Are digital wallets the next thing in digital revolution?

Technology has had a beneficial impact on almost every aspect of our lives. Few would doubt that the digital revolution has taken place while many would argue that it has only just begun. The next stage in the transformation is likely to be the universal adoption of mobile wallets and payments. Although disruptive to existing payment processes, this paves the way for the introduction of more digital banking services that can benefit banks, their customers and the wider economy.

Global banking has harnessed the internet to reach out to potential customers and to deliver new services to existing ones. Customer expectations are high and increasingly set beyond financial services. Retailers like Google and Amazon offer a compelling online experience. The universal acceptance of social media means that customers expect the same level of interaction with their bank. Banks have responded by investing heavily in technology to deliver new digital services, often without a sound business case.

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The digital revolution has empowered financial services providers to chart new paths and to also attempt conventional things in new ways. Most banks have embraced the internet as a banking channel that provides customers with better information and drives self-service. From a bank perspective, this improves customer retention and profitability per customer. While commendable, this is only part of an emerging picture.

Bank customers have incorporated digital services into their busy lives. Increasingly, they interact with multiple digital services from a tablet or mobile device. So it seems a natural progression to adopt mobile wallets as a convenient way to pay and manage cash flow.

A mobile wallet helps individuals manage a broad portfolio of digital commercial services on a single device, and can support multiple payment cards, loyalty cards and vouchers, while allowing the user to retain receipts and improve record keeping.

World wallets war
There is currently a global ‘wallets war’ raging over ownership of the customer relationship, the brand and the customer data. The entrance of non-financial services companies has escalated the competition of ‘who owns the customer.’ This is likely to continue with increased adoption of smart phones and new market entrants. Mobile wallets offer users many benefits, including convenience and improved cash management. So what are the challenges?

The people who have adopted the technology today are pioneers. For many potential users, the move to mobile wallets is a big leap into the unknown with no stepping stones. As is often the case with new technology, there is a delay between deployment and mass adoption. The current challenges include education and awareness. In other words, it’s really just a matter of time before consumers have the confidence necessary to regard wallets as a true substitute for more familiar payment types.

However, there are few barriers to entry in the provision of mobile wallets. There is likely to be fierce competition as providers try to win customer loyalty. Such competition is good for consumers, but creates complications for banks. With low barriers to entry, banks have no guarantee of success in the mobile wallet space but must strive to add value to the payment process. Unlike traditional cards, the value of a mobile payment is not limited to the payment itself, but can include contextual information, such as the location of the purchase/payment, financial impact of a payment, or messages that enhance the payment experience.

Banks and payment providers that anticipate customer needs and add value to payments wallets will build customer trust and loyalty. They only will then have the potential to cross-sell more services. But, many banks will need help to get the technology right.

The author isMD, India and China, Fidelity Information Services.