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More than half of mobile wallets to feature contactless payments: Juniper

While mobile-enabled contactless payments have been lagging, this could soon change, with more than 50 percent of wallets in developed markets – and more than a third globally – expected to rely on contactless technology by 2018, according to a new report from Juniper Research.

Mobile wallets leveraging near field communications technology were first out of the gate on the contactless front but have been slow to gain adoption by retailers and consumers. However, mobile contactless payments are expected to get a boost from Apple’s anticipated launch of a wallet as well as the introduction late last year of Host Card Emulation technology, which is helping to make NFC more widely available.

“From a contactless payments perspective, we expect to see two key disruptive factors at work over the next few years,” said Windsor Holden, research director at Juniper Research, Hampshire, Britain. “The first is HCE, which enables the creation of a secure element which can be based in the cloud rather than on the SIM or embedded in the handset.

“The second factor will be the iWallet,” he said. “While Apple opted not to include NFC in the iPhone 5, I’d expect the iPhone 6 to feature some kind of contactless payment mechanism – although probably reliant on BLE/Wi-Fi air interfaces rather than NFC.

“While this will certainly be competing with the various NFC iterations, it should provide a boost to the wider contactless payment market, in exactly the same way that Apple gave apps in general a fillip with its App Store.”

Two wallet models
The report, Mobile Wallets: Strategies for Developed and Developing Markets 2014-2019, also forecast that one in five mobile handsets – or 1.5 billion – will have mobile wallet functionality by 2018, against less than 1 in 10 at the end of last year.

Mobile wallet growth is expected to be driven by two distinct wallet models.

In emerging and developing markets, stored value accounts are increasingly enabling first time financial access for unbanked individuals. As a result, there is expected to be a surge in such deployments across sub-Saharan Africa, developing Asia and Latin America.

In North America and Western Europe, mobile wallet launches are increasingly expected to feature contactless payment functionality, driven by Apple’s expected launch of a contactless mobile wallet and HCE, which threatens the role wireless networks in the contactless value chain.

P2P payments
To date, wallet adoption in North America has been led by the banks and closed retailer wallets such as is offered by Starbucks. Financial institution apps are responsible for the majority of wallets in Western Europe.

Another factor driving the growth in mobile wallets will be high-profile person-to-person payment initiatives such as Paym in Britain, which can be integrated into customers’ existing mobile banking or payment apps as an additional way to pay.

In the U.S., P2P will be driven by a number of startups, such as Venmo and Dwolla, which are targeting younger demographics.

Another key finding is that China’s Alipay now has more than 100 million wallet users.

“[HCE make NFC] far more attractive to financial institutions, who thus do not have to engage with carriers, which in turn may each be dealing with a separate TSM, and who can retain control of their customers. HCE-based SEs have also been endorsed by Visa and MasterCard, alleviating some of the concerns around security,” Mr. Holden said. “I’d expect to see far more FI deployments far more quickly as a result.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York