If you are introducing a new platform, you need a “killer app.” These are applications so useful that people need the platform so they can have access to the app.
VisiCalc and Lotus 1-2-3 were some of the first killer apps. All of a sudden, managers needed PCs so they could have electronic spreadsheets and run their own analyses. Every new gaming console has needed a new killer app—from Space Invaders to Halo. And the introduction of email turned internet access into a must-have.
So what will be the killer app for mobile wallets? The technology has proven itself over the past couple of years, and security is getting better, yet most consumers view mobile wallets as a curiosity. Something to try once or twice and then push into the closet of used technology.
It won’t be rewards
Many people believe the killer app will be issuer-funded rewards. This would give consumers an integrated platform that combines better reward offers with payment capabilities. This solution has a big problem: it is expensive.
Issuers already provide credit cards with an impressive array of rewards to entice consumers. The reward cards are frequently used as the payment vehicle for mobile wallets, and the rewards are generally subsidized with interchange. With interchange averaging about 175 basis points, it is possible for issuers to provide rewards in the 1% to 2% range without cutting into finance charge margin. However, it is unclear that issuers have much wiggle room to provide a better reward if consumers use a mobile wallet instead of their plastic card. Additionally, many experts are predicting that interchange rates in the US might fall dramatically. If US credit card interchange followed a similar trend to Europe and dropped to something closer to 50 b.p., it would be difficult to see how issuers could sustain even their current levels of rewards.
It might be payment account optimization
It doesn’t sound as enticing as a rewards program, but transaction optimization is perhaps the best opportunity for banks to provide a real mobile wallet killer app. Let the smart phone help the customer decide which account to use for a particular transaction. The bank already knows all your accounts, balances, payment due dates, and spending patterns. Imagine if my bank’s mobile wallet could do the following:
- Routine grocery store transaction. The mobile wallet realizes I am in the grocery store buying my weekly supply of food. It checks and finds no special incentives and suggests that I use my debit (after confirming I have enough money in my checking account to cover the purchase).
- Gas purchase. My mobile wallet remembers that one of my credit cards gives a 4% rebate on gas purchases. After checking I have enough “open to buy” on that card, it suggests I use my rewards card for this purchase.
- Electronics store. I finally break down and get that large-screen TV. My mobile wallet recognizes that this purchase is slightly above my normal purchase level. It checks all my accounts, realizes I will probably have to pay this off over several months, and suggests I use my low APR credit card (calculating that the lower interest will more than make up for the lost rewards).
- Kitchen upgrade. I go to the home improvement store and order several new appliances and cabinets for a kitchen renovation. My mobile wallet checks my home equity line of credit and suggests that this account is the best payment source for the transaction.
In all cases, I am free to accept the mobile wallet’s suggestion or override to another account. For example, I might put the large-screen TV on a rewards card, knowing I have a bonus coming and will be able to pay off the debt at the end of the month.
Apps like Wallaby and Reward Summit are available today to help consumers optimize across several cards to help customers earn the most rewards. Account optimization lends itself as a bank offering, as opposed to a merchant (Walmart, Target, Starbucks) or a tech giant (Apple, Google, Samsung). Why? Because knowledge of the full range of a customer’s accounts, balances, and spending patterns are critical to making this application a killer.
As a step in the right direction, large banks have been announcing that their proprietary mobile wallets will allow customers to view account balances before a purchase.
As banks consider plans to offer a proprietary mobile wallet, they may want to consider how payment account optimization could help customers leverage their transactions—boosting mobile wallet usage and customer loyalty in the process.