U.S. financial institutions face a serious competitive threat from the rise of mobile wallet payments apps, according to a consumer study released Monday by Carlisle and Gallagher, a consulting firm that specializes in financial services.
A mobile wallet is a smartphone app that supports multiple paymentoptions, including credit cards, and potentially coupon offers andpurchasing wish lists as well. Google Wallet is the best knownmobilewallet, but PayPal hasdemoed its forthcoming offering and Apple is widely expectedto launch its own wallet app soon.
An April survey by the Pew Internet and American Life Project suggestedmobile payments will overtake credit card payments by 2020.
Nearly half of the 605 consumers Carlisle and Gallagher polledexpressed interest in adopting a mobile wallet. Of those, eight of 10would consider using PayPal, Google or Apple as aprimary provider offinancial services including banking and credit cards, with PayPal asthe strongest candidate. About 45 percent of those interested in mobilewallets said they would replace their bank with PayPal, and about aquarter would choose Google as their main financial institution.
The results are a powerful call to action for brick-and-mortarfinancial institutions given thatmost respondents expressed highlevels of satisfaction with their current banks, said Peter Olynick,Carlisle and Gallagher’s card and payments practice lead.
Consumers may not simply walk away from their banks as they adoptmobile wallets, Olynick noted. The apps however will likely erode thebanks’ relationship with their customers as the customers come toassociate banking with the app rather than their bank, he said.
Peter Wannemacher, an analyst at Forrester Research, agreed.
Appeals to younger, richer shoppers
“Financial institutions risk ending up as back-end funding sources formobile wallets and payment products owned by other brands, who operatethe front-end, consumer-facing aspects of the interaction andtransactions,” Wannemacher said in an email.
Consumers who were younger and those who were more affluent were moreinterested in shifting to mobile wallets, the study found. Both are keydemographics for financial institutions, according to Olynick.Consumers most interested in mobile wallet apps broke down into twogroups: those who think it will make shopping easier and those whothink it will make shopping more fun.
There’s no one-size-fits-all solution that will make all consumershappy, Olynick explained. “The shopping experience has to be richer andhas to be customizable by customer,” he said.
In order to remain competitive, the study found, financial servicesproviders need to ensure that their basic software systems areup-to-date to reduce lag time when they need to make changes to theirsystems. They also need to offer a wide range of financial features,including, for example, wish lists, deal management tools andlocation-based offers.
Traditional financial institutions will need to focus on convenience by”offering services to consumers where the benefits outweigh thebarriers to use,” Wannemacher suggested.
Banks may now have the advantage because they have proven securitymeasures and solid reputations, but as mobile payment offeringscontinue to proliferate, that could change quickly with challengers aspowerful as eBay, Google and Apple.
While “the mobile wallet space is financial institutions’ to lose,”according to Wannemacher, “the stakes are high, so banks would befoolish to cede ground to other brands.”
And Olynick emphasized that the tech companies offering financialproducts are formidable challengers.
“Some of these players are awfully big and they have deep pockets andthey have the ability to solve the security problem as well,” he said.
Cameron Scott covers search, web services and privacy for TheIDG News Service. Follow Cameron on Twitter at CScott_IDG.