By Brian Albright, Business Solutions magazine
With no standards in place, VARs/ISVs will need to be creative to take advantage of the expanding mobile wallet opportunity.
Point of sale (POS) systems have undergone a number of transformations over the years, but the basic forms of payment have remained relatively stable for the past decade: cash, checks, credit cards, and gift cards. That’s poised to change as consumers begin adopting mobile wallet (or digital wallet) solutions.
According to Transparency Market Research, the mobile wallet market is expected to reach 1.6 trillion by 2018, experiencing a compound annual growth rate (CAGR) of 30.7 percent from 2012 to 2018. Falling smartphone prices and the adoption of near-field communication (NFC) technology at the point of sale will help drive much of that growth. That means POS resellers and ISVs have to prepare to support the technology in their solutions and develop creative ways to leverage mobile wallet technology to help their merchant customers expand their own services.
At a very basic level, mobile wallets simply provide the ability to pay for goods and services using a mobile device (usually a phone). Right now, such solutions take a variety of forms. Many large banks have mobile wallet products, but so do Google, Apple, and a number of start-ups.
Some of these services are known as card containers; they simply store consumer’s credit card and loyalty card numbers. There are also mobile payment products that are built to access a single account (like PayPal). Other products are more interactive, allowing consumers to choose a specific payment type at the point of sale.
“We view mobile wallets as digital payment credentials, stored either in the handset or accessed via cloud gateways, and which can be used to execute a credit or debit transaction and also provide the consumer with electronic redemption of loyalty offers and coupons,” says Jeffrey Wakefield, vice president of business development and strategic initiatives at VeriFone Systems. Eventually, many of these products will include cash balances, coupons, or even medical records (for use with, for instance, a health savings account).
There are a number of technologies involved, including NFC and soundbased systems. Merchant systems will require some sort of matching acceptance application for each solution supported. “In terms of technologies involved, a mobile wallet could feasibly exist on any connected device having a secure method of storing, retrieving, and transmitting personal data from the device itself, in the cloud or whatever new technologies could be developed in the future,” says Ted Huff, director of product management at TSYS Acquiring Solutions. “The most important element of the mobile wallet is the device’s ability to be flexible enough to support a majority of connectivity solutions.”
Right now, there is no clear leader in the mobile wallet market, either in terms of specific vendors or the types of technology that consumers prefer. Consumers want safe, fast, and reliable technology, and merchants will look to their technology partners to help provide that.
“Patience and perseverance are keys in this evolution,” Huff says. “That being said, there is no clear timeline, but according to a recent Forrester Research report, by the end of 2017, U.S. mobile users will spend $90 billion via mobile payments, a 48 percent compound annual growth rate from the $12.8 billion spent in 2012.”
POS providers will have to address this emerging payment option, as will their retail clients. “The emergence of mobile wallets and value-added service options are requiring merchants and service providers — including ISVs, acquirers, and resellers — to devote more resources to managing payments in order to remain current and compliant,” Wakefield says. “Nobody can go it alone without diverting needed resources away from their core competencies, so they need to find the right partners. It is where payment is moving to, so they either have to figure out a way to play in the sandbox or dust themselves off and go home.”
Lack Of Standards
That doesn’t mean mobile wallets will overtake traditional credit cards anytime soon, particularly in the U.S. The lack of a clear mobile payment standard that includes hardware, the lack of a standardized user experience, poor communications, and incompatibility among platforms has inhibited growth. “Software and hardware manufacturers will have a hard time building solutions to accept mobile transactions until a standard is developed,” Huff says.
According to Wakefield, convincing consumers that mobile wallets are somehow easier and “better” than traditional payment options will be challenging. Some services offer advantages like automatically filling out loyalty or credit card information at the register, and some consumers may like not having to carry a dozen or more cards with them. Mobile marketing firm Vibes recently conducted a consumer survey about the technology and found that, for nonusers, the top reasons to try these tools would be better promotions/offers and better-organized content (like loyalty card numbers and coupons).
Others, though, won’t necessarily see the value. That, in turn, will slow merchant adoption.
“Merchants will only buy into these new payment methods and marketing programs if there is an easy way to manage this complexity at the point of sale,” Wakefield says. “You can’t expect merchants to reprogram (or recertify) their payment acceptance devices every time they want to add or subtract a wallet or the wallet provider updates its wallet app.”
Support For Multiple Technologies, Apps Required
The challenge for VARs and ISVs moving forward will be supporting the various types of acceptance applications within their POS hardware and software products. “In addition, there will be multiple methods of handling the interaction of the consumer and mobile device, with some wallets relying on NFC, some on bar codes, some displaying on the phone and being scanned on the terminal, along with offers being displayed on the terminal that need to be accepted by the mobile device,” Wakefield says. “Furthermore, it’s not just about payment, but integrating loyalty programs, coupons, and geo-location marketing. The VAR has to understand the entire landscape and come up with a solution that makes it easy to adopt new wallet apps without having to re-architect their solution every time.”
Since every wallet works differently, POS solutions providers will need to either try to pick which services/technologies will prevail in the market, or find a payment processing partner with a semi-integrated solution that can make it easier to support all or most of the available wallets. Some POS vendors are developing application managers that can help merchants handle the various NFC-based payment solutions now available, for example.
Resellers will have to be flexible enough to accommodate what will likely be frequent updates to their solutions to keep up with mobile payment technology until a standard is defined. While that increases the burden on the VAR, it also increases interactions with clients. Once the VAR or ISV comes up with a model that works for its own vertical market, it can use that approach to differentiate itself from competitors and potentially capture new sales and ongoing revenue from existing clients.