Mobile Wallet Building Blocks Slowly Take Shape

and Barnes & Noble, which developed a PayPass online checkout button on its Web site.

In October 2010, AT&T, T-Mobile, and Verizon Wireless developed the Isis system. It works with NFC technology and allows users to pay by tapping their mobile device to a payment terminal. Isis has partnered with the Discover network, American Express, Barclaycard US, Chase, and Wells Fargo. The group claims that more than 200,000 local and national merchant locations use its solution. (At the time this article was written, Isis was in the process of changing its name to avoid association with Islamic State of Iraq and Syria, a militant Islamic group.)

Retailers Take Charge

In August 2012, a group of leading U.S. merchants formed the Merchant Customer Exchange (MCX), a company dedicated to developing a mobile payment infrastructure. Some supporters include 7-Eleven, Best Buy, CVS/pharmacy, Lowe's, Sears Holdings, Shell Oil Products, Target, and Wal-Mart Stores.

Given the infrastructure problems, it is clear where the market is now. "We are now in a very early stage of adoption," comScore's Lunoe says. So early, in fact, that not everyone agrees that mobile wallets are the end goal. Instead, some pundits view digital wallets, which can be used with any device (phones, laptops, PCs, smartcards, or tablets) as the ultimate payment destination and mobile wallets as one application of that technology (see "A Digital Wallet Versus a Mobile Wallet" on the second page of this story). Whether mobile wallets will emerge as a stand-alone market or a digital commerce subset is unclear at this point.

Also up for debate are basic design issues. As noted, currently there are competing vendors, each with its own approach. Since no one system has emerged as a standard, it is now impossible to use a mobile wallet at a local coffee shop in the morning and a department store later in the afternoon.

Open or Closed Loop?

A couple of design options are gaining traction, however. The closed loop approach limits all transactions to a single retailer. Here, the retailer develops the payment option, which resembles a debit card, and it only works in its stores. The customer puts a set amount into the mobile wallet and draws on it later. The commerce system is often tied into the retailer's loyalty program. Starbucks and Dunkin' Donuts have put those systems in place. "Coffee shops have had success with their mobile wallet programs," Lunoe states.

An open loop design is the mobile wallet Holy Grail. This solution offers consumers a variety of payment options: debit cards, credit cards, or cash. The consumers even place all of their plastic in one account, making a debit card or a credit card transaction when it best suits them. The wallet is tied into a variety of retailers' loyalty programs and coupons. But none of the groups building such systems have even glimpsed the Holy Grail, let alone reached it. Significant pieces (select payment options, a lack of presence, limited functionality) are missing in their initiatives, but many have begun early rollouts, in which consumers pay for goods with their smartphones.

As the market takes shape, suppliers need to address consumer concerns. The technology can be unreliable. Smartphone users have multiple applications on their phones, which consume power, and the chances of battery outages are high. Also, a phone may fall in a puddle and stop working.

Security: The Big Kahuna

Security is a bugaboo. Tying a wallet to a phone has risks. Seventy percent of smartphone owners do not use a password to lock their phone, according to security vendor Sophos. So if someone loses her phone, whoever finds it has access not only to the personal data on the system but also to that individual's financial information, which makes her a prime candidate for identity theft.

Privacy is a concern. Customers are worried that their information will be compromised as it moves from place to place. Hackers have been focused on financial applications, with wireless transactions being especially attractive. Once these systems evolve, hackers are expected to take notice.

Given the market factors, confusion and competition now reign. As the different approaches gain traction, backers will need to turn their attention from putting the needed pieces in place to educating consumers about mobile wallet benefits and assuaging their security and privacy concerns. The mobile wallet has the potential to overhaul the payment process, but right now, it is not ready for prime time.

---

Paul Korzeniowski is a freelance writer who specializes in CRM issues. He has been covering technology for more than two decades and is based in Sudbury, MA. He can be reached at paulkorzen@aol.com.

---

 

Related Articles

Data Transparency Is a Must for Addressing Privacy Concerns

Consumers balance mobile shopping interests with security fears.

Qliktag Introduces Q*Engine In-Store Mobile Merchandising Platform

Qliktag's Q*Engine is a merchandising solution with individual product promotion and activation via iBeacon, NFC, standard barcode, or QR code.

Scanbuy Introduces mVision Insights Advanced Analytics Platform

mVision Insights offers marketers actionable data from mobile engagement campaigns involving QR codes, NFC, Microsoft Tag, and other triggers.