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Mobile wallets: Friend or foe of the FI?

Posted by Sheera Eby on July 22, 2014

Mobile wallet functionality is expected to double within the next four years, leaving many financial institutions to wonder what their role will be in this newly mobile-driven industry.1 Are mobile payments a friend or foe? How can banks and other institutions take advantage of marketing for mobile payments?



Mobile payments are driven by convenience.

Mobile payments have been around for many years. Many of the first mobile wallets were driven by credit card companies themselves, such as MasterCard's PayPass system. Consumers desired a mobile solution for convenience. The ability to simply pay from a phone rather than having to swipe and sign was far preferable. There were also questions of security and fees; mobile payments kept their credit card, debit card and banking information a secret and usually carried no fee to the consumer.


Despite the fact that they are all called "mobile wallets," different mobile wallets function in different ways. There are three major types of wallet service available:

  • Independent. Services such as PayPal can be used without a bank account at all. Users can collect money into their PayPal account and then spend it using debit card transactions and mobile wallet transactions.
  • Debit or Credit Card Dependent. Services such as Google Wallet require that a debit or credit card, or a bank account, be linked to them. They then act purely as an intermediary device.
  • Banking Dependent. Services such as the increasingly popular Dwolla offer bank-to-bank transfer functionality without a debit or credit card needed.2 The money is deducted directly from one account and sent to another.


One thing that all mobile services share in common, however, is the fact that all of them require the vendors themselves to have a merchant account in order for the consumer to make a mobile wallet payment.



Could mobile wallets hurt the banking industry?
Mobile wallets are now a viable technology due to a push by major marketers such as PayPal, Apple and Google.3 All of these companies are promoting their marketing for mobile payments as a way to create direct relationships with consumers.


It is easy to see why many FIs view mobile wallets as a threat. Mobile wallets may be seen as dangerous because it is a push to operate independently of a bank. Should services like PayPal gain favor, consumers may be able to complete the majority of their financial transactions without even having a checking or savings account. Should services like Dwolla gain in popularity and use, entire transaction types such as wire transfers may even become obsolete.


Furthermore, consumers are increasingly afraid of the potential for identity theft. Consumers are advised not to use credit cards and debit cards online, which have promoted the popularity of online third-party payment solutions like PayPal and Google Wallet. To some extent, mobile wallet services are piggybacking over these necessary online merchant systems, and marketing for mobile payments is entwined with these other services.



Leveraging marketing for mobile payments for bank marketing.
There are significant indications that consumers want mobile wallets but do not want them to replace their debit and credit cards. In fact, only 33% of consumers polled by Credit Donkey wanted to actually supplant credit cards with mobile wallets.4 Consumers want to have all of the options available to them; they simply want to be able to use their existing debit and credit cards faster and with greater security.


With mobile wallets on the horizon and seemingly inevitable, the payments and financial services industry should to take advantage of this trend rather than walk away from it. Banks must understand the driving forces behind mobile wallet technology and how mobile wallet technology relies on banks to function.

With the exception of banking-independent mobile payments, the majority of mobile payments still require connectivity to a bank to operate. In fact, the growth of the mobile service Dwolla depends entirely on agreements forged with banks and credit unions.5 This gives banks a significant amount of leverage. Even theoretically independent services such as PayPal still gain a significant amount of functionality when they are connected to actual bank accounts.


The driving market factors behind mobile wallets are simple: convenience, security and lower fees. To exist in a mobile world, a bank must promote its own convenient, secure and cost-effective mobile services through comprehensive bank marketing campaigns. Banks that are found to be more mobile wallet friendly will have an edge with the mobile wallet savvy consumer.



Is the mobile wallet a friend or a foe?
Whether the mobile wallet is a boon or a bane depends entirely on how the financial industry reacts to it. As with any type of market disruption, there is a threat. The threat is that established banks and financial institutions may not be seen as "mobile wallet friendly"; consumers will then be tempted to move away. If, however, a bank can promote itself as compatible with and supportive of this new technology, it may simply be another way to gain marketing leverage.


To truly survive in this market, banks need to consider communications that address mobile wallet integration, but also grow adoption of their own mobile payment options. It isn’t enough for your financial institution to offer mobile payments. Bank and financial institution marketing teams need to make a serious commitment to growing adoption. Mobile wallets are not going away; they have been pushed for by the consumer market for many years. It is now up to the banking industry to take advantage of this trend.


Make it easy for consumers to adopt your FI’s mobile and online payment options. Ensure you are communicating to grow adoption of these services. Our experience in marketing for 3,600 financial institutions is that simplicity in stepping users through adoption of online and mobile payment services can deliver increased transaction volume and create stickiness.


To learn more about these best practices and learnings, sign up for our Formula 3600: Triggered & behavioral programs for online & mobile banking adoption webinar. The complimentary Formula 3600 webinar will share:

  • How to leverage payment and other banking trends to influence mobile and online usage
  • How to recapture abandoners from the enrollment process
  • How to leverage data for customized and secure communications that increase transactions
  • How to create a comprehensive behavioral lifecycle triggered communications program
  • How to target and reach customers when they are in the right mindset for banking services
  • How to transform other competitive banking options into an opportunity for your financial institution



Topics: Financial Services

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