In my first post about mobile wallets, I highlighted that the mobile wallet offers more than mobile payments and something different than e-wallets. Although payments solutions are a fundamental part of the mobile wallet, and probably also the core enabler for it, the concept of the mobile wallet goes far beyond this. The mobile wallet is an integrator for all services that enable high-security authentication and handle sensitive personal data.
First, mobile wallets include everything today carried in the physical wallet—payment cards, personal ID, driver’s license, company ID and access cards, health insurance and social security cards, and even cash (in the sense of valuable assets like digital coins). Second, they involve all kinds of keys that are usually carried in our pockets, like the car key, the key to our home and other keys, such as for a hotel room. Third, they contain digital signatures and IDs to enable more secure Internet payments and other online authorization services.
The value proposition of the mobile wallet is to digitize these items and let the physical wallet disappear. Furthermore, these digitized services can be issued, controlled and blocked more flexibly over the mobile network. More important, they can be combined with each other and external services.
Let’s illustrate using the example of car rentals. Currently, car rental requires identifying yourself with a personal ID and authenticating that you’re a liable driver. Then you get a physical car key, and after car usage you handle payment. Imagine this scenario with a mobile wallet. Identification and authentication can be done with an ID service and the driver’s license stored in the mobile wallet or over the mobile network. The car key can be issued temporarily in the mobile wallet, and payment happens with the payment card stored in the mobile wallet. This lowers entry barriers for using such a service and allows a much more flexible handling of the rental processes. There are also no stationary offices required to serve the customer anymore. The whole car rental process suddenly becomes mobile.
First approaches in real life
As I mentioned in part 1, Google is aware of these opportunities with the Google Wallet. Although currently only a payment service is available, Google emphasizes that couponing and loyalty services are the main focus and will soon follow, providing detection and redemption by one touch, together with payment. The advantage for the user is that he has no need to carry around loyalty cards or coupons. Indeed, he can easily use any cards and coupons that he usually forgets at home or for which he simply does not have any space left in his physical wallet.
For Google, the advantage is even higher—by tracking the payment, the company knows which promoted products have eventually been sold by the retailer. And Google knows which loyalty schemes affected sales and how they affected it. In an information-based society, this is highly valuable information. Indeed, this information is or soon will be much more valuable than the fee for a transaction—the base of revenue in every traditional business case for payments.
PayPal is following a similar approach. The company recently started entering brick-and-mortar retailers with an alternative payment service that links the PayPal account to gift cards and stores’ private-label cards. Furthermore, PayPal intends to offer the customer additional information services, like finding alternative offers for scanned products, and intends to share more data with retailers such as purchases and shopping activities.
Another impressive example is Osaifu-Keitai, the first mobile wallet worldwide, which was commercially released by Sony and NTT DOCOMO in 2004—years ahead of other launches. Though pure payment services like credit card payments were expected to be the main business cases, it’s not all it’s cracked up to be. Instead, it was Kazasu Coupon, a couponing service of McDonald’s, that exceeded expectations, with more than 4.5 million new subscribers in 18 months. Also, prepaid card schemes of large retailers, like WAON, proved to be exceptionally successful when associated with points programs. Over 15 million users have subscribed for the service since its launch in 2008.
Future direction of mobile wallet
The traditional fee-based business model of the payments industry will probably be outdated in the near future. Innovative players will monetize payments and transactions by breaking up their isolation and combining them with other services to build new revenue sources. The mobile wallet will provide the fertile ground for that.
Couponing and loyalty services are probably the most obvious examples, but opportunities go far beyond. Banks can combine payment with customized product offerings at the point-of-sale—the insurance for the new car or the installment credit for the new television can be offered when payment for the core product is initiated. The core values of trust and security can be monetized by offering other core mobile wallet services like access keys, authorization and identification.
Indeed, in the world of social networks, identification is an asset that is becoming increasingly important and valuable. Data sharing about purchases and shopping activities is a revenue source that has, in the offline world of brick-and-mortar businesses, so far only scarcely been exploited in combination with payment transactions. Additionally, payment applications require a more flexible integration into other services. Open application programming interfaces (APIs) and interfaces for payment services will open up opportunities in enabling new, innovative mobile wallet services. Finally, the ones who can establish themselves as mobile wallet brands are the most powerful players in this future ecosystem.
The opportunities ahead can be illustrated by a new service provided by Tesco in South Korea. The retail chain recently introduced a new virtual shopping approach—posters of supermarket shelves have been installed in metro stations. While waiting for the next train, customers could choose products by touching them on the posters, and Tesco would deliver them straight to their homes. As a key enabler for this virtual shopping service, a payment service is required as well as an identification service that provides the home address of the customer or even takes care of product delivery. Combining these services in a mobile wallet would be a powerful value proposition for retailers like Tesco as well as for users. This example clearly shows that the wallet is not only about aggregating payment services anymore. It is about providing all kinds of authorization services and generating new business value by combining them.
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