Endpoint: Getting Over Visa Envy

There will be no “one wallet to rule them all.” The phone itself is the new mobile wallet, not any one app.

Mobile wallets are more about marketing than about payments, and a white-label approach will let banks and merchants keep control of the vital customer data they need, says Chris Gardner.

Chris Gardner is a co-founder at Paydiant Inc., Wellesley, Mass. Reach him at cgardner@paydiant.com.

For the past two years, there has been a ton of discourse around mobile payments. An entire industry has been born nearly overnight. Today, some estimate that as many as 150 separate companies (and efforts within larger companies) have been developed, funded, and launched to target the mobile-payments/wallet opportunity. That’s a lot of noise.

Most of these startups or mobile-wallet platforms share an important characteristic. I call it Visa envy. That is, most have launched a consumer brand, put an app in the App Store, and printed stickers to put in retailers’ windows. Simply put, they want to be the next payment network.

But there’s more here than meets the eye. Shortly after the launch of efforts like Google Wallet, retailers quickly became wise to what it was really about­—and it had little to do with mobile payments. Most of these wallet platforms were really running an advertising business. To do so, they needed a peek at the payment transactions data. Why? So they could target advertising.

How long will it take, the retailers asked, before Google starts targeting Wal-Mart advertising to Target shoppers, and vice versa, based on these data? Kind of scary for any retailer.

A Marketing Platform

Now it is entirely likely that one or more of these efforts may some day get some real traction. There are the obvious and much-discussed players like Google, PayPal, Isis, and Square, as well as innumerable startups all taking this approach as they vie for a piece of the mobile-wallet action.

I won’t use the limited space here to handicap these “aggregated wallets.” Instead, I’d like to focus on a less well-known approach we know is quickly gaining momentum: The white-label mobile wallet.

As we look towards 2014, retailers (and banks too) are taking matters into their own hands. They realize that the mobile wallet is a marketing platform. While payment is a key component of the experience, it is the other stuff—offers, loyalty, cash access at ATMs, mobile ordering, and mobile commerce—that will really drive customer adoption and return on investment.

The right mix of functionality varies among retail segments and among banks and retailers in general, but it’s the collection of marketing capabilities that holds the key to a successful program. Equally important is that these mobile-wallet capabilities be part of the retailers’ existing mobile applications and strategy—not someone else’s.

Starbucks is far and away the most successful example of how well this strategy works. Yes, the ability to pay with your mobile phone is core to the Starbucks app, but many believe it’s the ability to fill the virtual cup with gold stars that drives customer use of the mobile wallet app. Only three more stars until a free coffee! Hey, they remembered my birthday and I get another free coffee!

Obviously Starbucks has some innate advantages here. It is a “daily-spend” retailer, it has a very mobile-savvy demographic, and it is selling an addictive, though legal, substance. But the lessons are applicable for all:

1. A customer’s transaction history is the pot of gold at the end of the rainbow. With mobile, retailers and banks have more insight into who their customers are, where they are, how they spend their money, and how they like to interact with their brand. These data are priceless. Retailers and banks share them with interlopers (aggregated wallets) at their peril.

2. The wallet is not just payments. Trading a card swipe for a tap or QR code scan doesn’t do much to change consumer behavior. Sure, it’s cool and a little more convenient, but it’s the combination of marketing capabilities—offers, coupons, loyalty, analytics, and more—that creates more loyal and engaged customers and increases revenues.

3. Mobile-wallet approaches that require retailers to install new hardware at the point of sale, or consumers to all get new phones, are expensive to deploy and will take many years to materialize—if they ever do. (I’m looking at you, NFC.) By leveraging the cloud and a software-based approach, many wallet approaches negate these obstacles.

As Many Apps As Cards

Now, it’s fair to ask if every retailer will have a mobile wallet (no) or if consumers will be expected to have one app for every retailer and every bank they do business with (again, no). But we can expect a situation similar to the way consumers use payment and loyalty cards today.

Depending on whom you ask, the average American consumer has four to five cards in his wallet. As mobile transactions begin to dominate over the next several years, one can expect that most consumers will have a similar number of mobile apps they use for financial transactions.

For example, I may use a wallet capability built into my mobile-banking app for gas and groceries and to get cash at ATMs. I may use the Target app when shopping there if they decided to extend the 5% REDcard discount to mobile-app users. And I sure as heck am going to keep using the Starbucks app so I can get my gold stars!

So what does this all mean? Well, for one thing, there will be no “one wallet to rule them all.” The phone itself is the new mobile wallet, not any one app. Consumers will have many choices in how they want to conduct their business, from which they will likely select a few. Retailers and banks will do all they can to keep their users interacting with their brand in their own app. And the white-label approach will help them do that.