable everywhere, Jacobs said. “Even if all of the other digital wallet players went away, and there was only one out there, one option, it still won’t be used, of course, if it’s not accepted or the functionality doesn’t exist everywhere that we want to make a purchase,” she said. “I don’t want to have a digital wallet that I can only use at 20 per cent of the places I shop. If I’m really going to commit to it, I want it to be really available everywhere.” Jacobs noted Starbucks Corp. has been successful in its foray into digital wallets, though the “challenge is to have these wallets be more widely accepted across more than one retailer.” It could take years for a winning platform to emerge, Stewart said, and when one does, it will need to have some key attributes, such as working across multiple pieces of hardware and being able to handle low-value transactions. In sum, it must be superior to the physical wallet. That’s not impossible, Stewart said, since physical wallets have their drawbacks, too. Sometimes they get lost, or grow too fat for our pockets. Stewart said that, for mobile wallets to be adopted by consumers, they simply have to be better than the current physical option of wallets with cards in them. The problem right now, Stewart said, is that in North America, people don’t hate their wallets, and digital wallets aren’t “so much more massively wonderful that we are likely to see dramatic adoption in the next year or two.” The wallet “is not some perfect, Platonic technology … that cannot be replaced,” he said. “It’s merely that, at this point, the digital wallets fail to be demonstrably superior.” —With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

Success of mobile wallet technology will depend on ubiquity, social acceptance

News | November 4, 2013

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