Mobile wallets change how we pay

The emergence of mobile wallets in various markets is increasingly paving the way for the support of mobile payments through the partnership of financial organisations with communications service providers.

This trend signals the coming of a new era and is likely to revolutionise the way we live and pay.

For instance, the Isis mobile wallet, a joint venture of AT&T, Verizon and T-Mobile, allows consumers to pay on the go with their phones, using NFC (near field communication) technology. While at present it is only available in Austin, Texas, and Salt Lake City, Utah, there are already hundreds of stores in these cities ready to accept payment using this new technology.

With NFC-enabled devices, customers can pay at the register by tapping their smartphone onto a NFC-enabled terminal. NFC is a short-range wireless technology that enables the communication between devices over a distance of a few centimetres. With a single tap, the person’s credit card details are securely transmitted to the terminal, along with information regarding entitlement to mobile coupons and loyalty cards, which is stored in the smartphone’s mobile wallet.

The growing popularity of digital wallets is also evidenced by the launch of the Vodafone SmartPass based on collaboration by Vodafone and Visa. This service will enable consumers to pay for goods and services by using NFC technology to process transactions. Vodafone SmartPass will be making its worldwide debut in 2013.

Users of the digital wallet can enjoy the convenience of shopping with their mobile phone in a secure way, without the need to carry a physical wallet. Digital wallets aim to hold much of the information most people carry in their pockets today: credit cards, bank debit cards, receipts, coupons and loyalty cards. The idea is to be able to use one’s mobile phone for paying for products or services while accruing loyalty points where all information is securely stored and can be accessed via one’s smartphone.

Electronic transactions from digital wallets offer retailers, service providers and financial institutions valuable information on customer buying patterns, allowing these stakeholders to use the data collected to offer a customer experience that is far more personalised and relevant to the individual consumer.

But as GigaOm’s Ryan Kim notes, what with Isis, Google Wallet, Square Wallet, Passbook, PayPal and mobile apps for purchases at specific stores such as Starbucks and Dunkin Donuts, “The increasingly crowded field highlights just how fragmented the mobile payment market has become. And that threatens to confuse consumers and merchants and may slow the adoption of mobile wallets in general.”

While the mobile payments market in Australia may not be moving as quickly as countries such as the US and Japan, research from Frost & Sullivan and PwC indicate that more than 57% of online Australian shoppers have increased their level of spending over the last 12 months via mobiles. This supports a Secure Insight: Consumer Discovery [PDF link] report by eBay and PayPal which found that mobile devices will have influenced $5.6 billion in retail sales in Australia in 2012, up from $155 million two years ago, pointing to the eventuality that Australia will see digital wallets becoming more prevalent in the next few years.

However, two recent announcements by Mastercard and Visa will be spurring on the Australian mobile payments industry.  Mastercard has announced Australia will be the first country in the world to use its MasterPass digital wallet technology, while Visa has announced a deal with Samsung to accelerate the use of Samsung smartphones as mobile payment devices.

For mobile payments at the point of sale to really take off, several success factors have to be met: consumers need to be offered real value in using their mobile wallets (like saving time or saving money) if they are to give up the convenience of the credit card; merchants need to accept such payments, which in many cases requires updating their point-of-sale software and terminals; and the right business model has to be found for all stakeholders to benefit from mobile payments - from merchants, banks, cards and service providers to technology providers.

Companies like Apple are also recognising the value in digital wallets with the company’s launch of its in-store payments app EasyPay in Australia, which allows for customers to pay for products that they’re buying in-store without ever having to consult a sales assistant.

Australia’s largest service provider, Telstra, is also considering ways to let customers check out their own purchases via mobile phone with the company currently trialling automated payments internally. According to Telstra’s digital executive director Gerd Schenkel, the main purpose of the automation is to cut down on the time that customers have to wait to be served by staff, thus enhancing the customer experience.

And while mobile wallets in emerging markets are proving more popular because they solve a real need for the unbanked population, Gartner research director Sandy Shen explained to Fierce Wireless’s Mike Dano that the ecosystem in most markets outside of Japan is still underdeveloped: “Not many ventures have demonstrated good success so far.”

But we are still many years away from popular adoption of NFC-enabled mobile wallets, with Apple’s decision to leave out the NFC-chipset in its latest iPhone, setting back the industry by a couple of years at least. A new white paper from Juniper Research and Amdocs reveals that remote payments enabled by direct carrier billing presents an immediate monetisation opportunity for operators and is found to drive impulse purchases among consumers.

So until the time NFC gains mainstream adoption, service providers can continue to capitalise on the popularity of direct carrier billing for app stores and digital goods, where consumers are exceedingly willing to make mobile payments without having to disclose their credit card details.