Opportunity closing for banks in mobile wallets as PayPal, Visa surge: report
Financial institutions need to move soon if they are to secure a role in the quickly growing mobile wallet space now that PayPal and Visa have become the preferred providers among consumers, according to a new report from Javelin Research.
In 2015, primary financial institutions dropped out of the top spot for the first time in terms of consumers’ preferred mobile wallet provider, replaced by PayPal and Visa. However, banks have a unique opportunity to differentiate themselves with a seamless enrollment experience that taps existing credentials and payment card information if they can move quickly.
“Following the lead of Capital One and Chase, more banks will wade into this space in the next year – including some of the largest issuers in the U.S.,” said Emmett Higdon, director of mobile at Javelin Research. “Cautiously, at first, but more aggressively as we see the landscape come into clearer focus with some consolidation of the competing technologies.
“Once Chase Pay goes live, we will get a much clearer read on how effective they are at getting their existing mobile bankers to begin using their wallet,” he said. “Those users are the obvious first targets for any bank-branded wallet.
“We will see a much greater focus this year on the customer experience of the mobile wallets, and less on the technology.”
Quickly changing landscape
The report, What’s in your Mobile Wallet? Lessons from Bank-Branded Wallet Pioneers, shows that in 2014, 45 percent of consumers preferred their primary financial institution to be their mobile wallet provider, making banks the leader here.
However, things changed significantly in the following year as a number of mobile wallet solutions hit the market, many from outside of the financial arena, while banks sat on the sidelines.
As a result, the preference for banks as mobile wallet providers grew only 6 percent between 2014 and 2015 while preference for PayPal grew 21 percent and Visa 29 percent. As a result, 63 percent of consumers in 2015 said PayPal was their preferred mobile wallet provider and 56 percent named Visa, making them the leaders.
MasterCard also put in a strong showing, with preference growing 20 percent and 48 percent of consumers showing a preference for it, just behind the 51 percent who prefer their primary financial institution.
Mobile payment adoption is still moving slowly but there is enough proof that neglecting it would be a mistake for larger financial institutions, according to the report.
Payments made through mobile wallets are expected to reach $54 billion this year.
Banks face some tough choices in the mobile wallet space, such as which technology to get behind. The two dominant payment schedules are host card emulation, or HCE, and bar codes. The former is only available on Android devices while the latter provides a complicated checkout process.
The two major bank wallets currently available are Chase Pay and Capital One Wallet.
Chase Pay has partnered with MCX, a consortium of merchants, giving its broad retail acceptance and support for merchant offers and rewards. Chase Pay has also enrolled more than 90 million existing cardholders and supports Apple Pay and Samsung Pay, with Android Pay coming online later this year.
Capital One Wallet leverages HCE, meaning its potential user base is limited to Android. However, the app offers a number of key banking features, including spending tracking, alerts and the ability to turn a linked card on and off.
“PayPal has a natural advantage in customer preference as a wallet provider due to the breadth of existing relationships they have as a digital wallet provider,” Mr. Higdon said.” If customers are already using “checkout with PayPal,” it’s a small leap for a user’s to adopt the company’s mobile wallet.
“But the biggest growth in the past year has been with both Mastercard and Visa,” he said. “When consumers think about payments in general, these two brands are household names to most consumers.
“With most of the major bank brands sitting on the sidelines as wallet providers, it is not surprising that the card networks have seen the most growth. To be clear, more than 50 percent of consumers still cite their primary bank as their preferred provider of a mobile wallet.”