Intensifying Mobile Wallet Competition
The last six months have seen a rush of activity in mobile payments. Recent product launches and new industry partnerships are expanding the general public’s awareness of mobile payments and increasing the availability of offerings in the U.S. market. A few of the recent high-profile announcements include:
- September 2014 – MCX announced the branding and initial beta testing for CurrentC, its mobile wallet application that will be the consumer-facing component of the retailer payments initiative.
- October 2014 – Apple launched Apple Pay, immediately raising public awareness of mobile-POS payments while creating momentum for tokenized payment security and NFC technology.
- February 2015 – Google Wallet purchased intellectual property from Softcard and announced an agreement with the owners of Softcard (AT&T, Verizon, and T-Mobile) to pre-install Google Wallet on all new Android phones (running Android 4.4 KitKat or higher) sold. Softcard subsequently announced plans to cease service as of March 2015.
- February 2015 – Samsung purchased mobile payment startup LoopPay. Shortly thereafter, it announced the launch of Samsung Pay, which will use LoopPay’s magnetic secure transmission (MST) technology to interface with traditional mag-stripe POS terminals in addition to supporting NFC payments.
- February 2015 – Google announced Android Pay, an integrated payments platform for its mobile OS that will power Google Wallet and other independent mobile-payment initiatives.
- March 2015 – PayPal announced plans to acquire Paydiant, a white-label payment platform that enables POS purchases using 2D barcodes (i.e., QR codes) displayed on a smartphone screen. Paydiant is the technology platform partner for the CurrentC mobile wallet by MCX.
Some of these wallets are recent additions to the mobile payments landscape, but the idea of a smartphone-enabled payment service is nothing new. Google Wallet and Softcard have been active since 2011 and 2012, respectively. Consumer awareness and adoption has lagged many people’s expectations, however, in part due to sub-optimal user experiences in both loading cards and completing transactions. Current players are working to address these shortcomings using a variety of technologies (see Figure 1), while also prioritizing security enhancement as a central feature. Apple Pay was widely viewed as the first wallet to have addressed many of these customer experience concerns when it launched in 2014.
Figure 1: Major Mobile Wallet Initiatives for In-Store Payments
1 Currently using host card emulation (HCE); the recent partnership between Google and major American MNOs may allow future use of the secure element.
2 The recent announcement of Android Pay may allow Google to utilize network tokens stored on the secure element.
3 MCX indicated general purpose cards would be supported at launch, but they are not supported in pilot. Issuer participation is currently unknown.
Source: Company releases and public statements.
Even with an improved user experience, each of the solutions faces barriers to widespread adoption. Apple Pay has generated the most attention and awareness, but building in-store acceptance will continue to be a challenge and Apple devices account for less than half of the overall domestic smartphone market (Figure 2). Google has demonstrated its commitment to expanding payments by partnering with MNOs and enabling independent HCE payments initiatives, but Google Wallet is limited only to Android devices. Samsung’s payment technology enables broader acceptance, but it may not have the clout of Apple when dealing with the numerous payments stakeholders whose cooperation is essential for success.
Figure 2: U.S. Smartphone OS Market Share Statistics
(three-month average ending December 2014)
MCX is somewhat unique among the major wallets because it is backed by many of the country’s largest retailers, meaning the CurrentC application will benefit from retailer control of the in-store checkout experience. It is also smartphone/OS-agnostic (in theory), so there should be no hardware/OS restrictions on using CurrentC on any smartphone. The nationwide public launch of the wallet app has taken longer than expected, however, and the consortium of retailers generated some negative headlines in 2014 when some stores turned off NFC presumably in an effort to limit Apple Pay at their locations. It is also unclear how (or if) the purchase of Paydiant by PayPal will affect the development and public launch of CurrentC. In the past, PayPal has expressed interest in pursuing its own wallet strategy, but the company may also serve as an enabler for other third party offerings.
Industry analysts have been expressing optimism about the potential of mobile payments for years, and the market may finally be reaching a point where the vast majority of smartphone users will have access to a mobile wallet, whether they realize it or not. Despite industry consolidation, however, it appears that we are still no closer to determining a “winning” technology that will dictate the future of mobile payments. Instead, issuers will need to reconcile the challenges of providing customers access to mobile payments across a diverse set of technology platforms and economic models.
For more information, please contact Stephen Kiene, Senior Consultant, firstname.lastname@example.org; or Jeff Crawford, Manager, email@example.com. Both are members of the Deposit Access Practice, specializing in Debit and Prepaid.
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