The War for Your Digital Wallet
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Consumers are already using their mobile phones to make in-store purchases, and as the technology evolves, the payment-processing industry will never be the same.
The shift from plastic to digital wallets and mobile payments is in full swing. Consumers can walk into Best Buy and not only use their phone to make a purchase, but they can also get information on the hottest deals or compare prices with other stores. Mobile devices are sitting at the intersection of payments, advertising and marketing.
Credit card companies, banks, mobile service providers, Internet companies and retailers are all scrambling for a piece of the growing market for payment processing, and the winners will be those who demonstrate technology leadership, provide the best user experience, and give the most business value to merchants.
Consumers will choose the winners with their digital wallets — but what’s in it for them? What does the typical consumer really want, and how can companies deliver that?
Get to the point (of purchase)
Many of the top companies in the United States are attempting to answer these questions. Financial institutions derive a significant percentage of their annual revenue from processing payments, but that piece of the pie is quickly shrinking. Banks are being crowded out by emerging competition from nontraditional financial services companies, such as PayPal and Square Inc., both of which offer a small hardware device that can be attached to a cell phone to read credit cards.
The number of nonfinancial companies jumping on the paymentprocessing bandwagon is growing and includes some of the top retailers. Wal-Mart and Target are among the large retailers developing technology that will let customers make purchases via mobile phones. In addition, several U.S. mobile carriers have created their own mobile wallet technology, Isis, a joint venture of Verizon Wireless, AT&T Mobility and T-Mobile USA.
To see who wins the early battles in the payment-processing war, also keep a close eye on the big four companies that have emerged as “consumer darlings”: Apple, Google, Facebook and Amazon. Consumers keep flocking to these brands because they are familiar, and in many cases, their products and services have become interwoven with everyday life.
Apple’s massive popularity with consumers may indicate how they will choose payment-processor winners. Consumers simply prefer the sleek design and ease of use of Apple products. In the case of mobile phones and tablets, user experience trumps price, and Apple has won. Not surprisingly, Apple has publicly stated that it will eventually transform its iTunes ecosystem into a platform for payment processing.
Whom do you trust?
With all the jockeying for market share, it will be the consumers who decide the winners — with their wallets. Or their digital wallets, that is.
When a consumer goes about making a purchase, three questions come to mind: Whom do you trust the most? Whom are you most comfortable sharing information with? And finally, who is going to blend the advertising world and the payments world most successfully?
The companies that win will be the companies that address these consumer questions and provide the easiest and most secure experience for people who walk into a store to make a purchase by using a mobile phone. Security is of paramount importance. Consumers demand the most stringent security possible for their credit card purchases, and companies that can deliver relatively secure solutions and can also address concerns about potential fraud will set themselves apart from those that cannot.
The best news for many is that the ultimate winners could be the consumers themselves. Increased competition will drive down processing fees, and the wider playing field will give consumers a better selection of financial services and banking offerings to choose from. Still, when it comes to credit card payments, trust and security will be the key factors. May the best (and most trusted) solution win.
RANDY BARKER is director of channel solutions for banking and credit services at CSC.