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Payments go mobile: The gradual revolution
 

Payments go mobile: The gradual revolution

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Mobile solutions are seemingly everywhere these days, and laptops, ...

Mobile solutions are seemingly everywhere these days, and laptops,
tablets, and smartphones are enabling an “anytime, anywhere”
approach to business and personal lives. This is starting to include
payments. In news reports and ad campaigns, consumers are learning
that they can use their mobile devices to buy anything from a
Starbucks coffee or a Big Mac to office supplies, lumber, and clothing.
The age of mobile payments, it seems, is upon us. For more info: www.nafcu.org/vantiv

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    Payments go mobile: The gradual revolution Payments go mobile: The gradual revolution Document Transcript

    • Paymentsgo mobile:The gradualrevolution
    • Part of the Vantiv Insight Series 2012, featuring proprietary research performed by Vantiv LLC and Mercator Advisory Group © 2012 by Vantiv LLC. All rights reserved.
    • 3 Payments go mobile: The gradual revolutionMobile solutions are seemingly everywhere these days, and lap- about thetops, tablets, and smartphones are enabling an “anytime, anywhere” researchapproach to business and personal lives. This is starting to include The Vantiv/Mercator Insightpayments. In news reports and ad campaigns, consumers are learn- Series research focuses oning that they can use their mobile devices to buy anything from a understanding paymentStarbucks coffee or a Big Mac to office supplies, lumber, and cloth- trends and adoption rates for emerging paymentsing. The age of mobile payments, it seems, is upon us. methods. As part of this primary research effort,But things are not that simple. Mobile payments are indeed grow- Vantiv and Mercator Advi-ing. Yet, in spite of the industry and media buzz, it is likely to be sev- sory Group teamed up in early 2012 to survey 1,200eral years before the majority of consumers are using their phones consumers about how theyat points of sale. currently make payments and how they expect to do so in the future. In addi-That’s one of the key findings of recent Vantiv/Mercator research tion, researchers conductedexploring consumer and industry-executive views of the evolving in-depth interviews in thepayments landscape (see “Key Points,” page 4). The research found spring of 2012 with execu- tives from financial institu-that consumers see a bright future for mobile payments, with 62% tions and merchants tosaying that they expect mobile payments to be widely used within explore their perspectives on the changing paymentsfive years. Yet only 38% actually see themselves using mobile pay- landscape.ments by then.
    • 4 KEY POINTS Why the paradox? The research sug- gart, chief product officer at Vantiv. gests that although consumers see “The emergence of mobile payments 1 mobile payments becoming common in will enable consumers, merchants, and Widespread adoption will take the future, they can’t picture it in their financial institutions to do a variety of several years due to some daily lives. Some may lack a compelling payment activities in new and more ef- fundamental challenges. reason to change. Others see problems fective ways.” with security that make them skeptical 2 about using mobile devices to move To take advantage of these opportu- Consumers are concerned their money around. nities, merchants and financial institu-about security and don’t see a tions will need to move beyond to- need for mobile payments. And it’s not just consumers. Merchants day’s wait-and-see attitudes. “There and financial institutions also have is still reason to move cautiously, and 3 concerns about mobile payments and methods you can use to do so. ButWorried about costs, standards, how they will work and affect their that doesn’t mean inaction,” says and technologies, many businesses. They see uncertainty in Weingart. “To succeed with mobile merchants and FIs are taking a evolving standards and technologies, payments, they will have to under- wait-and-see approach. and are acutely aware of the impact stand these new approaches and of security problems. And they have technologies, take steps to be part of 4 questions about demand and solution this emerging world, and be ready toIncluding mobile payments will “stickiness.” As a result, many are un- deliver the mobile payments that theirbe key to the appeal of mobile derstandably cautious, and are taking a customers expect. Financial institu-banking platforms—and banks wait-and-see attitude. tions that deliver mobile services may have a leg up there. that consumers value—such as check But the issues slowing adoption will deposit—will have an advantage in the 5 eventually be worked out—and re- future.” Widespread adoption will search findings assure us that consum- depend on a compelling value ers will be ready. The Vantiv research Understanding the Growth proposition that offers more assessed consumers’ usage, interest, than convenience. and awareness of mobile payments, Curve and an analysis of those factors shows In the Vantiv research, a number of 6 that this method is at a critical tipping findings pointed clearly to significant Consumers are looking for point, where it is beginning to enter growth of mobile payments in the platforms that provide more the mainstream—and in five years, it is coming years. True, only a small number information, location-based likely to be a familiar part of the pay- of consumers are using mobile pay- applications, and rewards. ments landscape. ments today (1% to 4%, depending on the form). However, 50% of consum- 7 “Mobile payments may evolve a little ers are aware of mobile payments, and Merchants and FIs can take more slowly than people expect, but 23% are interested in using mobile incremental steps today to they will evolve—and it will absolutely payments going forward. Those levelsbuild knowledge and strategies. be a game changer,” says Bill Wein- of awareness and interest typically
    • 5 Mobile payments will be common Mobile payments will22% be 7%indicate that an emerging payment their even younger counterparts move Mobile payments will be common10% commonmethod is on the verge of widespread into the consumer mainstream, they 30%adoption. are going to drive increased usage.” 22% 7% 22% 31% 7% The research also found that tablet 10% 10% 30%An important driver of adoption will owners, smartphone users, and con- 30%undoubtedly be the ongoing prolif- sumers earning more than $100,000 a 31% 31%eration of mobile devices. Vantiv’s year were more likely to see a positiveresearch found that smartphone future for mobile payments. “Affluent I will use mobile paymentsownership at the beginning of 2012 consumers are interested,” he says. “So 37%was 45%, up from 28% in 2011. “This some of the best customers out there I will use mobile payments 18%year, smartphone market penetration for both merchants and banks will be I will use mobile paymentsis crossing an important line between looking for this.” 18% 37% 19%being an early-adopter technology to 37%being in the early stages of mainstream Today, the most common use of mobile 18% 8% 18%usage, with double-digit growth in the payments is via a mobile phone using 18%numbers of devices in use,” says Ben the mobile web or a retailer’s phone 18% 19% 8% 19%Love, vice president, Mobile, at Vantiv. app. However, says Love, “as mobile 8% ■ 1-2 years payments take hold, they will be used in ■ 2-5 yearsA deeper exploration of the findings a growing range of payment scenarios, ■ 5+ yearsshows other indicators of growth. For altering the overall share of wallet for ■ 1-2 years ■ No ideaexample, consumers ages 18 to 34 various payment methods.” ■ 1-2 years ■ 2-5 years ■ Neverare far more likely to think that mobile ■ 2-5 years ■ 5+ yearspayments will be common within five Indeed, the Vantiv/Mercator research ■ 5+ years ■ No ideayears, with 72% of this group believing shows that mobile payments will gain ■ No idea ■ Neverthat, compared to 61% for consumers traction in all major spending cat- THE MOBILE ■ Neveroverall. Fifty-six percent of respon- egories. For example, about 10% of PAYMENTS PARADOXdents in that age group said that they consumers said that by 2017, theypersonally expect to be using mobile expect to be using mobile payments Consumers like the conceptpayments by that time. As one execu- for small in-store and grocery purchas- of mobile payments but alsotive interviewed by Vantiv/Mercator es, displacing primarily cash and debit have doubts about actualresearchers said, “Mobile payments transactions. In addition, 9% expect usage. About two-thirds ofis a multigenerational thing. For older to use them for household expenses, consumers think that mobilegenerations, smartphones and iPads displacing mostly debit transactions; payments will be widely usedare a second language, but the young- 8% for large in-store purchases, dis- in five years or less. But onlyer generation expects more and more placing mostly credit; and 7% for online about one-third think thatto be digital.” purchases, displacing credit/debit. they personally will be using These percentages may actually be this method.“Today’s younger consumers are more low, because consumers tend to under-comfortable with the idea of mobile estimate future usage of tools that arepayments,” adds Love. “As they and currently unfamiliar to them.
    • 6Great moments The Obstacles because they allow consumers to use their credit or debit cards or a bank ac- in Mobile Altogether, these factors indicate that count to make payments, using a single payments mobile payments will grow very rap- point of access—the phone. Consum- idly, and very soon. But there are other ers are more interested in mobile wal- 1994 factors at play, as well—and they are let/phone payments at retail points of Online banking inhibiting that growth. sale than any other mobile phone pay- ment method. But security issues are 1997 A key obstacle is consumer percep- dampening interest in this approach, Vending machines take tions of smartphone-based payments. too, with 63% of those not interested SMS payments The research found that consumers in mobile payments citing security con- are concerned about problems such as cerns. Smartphone and tablet owners 1997 short smartphone battery life (53%), were especially worried on this front SMS-based mobile banking losing their phones (77%), and be- (79% and 80%, respectively). ing hacked (78%). With such issues in 1999 mind, two-thirds said that even if they It’s not just consumer perceptions Web-based mobile banking used a phone for payments, they would that are an issue. The broad merchant keep a traditional card as a backup. in-store infrastructure needed for 1997 smartphone payments is not in place Contactless payment Consumers’ greatest concern with today. Most existing POS terminals (Mobil Speedpass) smartphone payments is security. More are not equipped for near field com- than three out of four cited criminal munications (NFC) and therefore do 2004 hacking of phones and the resulting not allow users to tap or wave their NFC Forum founded compromise of account security as a phone near a device to make payments. real worry. “This does not seem to be a Some companies are exploring other 2006 matter of consumers being suspicious approaches, such as using closed-loop First NFC phone (Nokia) of a new, unfamiliar technology,” says prepaid accounts and a 2-D barcode Patty Walters, senior vice president for transactions at specific retailers. 2007 of Merchant Product and Security at But in many scenarios, adoption of Release of iPhone Vantiv. “Smartphone users and young smartphone payments will require new consumers are actually more likely than infrastructure—and merchants see 2009 consumers in general to be concerned that as a significant investment with an Mobile-phone households about smartphone security.” They are uncertain return, given the unsettled surpass landline households also more apt to say that even if they nature of the technology and related were to use smartphone-based pay- standards. 2010 ments, they would continue to carry Release of iPad cards as a backup. These issues are not insurmountable, but finding and implementing solu- 2011 The research found similar concerns tions will take time. For example, in the Google Wallet with mobile wallets. These apps are Vantiv/Mercator research, security was key to convenient mobile payments less of a concern among consumers if 2012 Isis Wallet
    • 7the retail store had its own app, such likely to increase interest in both NFC Criminalas the one offered by Starbucks, that and mobile payments.) hacking to get 78% payment datathe user could download for smart-phone payments. And technology Payments and Next-companies will continue to bring moresophistication to security, including the Generation Mobile Banking Losing phone 77%expected rollout of EMV chip-based As interest in mobile payments grows,security technology. “The increase in many in the industry see mobile bank- Would stilltokenization and encryption as well as ing apps as a ready platform for build- carry credit/ 67%the implementation of EMV will really ing out payments functionality. “Of- debit cardshelp address some of the immediate fering payment capabilities is a naturalconcerns with respect to fraud and se- extension of the mobile banking plat-curity when we move into new mobile form, and many banks are starting to Battery life 53%technology,” says Walters. pursue that in the form of wallet-based payments,” says Love. The inclusion ofThe lack of in-store infrastructure may mobile payments and wallets promises 0% 40% 80%change soon, as well. Current EMV to be key to taking mobile banking tomandates from MasterCard and Visa the next level.will shift liability for security breaches CONSUMERto merchants over the next few years— But banks are not alone in their inter- CONCERNS ABOUTwhich means security problems could est in mobile wallets. Other players SMARTPHONEScost major merchants millions of dol- have been working on wallet offerings, When thinking about mobilelars a year. Thus, they have a financial from Google and Apple to numerous payments, more than three-incentive to upgrade their terminal large retailers. “There are more than quarters of consumers havenetwork to comply with EMV require- 100 wallets in development or in pilot concerns about security, suchments. Merchants may decide that in the U.S. today, and that number may as hacking or losing theirthis upgrade is a good opportunity to be as high as 200 by the end of the phone. That lack of confi-also bring on NFC capabilities, which year,” says Love. (See sidebar, page dence leads more than two-are needed to support communication 12.) The result is a confusing array of thirds to say they would stillbetween phones and terminals. That options being laid in front of consum- carry plastic cards as a back-way, the merchant can leverage compli- ers—and that confusion is often trans- up to smartphone payments.ance-driven expenditures to move into lating to a lack of interest and uptakea payment method that consumers are of mobile wallets.going to expect in the coming years.(Of course, standards are evolving, Banks, however, have many strengthsand, while it is still not clear that NFC that they can draw on to differenti-will be the winning technology, it is an ate themselves in that crowded field.approach that many see as being the When it comes to payment methods,most viable. A number of executives security is always foremost in consum-interviewed noted that the release of ers’ minds. In a churning mix of mobilemore NFC-equipped smartphones is wallet options—many from companies
    • 8 Tablets: At Home on the Sales Floor Tablets such as Apple’s iPad, have found er wants and have the item brought to their way into a variety of retail settings, the floor, without having to leave the Aware 51% where they are used by salespeople to customer. The customer can then fill help customers—and, in a number of out his or her payment information on cases, to accept payments throughout the tablet and complete the sale via the store. secure, encrypted card acceptance. Interested 28% “There are still relatively few mer- Beyond support for sales and pay- chants actually using tablets for mobile ments, merchant tablets can contribute payments at this point, but many are to a satisfying customer experience evaluating this approach,” says Dean in a number of ways. They can, for ex- Seifert, senior vice president, Product ample, be used to deliver product and Used 17% Strategy, at Vantiv. And a number of availability information out to the floor, those merchants have deep concerns either to salespeople or to customers about having to change in-store pro- themselves. Tablets can also be linked 0% 20% 40% 60% cesses and handle the complexity of to CRM systems so that salespeople multiple mobile POS checkout points. can capture customer information for the merchant’s marketing efforts, and TABLETS TAKE OFF Nevertheless, payments handled retrieve customer preferences and his- through merchant-owned tablets are tories—including a customer’s interac- Merchant tablets may have likely to grow rapidly over the next tions in other channels—as they helpalready hit the tipping point, two years, according to recent Vantiv/ customers. One retail executive whose with more than half of all Mercator research. Already, 17% of company is planning to implement respondents aware of this surveyed consumers have used them tablet payments told the research- payment method and 17% for in-store payments. What’s more, ers: “We think mobile technology will saying they’ve already 51% are aware of this payment op- help us better engage our customers used it. This percentage is tion, and 28% are interested in using and we can help them in the aisles. We slightly higher among it. These levels are quite high—higher, also expect to have a profile within our smartphone users. in fact, than those of any of the other application to guide them around our emerging payments covered in the stores while they are shopping. We’ll research, including smartphone pay- have associates there to assist them ments, mobile wallets, and retailer and let them pay right there.” app-based payments. “Merchant POS tablets are clearly at the tipping point As they find their way into more retail of wide adoption—if not already past environments, the tablets themselves that point,” says Seifert. will evolve in various ways to fit the specific situation. Some might be The use of merchant tablets for in- “hardened” for home-improvement store payments can be highly cost- stores, others made waterproof for effective. They use the existing in- restaurant use, and yet others be highly stalled base of card-acceptance pro- specialized with limited functions to cesses, and the devices themselves are discourage theft. “We believe that one-tenth the price of traditional cash merchant tablets will be used by many registers. They enable salespeople to types of merchants,” says Seifert. “And sell and handle payments more effi- ultimately, they will change the way ciently and help shorten checkout lines stores operate.” during peak periods. Using the tablet, salespeople can quickly check invento- ry for a given product that the custom-
    • 9that are new to the payments space— play an important role in expanding thethose consumers may see their banks use of mobile payments. But the most Convenient 27%as a safe and simple wallet option. critical factor will be consumer behav-Banks already maintain consumers’ ior—whether consumers find mobilepersonal and financial information, payments appealing enough to changeso there is no need for consumers to their current habits.share that with other organizations.Convenience, too, is a factor: if a con- Today, many consumers simply don’t Reliable 23%sumer already uses a mobile banking see a reason to shift their payment be-application, it is easy to add payments havior. Just 1 in 4 survey respondentsto that and rely on that one device for said that they regard mobile wallets asa broad range of financial activity. convenient, and just 1 in 8 would prefer to use smartphone payments rather Secure 17%Overall, mobile banking is clearly an area than a card. “We are looking at mobileof focus for banks. In a Vantiv survey wallet apps, but our customers aren’tof financial institutions, nearly half clamoring for it,” one regional bank ex- 0% 15% 30%said that they expect to invest in this ecutive told researchers. “Why is wav-platform in the coming year. Already, ing something in front of a tablet faster NOT CONVINCED:banks are rolling out mobile check than swiping a card? When will there PERCEPTIONS OFdeposit, which enables consumers to be a mobile wallet app where custom- MOBILE PAYMENTSuse their smartphones to photograph ers will really ditch everything else andand deposit a check, and thus avoid a start to use it?” Consumers don’t seem totrip to the bank branch. “This makes it think that today’s mobilevery easy for the consumer,” says Love. “People have been using cards for de- payment methods of-“And banks like it because it helps them cades,” agrees Donald Boeding, presi- fer much more than creditreduce over-the-counter physical trans- dent of Merchant Services at Vantiv. cards. Only one-fourth oractions.” With continued investment, “It won’t work to say, ‘Now you can do less see mobile paymentsfinancial institutions are expected to of- that on your phone —problem solved.’ as convenient, reliable, orfer additional innovations in the near fu- There wasn’t really a problem to begin secure.ture. These will enable them to build on with. Merchants and banks have to pro-existing consumer relationships—and vide a compelling consumer experienceconsumer trust—to take advantage of and a clear value proposition for mobilethe growing consumer interest in both payments—one that offers more thanmobile banking and mobile payments. just convenience.”Connecting with Consumers One way to appeal to consumers is to offer them rewards, which can haveThe actions of banks and merchants— a real impact. In the Vantiv research,as well as technology providers—will 32% of consumers said that they
    • 10 AGE regarded rewards as a potentially ef- more features and functions to con- 18-34 57% fective way to encourage the use of sumers. The Vantiv research points to 35-64 33% mobile payments. That was especially some of the things that consumers 65+ 14% true of smartphone users (42%) and hope to find with mobile payments. those earning more than $100,000 Consumers select their payment a year (39%). “Once consumers try methods based on no- or low-cost GENDER a new payment approach and get (87%), their being fast (85%), and their Men 41% comfortable with it, they’ll move to it security (72%). Nearly three-quarters Women 33% more and more over time,” says Dean of that group (71%) said they are inter- Seifert, senior vice president, Product ested in tracking account balances to Strategy, at Vantiv. “But you have to control spending. INCOME get them to do that initial trial. So we Less than $50K 34% expect to see more rewards associ- In general, consumers expect mobile $50K-75K 33% ated with mobile payments to help solutions to put more knowledge at consumers overcome their reluctance their fingertips, to help them make $75K-100K 42% and skepticism.” better decisions about purchases andMore than $100K 43% payments, and ultimately to combine Doing so may not be that difficult. The increased control over financial activi- 0% 20% 40% 60% research found that for many consum- ties with their increased mobility. “We ers a 1% rebate at the point of sale think our customers are interested in would be an effective incentive for mobile payments and remote deposit Cutting-Edge adopting a new payment method—a capture now; they have been very Consumers more modest figure than many would vocal about this interest, and we will Who’ll be using expect. “Many financial institutions be implementing both within the next smartphones to make and merchants feel that it takes a 5% 12 months,” one credit union execu- payments in five years? to 10% reward to incent customer be- tive told researchers. “It’s particularly According to the Vantiv/ havior and get people to select a cer- important for small businesses. If the Mercator research: more tain type of payment method. But the boss is on the road with an iPhone or men than women, more research shows that it can be far less,” iPad and forgot to authorize payroll or Millennials than Boomers, says Seifert. “So banks and merchants forgot to pay a bill, all they do is open and more people earning may be overestimating what it takes.” up their application, click a few icons, more than $75,000 a year. and authorize release of payment.” Building the Compelling Value To offer more than just basic pay- Proposition ments via mobile device, merchants Rewards are good as far as they go, and financial institutions can take full but to truly build and sustain success advantage of that device’s mobility, with mobile payments, merchants using geo-location capabilities and and financial institutions will need to apps that predict consumer needs to provide a value proposition that brings provide a good experience to custom-
    • 11ers wherever they are. For example,merchants can offer coupons, credits, Micropayments: Empowering the Individualand discounts based on the individualconsumer and his or her location. A Micropayment tools let individuals make payments directly to one another,consumer in a store, for example, could electronically. But while ACH-based P2P payments are used regularly inbe offered a discount on something much of the world, that’s not the case in the U.S. In the Vantiv/Mercatorhe or she buys frequently, or someone research, only 3% of consumers said they are using mobile P2P services.passing by a retail facility could be sent Most small payments in the U.S. are still paper-based and handled viaa coupon for a sale item to encourage checks or cash.him or her to stop in. Mobile platformscould also include polling features that Why? For one thing, consumers don’t seem to be especially interested inallow consumers to quickly solicit the P2P. Forty-seven percent said that they don’t see a need for it, and 38.5%opinions of friends about a given prod- have security concerns. These responses may reflect a lack of familiarityuct. And as consumers make a mobile- with mobile P2P, with just 24% saying they had even heard of it.based payment, “frequent shopper”points can be added to their account Another issue is the time it takes to make a payment. With P2P paymentand an update sent to their phone. services that rely on the ACH network, it can take a several days for pay- ments to clear.“The days when you had to walkaround with a paper coupon or loyalty The industry is working to address these issues. “It’s possible that finan-or rewards card are going away. That cial institutions, for example, could use their existing debit payment ‘rails’will all be in the cloud and tied to the in reverse to enable real-time P2P—and benefit by charging a fee,” saysphone,” says Seifert. “Merchants are Vantiv’s Dean Seifert . In addition, “P2P has seen use among individualsgoing to recognize when you are in a making payments to tradespeople and other small businesses.”certain location and send you special-ized marketing within the store or as Several trends may increase consumers’ familiarity with P2P in the nearyou are walking through the mall.” Or, future. There is a growing number of banks, as well as providers such ason the other end of the spectrum, Amazon, moving into the P2P space. And the rapid spread of devices suchscanning attachments and apps can as Square, which let small businesses and individuals accept credit cardenable smaller providers, from plumb- payments with a smartphone, are increasing awareness of micropayments.ers to mechanics and musicians, toaccept secure credit card payments onthe spot, via their smartphone. tage of that to better reach consumers and deliver information and offers that“The fact that we have a computer in are specific to them. A retailer mightour pocket that knows who we are, send a discount that entices them towhere we are, and what we are doing buy a good or service at a store thatcreates a powerful opportunity for lots is nearby, and then they can actuallyof different players,” says Seifert. “So complete that purchase with theirmerchants and banks can take advan- phone.”
    • 12 The eWallet Question A key enabler for mobile payments is flects the evolution of banking over the the mobile wallet, which provides a past couple of decades, from branches single access point to an individual’s to ATMs to online and mobile banking,” cards and accounts for payments. But says Love. “Providing a wallet on the there are no wallet standards in place. mobile device is the next logical step In this environment, “everyone from the for banks.” biggest names in payments and the Internet to small startup companies is E-commerce wallets. Organizations getting involved,” says Ben Love, vice such as Amazon, Apple iTunes, and president, Mobile, at Vantiv. PayPal are interested in using wallets In $ billions to get into the physical, bricks-and- $300 mortar world and the offline purchase of goods and services. $250TOTAL TRANSACTION VALUE There are other types of wallets in the $200 mix as well; aggregator wallets, for ex- ample, let consumers consolidate their $150 various credit, gift, prepaid, and loyalty cards into one wallet. And single- $100 feature wallets have a narrow focus on doing one thing well, such as keeping $50 transaction fees low. $0 Many find this growing lineup confus- 2009 2010 2011 2012 2013 2014 2015 ing and a source of uncertainty. For Source: IE Market Research Corp. The result is a burgeoning number of example, a number of merchants have mobile wallets—a number that cur- taken a wait-and-see approach to in- OPPORTUNITY rently tops 100, and continues to grow. stalling terminals with NFC—in part be- KNOCKS It can be difficult to keep track of it cause of the battle among gatekeeper all, says Love, but an understanding of wallet providers. “One side wants the Mobile wallets are being who is offering what—and the motiva- NFC chip to be part of the mobile pursued by a range tions of those providers—can help. The device, while the other side wants it to of providers that are list of wallet contenders includes: be part of the device’s SIM card, which interested in capturing gives control to the wireless service part of the growing mobile Gatekeeper wallets. These are the provider,” says Love. Both groups, he payments market, which is “giants,” including Visa, MasterCard, says, are ultimately looking for control projected to rise to Google, and Isis, that are “jockeying for of valuable customer purchase data for $260 billion by 2015. dominance in the way NFC is used,” marketing purposes. says Love. NFC technology can enable easy smartphone wallet payments. At this point, it’s difficult to determine which mobile wallets will survive and Retailer wallets. These give merchants thrive. But, Love says, there’s an upside a way to leverage coupons and dis- to this fluid situation. “From a retail counts, and move from a broad mass- and banking standpoint, the fact that marketing strategy to a more individu- few players are taking sides is a good alized strategy to strengthen customer thing,” he explains. “Without any domi- relationships. nant player emerging, the field is wide open to those who want to be involved Banking wallets. “This approach re- in providing mobile wallets.”
    • 13Mobile banking, too, can be enhanced ogy, uncertain standards, and growing 51% Mobile phoneto provide a more compelling value consumer interest—present a complex payment 23%proposition—again, by taking fuller ad- picture. For merchants and financial 1%vantage of mobility. This represents a institutions, it can be difficult to knowlogical progression of mobile banking, how to move forward. One approach, Buying online 40%says Peter Kulik, vice president, Prod- notes Love, is to “understand what withuct Management, at Vantiv. Mobile your customers want, and use those smartphone 21% with appBanking 1.0 essentially involved ac- needs to build stronger relationships 4%tions such as sending a text message with them.”to the bank and getting account bal- eWallet 32%ances back in real time—“Cool, but not The Vantiv research suggests that payment with 20% credit orsomething that is going really catch merchants and financial institutions debit cards 1%consumers’ attention and change their may not be fully aware of the growinghabits,” he says. Mobile Banking 2.0 consumer interest in mobile payments.moved PC-based Internet banking In general, interviews with industry 28% Pay in storeonto the phone, allowing consumers executives showed that most mer- with app on 20% smartphoneto check balances and transfer funds chants feel that they already offer a 2%in a more convenient format—but not wide enough array of payment op-really do any more than they could with tions to satisfy current needs, and 0% 20% 40% 60%their desktop computers. few merchants or financial institutions think that their customers are ready ■ Aware ■ Interest ■ Use“We are starting to see Mobile Bank- for mobile payments at this point. Iting 3.0 starting to emerge” Kulik says. was clear that both groups foresee a“Mobile Banking 3.0 is all about imple- fairly long timeline for the adoption USE AND PERCEPTIONmenting new use cases that are inher- of mobile payments, with merchants OF EMERGING PAYMENTSently tied to the mobility and location expecting it to occur somewhat later Consumers are very aware ofsensitivities of mobile phones.” With and financial institutions expecting it and interested in various mobileMobile Banking 3.0, he says, consum- somewhat sooner. payment methods. But actualers will have features such as mobile usage is still relatively low, duecheck deposit and payments, alerts, But those perspectives are out of in large part to concerns aboutand personal financial management sync with the consumer view. As the security, the lack of infrastruc-functions such as budgeting tools, research shows, growing awareness ture, and a small installed base.alerts about overspending, and offers and interest indicate that consumersfrom third parties—all on one device. expect mobile payments to become commonplace in five years—andWhat’s Next? many expect that they themselves will be using them before long.The rapid changes taking place in mo- Merchants and financial institutionsbile payments—the evolving technol- appear to be lagging behind consum-
    • 14 ers when it comes to their outlook on providers that make more effective adoption. use of the mobile platform. Merchants also worry about third-party wallets Merchants and financial institutions do from organizations such as Google have a number of real concerns about and losing control in customer rela- mobile payments. Like consumers, they tionships because of the need to work see security as a challenge. But over- through intermediaries. all, executives interviewed from both types of organizations expressed opti- Such concerns are significant, but so mism about the ability of the industry too are the potential opportunities. By to provide sound security for mobile building mobile payment capabilities, payments—and even exceed cards in merchants and financial institutions that area, through the use of multifac- will be able to give customers what tor authentication processes. they want in payments—convenience, flexibility, and more information and Beyond that, banks worry about losing control. But these companies may also control of their payment networks to benefit from a better understanding third-party competitors, as so many of customers. With more payments players are now involved and technol- being handled through mobile devices, ogies and standards are in a state of more data will be available for analysis. flux. “The most challenging obstacle Merchants and banks can use this data is to figure out which payment types to assess consumer preferences and a bank with limited resources should behavior, thereby improving their ability mobile products’ offer,” said one regional bank execu- to reach customers. maturity status tive. “It’s a balancing act, picking and choosing which approach to take with A merchant, for example, might de- The speed of adoption of a limited budget. We can’t offer every velop an Amazon.com-like capability mobile devices continues type of solution that comes along.” to constantly track purchase behavior to be rapid, while the use For their part, merchants fear that and use the resulting insights to hone of financial apps on those mobile payment systems will be costly the offers and discounts it gives to devices follows a to implement and could steer con- consumers. “The relationships with traditional path. sumers to competitive products from customers are already there—people come into stores all the time,” says 100% Love. “But now, the mobile data allow you to know them better—to under- 90% stand what they buy, where. With that,JANUARY 2012 CONSUMER USAGE LEVEL 80% you start moving from mass marketing to individual marketing. You no longer 70% have to give people generic coupons or have a broad loyalty scheme that may 60% 50% ✦ Smartphones (iPhone intro) 40% 30% 20% ✦ Mobile banking* (initially SMS-based) ✦ Tablets (iPad intro) 10% ✦ Mobile P2P services ✦ Open and single-merchant e-wallets 0% 0 years 5 years 10 years 15 years 20 years YEARS IN U.S. MARKET Source: Vantiv/Mercator Insight Series Research, February 2012. * Data from Mercator Advisory Group Survey, October 2011
    • 15or may not be meaningful. Instead, can then be used to develop a larger 63% eWalletyou can give each consumer target- strategy. payment with credit or 4%ed, relevant offers.” debit cards As they explore, merchants and 27%Overall, financial institutions and mer- financial institutions should makechants have an opportunity to take sure that they are looking beyond the 54% Mobile phoneadvantage of the growing consumer obvious and conventional to con- payment at 6%excitement around mobile pay- sider the broader possibilities of this POS 31%ments—or run the risk of being left emerging payment method. “Whenbehind as others do so. “These com- the Apple iPad was introduced to 46%panies can lead the way for value- the market, it was perceived as a Buying onlineadded mobile payments by getting small personal computer—because with app on 6% smartphoneinvolved in early steps to engage that’s what everybody knew,” says 35%their customers, steer the technology Weingart. “Now, tablets are usedto their advantage, and encourage as vital work tools by airline pilots, 45%mobile payment adoption,” physicians, and a host of others who Pay in store with app on 6%says Love. would never have used a ‘small PC’ in iPhone their work, so it really created a new, 37%In such a fluid environment, mer- unforeseen model.chants and financial institutions will 0% 20% 40% 60% 80%benefit most by taking small, incre- “The rise of mobile commerce prom- ■ Security ■ Reliabilitymental “early steps” that are not too ises an even greater paradigm shift, ■ No need for servicelarge. In these initial stages of mobile Weingart continues. “The tendencypayment adoption, “it is very hard to today is to look at the mobile device WHAT’S HOLDINGknow what is going to happen next in certain ways—as a self-service THEM BACKin the coming years,” says Wein- tool, an ATM without the cash with-gart. “But holding still is not a good drawal, a device-based version of the When asked what limits theiroption.” With that in mind, he says, traditional debit or credit card. But interest in mobile payments,companies might seek the guidance it’s much more than that. It is a new consumers cited securityof a partner in the payments industry. kind of key intersection between the issues, especially with consumer and the bank or merchant, mobile wallet and in-storeSuch partners could help them and it is changing the face of busi- mobile phone payments.conduct pilot programs in a limited ness for merchants and banking Across payment scenarios,region, which doesn’t require a large forever.” a sizable number also saidbet on a given technology. This can that they simply don’t see ahelp them build knowledge and ex- need for mobile payments.perience and better understand theevolving landscape and how consum-ers are behaving as mobile paymentsevolve. Those accumulated insights
    • About VantivVantiv LLC is one of theleading integrated paymentprocessors in the UnitedStates. Known as FifthThird Processing Solutionssince 1971, the company,headquartered in Cincinnati,Ohio, changed its name toVantiv in 2011, and be-came a public company in2012. Vantiv’s credit, debit,prepaid, and data securitysolutions help businessesand financial institutions ofall sizes get the most out ofpayment activities. Vantiv Corporate Headquarters 8500 Governors Hill Drive, Cincinnati, OH 45249 866-622-2880 | www.vantiv.com TL0001 4/12