The incredible potential of mobile wallets and threats towards its adoption
Mobile wallets take the form of an application on a mobile phone containing the user’s bank account details and/or card information. This enables the user to issue transactions just by using his/her mobile phone, often as easily as with a tap or by entering a security pin. The concept of mobile wallets appeared as early as 2004, when Japan’s NTT DoCoMo introduced its “Osaifu-Keitai” (aka. “Mobile Wallet”) — one of the first pioneers of the mobile wallet. But it wasn’t until the mobile wallet wave in 2011, the year that Europe’s QuickTap, MasterCard’s PayPass, Visa’s PayWave, Google Wallet and Android Pay were born, that the trend really kicked off around the world.
While these companies clearly see the benefits of mobile wallets, getting consumers to adopt this new payment method is a challenging task. Many people who have used other mobile payment methods prior to the launch of mobile wallets still find the idea of storing bank and card information on their phone to be daunting. Looking at some of the most successful mobile wallets around the world, it can be concluded that clever marketing and social influence are key factors for establishing a user base. For example, consider WeChat: Their payment feature was launched in August of 2013, however, the number of users of the mobile wallet stood flat until WeChat debuted a “Red Envelopes” feature. The feature was launched during the 2014 Chinese New Year through partnering with China Central Television’s heavily watched Spring Festival Gala. Throughout the show, viewers were prompted to shake their phones for a chance to win a combined $80 million in red envelopes from corporate sponsors. The red envelope feature kick-started the adoption of WeChat Pay, and in the one month, the number of users using WeChat Pay more than tripled from 30 million to 100 million. While mobile wallets have seen an amazing adoption rate in Asia, America is lagging behind — — and remains a frontier of potential.
How wallets are changing the shopping experience
Mobile payments and mobile wallets present a huge opportunity for businesses, and as a result, for everyday consumers too. The global mobile wallet market is projected to reach US$5 billion by 2022, growing at an astonishing compound annual growth rate of 40%. Mobile wallets provide merchants with an opportunity to access customer information and target specific customer groups through various incentive programs, such as discount coupons and rewards programs, which can be conveniently loaded onto the mobile wallet. This allows businesses to offer a much more personalized marketing strategy to customers, and is more likely to enhance customer engagement. Mobile wallets also lead to another huge trend in mobile commerce: Conversational Commerce, the combination of chat threads and an online community with mobile commerce. According to Chris Messina, former Developer Experience team leader at Uber, “Conversational Commerce is about delivering convenience, personalization, and decision support while people are on the go, with only partial attention to spare.” Put more simply: we all text more than ever, so why not expand texting’s potential to sending payments, buying products, ordering on-demand services, paying bills, and more?
After the concept of conversational commerce was created by WeChat, many big names are following closely behind: SnapChat has introduced SnapCash, Line developed LinePay, Apple Pay is partnering with Telegram while also developing Apple’s own messaging platform called Business Chat, and Facebook Messenger is also including in-app purchases.
Barriers to adoption
Mobile wallets provide a comprehensive package for payments, including easy online payment, physical in-store payment, and peer-to-peer money transfers. And yet, the growth of mobile wallets has been slow. A survey looking at reasons for why some consumers haven’t picked up mobile wallets shows that 47% are concerned about security and privacy, and 45% say that mobile wallets don’t provide enough additional benefits to bank cards.
Security risks and recommendations
Mobile wallets can make payments in two main forms: proximity payments (e.g. tap) based on near-field communication (NFC), and remote payments, which can be carried out through an online payment portal, and by scanning barcodes or Quick Response codes (QR codes). This payment process is relatively more secure than bank cards, with password protection, digital tokenization, fraud monitoring with payback systems, and recently introduced biometric authentication. One security risk that does exist with increasing popularity of QR codes is scanning scams. Scammers may substitute real QR codes with bogus ones by placing a QR code sticker on top of real QR codes in public areas. Victims who scan the fake QR codes are directed to malicious websites where they may be prompted to provide personal information or where malware may be directly downloaded to the victims’ smartphones. This risk can be countered by encouraging users to be vigilant and take the following precautionary steps: be wary of scanning codes in public places; check first to see if a code is on a removable sticker; don’t provide personal information through QR code scans, and use a scanner app that checks the QR code destination.
While transaction details are relatively safe, security problems are mainly caused by internal control failures. A flaw with Apple Pay reveals that problems can arise when payment cards are added to the service by the user. The process begins with the user taking a photo of the card, which is then processed using OCR software in the app to extract banking information, or just having the user manually enter the information as an alternative (in which the card need not be present). The details are then sent encrypted to the relevant bank, where they get approved. Sometimes, approval is granted without proper further checks, which has made it easy for criminals with access to dumps of stolen payment card details to exploit those accounts. A potential solution to these risks that arise from the inclusion of third parties (e.g. banks) is to have these third parties implement blockchain identity protocols, and perhaps, eventually, replace these third parties with blockchain technology, where transactions are directly between the two parties and transaction details are recorded in a public ledger.
Conclusion
Mobile wallets are powerful tools to consumers and businesses alike, especially when combined with a social platform to implement conversational commerce. Currently, the largest barrier to widespread adoption is security concerns, which may be overcome as people become more educated on mobile wallets, and as companies gradually integrate blockchain technology into mobile wallets. Otherwise, key factors determining a wallet’s success include its marketing strategy and socio-cultural integration ability. The future remains bright, and it is an exciting time to witness how the development of other technologies will affect mobile wallets and further change the payments industry in the next few years.
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