At the BAI Beacon conference earlier this month, I had the opportunity to hear Ron Shevlin talk about Maslow’s Hierarchy of Needs. He was talking about it in the context of platformification, but it got me thinking about how we might leverage a similar analogy in discussing mobile wallets.
In Maslow’s original treatise, the hierarchy goes from basic survival needs (air, food, water) all the way to self-actualization. For mobile wallets, we can think about four levels:
- Wallet availability
- Merchant acceptance
Wallet availability. It’s safe to say that this first and most fundamental need has been met to a practical degree. Almost anyone who has a smart phone manufactured in the past five years has a number of wallet options. Admittedly, not all wallets are available on all phones, but most have several options. Older phones are still lagging (looking at you, Blackberry), but those users will presumably upgrade at some point. In 2016 alone, 20 wallets have launched between merchants, banks and technology providers, and no slowdown is in sight.
Merchant acceptance. EMV adoption has been both a blessing and curse to mobile wallet adoption. A blessing in the sense that merchants in the US had to upgrade its terminals to comply with the EMV rollout, and most of these terminals have the ability to accept mobile wallets as well. The curse is two-fold. First, the rollout of EMV has been much slower and confusing than anyone expected. Merchants were a bit late in getting the new terminals, and there has been a backlog in certifying them. Most customers have chip cards but are unsure when to use them. Who hasn’t walked up to a checkout and had to ask whether to “swipe” or “dip?” This delay is taking merchants’ focus away from acceptance of both contactless plastic and mobile wallets. Second, EMV is intensifying the debate between merchants and banks over interchange. We have already seen multiple law suits and counter suits over interchange this year, and we should expect those battles to continue until both sides come to a fair understanding of the investment return and the real risk of these transactions.
Security. With nearly 75% of consumers worried about the security of mobile transactions, this issue remains a real barrier to adoption. A recent study by Oxford Economics — commissioned by NTT DATA and Ingenico — revealed that consumers like mobile wallets and mobile payments but are concerned about their security. They are concerned about possible loss from an individual transaction, of course, but more importantly, they are concerned about loss and disruption from identify theft and fraud. The study showed that almost 75% of consumers say guarantees against monetary fraud would encourage them to use mobile payments, but only 44% of businesses currently offer or plan to offer such guarantees. While transactions backed by credit and debit cards already have similar types of guarantees, there is more education and action required on the part of merchants and financial institutions to quell consumer fear about security.
Value. The first three levels of this hierarchy are really about removing “negatives.” Finally, we get to the reason consumers should actually use a mobile wallet. But first, it’s important to consider the different types of wallets. There are two types of credit cards that continue to be used: bank-branded cards and private label/co-branded cards. Most consumers have a mix of both. For the stores that they frequent, they will get and use private label/co-brand cards. These cards provide the best rewards to loyal customers. For the retailers they visit less frequently, consumers will leverage one or more general-purpose cards. Mobile wallets will follow a similar path, with consumers getting a single-purpose mobile payment app for their favorite stores (e.g., Starbucks) and using a general purpose wallet for everything else (e.g., ApplePay, Android Pay, Chase Pay).
These two wallet types will take differing paths to provide value to the consumer.
- Merchant mobile wallets will focus on the shopping experience. We are already starting to see merchants offer advanced ordering, free delivery and first access to sales. Merchants want customers to focus on the end product and make the payment transaction as “frictionless” as possible.
- General purpose mobile wallets provide a different kind of value. For these transactions, it is about leveraging data to the benefit of the consumer. For example, a bank provider can leverage information about the consumer’s accounts, balances and transaction history to make a recommendation about which account the consumer should use for a particular transaction (e.g., debit, low APR credit, reward credit, home equity).
While climbing the four steps of the mobile wallet pyramid may not bring us to self-actualization, it should help us finally realize the long-predicted growth in mobile- wallet adoption. And that is something that has the power to make everyone’s life a little better and easier — at least while we are shopping.