By Eden Zoller, Principal Analyst Ovum
There has been an explosion in mobile wallet launches and announcements over the last 18 months that shows no sign of abating.
Mobile wallets stand at the intersection of payments, retail and advertising, and the opportunities this presents is creating a lot of excitement.
Mobile wallets are also a rich source of customer and transaction data that is a revenue-generating asset in its own right.
Operators can leverage this data for advertising purposes and to better position and personalise mobile wallet value added services.
There is clearly a lot up for grabs, and it is little wonder that so many players want a controlling stake in the mobile wallet value chain, as the winning service providers will be in a position of considerable power.
But the buzz is blinding many to the fact that mobile wallets are challenging propositions that are difficult to get right.
The hype is also encouraging certain companies to take an opportunistic approach and attach the mobile wallet label to services that are nothing of the sort.
The foundation of a mobile wallet is support for proximity mobile payments and monetary/value accounts of some kind.
But this is just the starting point for a mobile wallet service, which in our definition goes beyond a core mobile cash account and instead acts as a container for a range of complementary applications that are integrated with the core payment service.
There is also an increasing focus on combining proximity payments with remote payments.
Mobile wallets should be strongly branded and designed from the ground up.
They are complex propositions that bring together a wide range of functions, service and support elements.
For an operator, there are a lot of moving parts to manage, many of which will be outside of their core competencies.
Mobile wallets have the potential to generate an unprecedented flow of detailed customer data but service providers must be extremely careful in how they leverage this.
Service providers will have to manage consumer concern about how their data is used and shared, along with the service's vulnerability to privacy and security breaches.
There is also the contested question of who controls the data, as it originates from a number of sources.
For example, financial service providers are the traditional guardians of consumer financial information, while operators have access to detailed mobile-specific consumer demographic and behavioral data, and merchants have access to purchase history and loyalty scheme data.
Ideally these various data sources need to be aggregated and cross-referenced to yield maximum value – but no player wants to relinquish ownership or control.
Presuming that consumers can be persuaded that mobile payments are the way forward, there is still the question of how many mobile wallet services can thrive and survive in the longer term.
At the moment we are witnessing a proliferation of mobile wallets but clearly the market cannot support an infinite number.
Consumers are in danger of becoming overwhelmed by choice and/or confused, particularly as most mobile wallets offer similar services and include many of the same credit card payment networks.
It can be even more bewildering for a consumer when network operators offer individual mobile wallet services, but then also pitch services to them in partnerships with other operators.
This is particularly pronounced in the UK.
Associated with this issue is the question of whether consumers will want multiple wallets – in other words, will they consolidate their loyalty and spending with one mobile wallet or adopt several given that they can in theory all be accommodated on their phone.
We think the most likely scenario is that consumers will gravitate to one or perhaps two mobile wallet services.
Furthermore, the business model for mobile wallets is challenging.
There are fundamental questions over how substantial revenues can be when the size of most mobile wallet transactions is small, and where margins can be seriously eroded by revenue share agreements between parties and/or by costs incurred by transaction processing fees when payments are related to credit or debit cards.
Operators are also looking to drive revenues from complementary VAS/applications, but given that consumers are unwilling to pay much for applications it is doubtful that revenues will be significant, although VAS do generate value in indirect ways such as increased engagement and loyalty.
Mobile advertising is also being woven into the mobile wallet revenue mix, and although promising it will be hard to execute.
Mobile wallets present some compelling opportunities but the excitement is also generating a lot of hype, clouding the fact that mobile wallets are difficult to execute well and have serious obstacles to overcome before they can become mass market.
Unless the industry becomes more aware of exactly what is at stake – and acts on it – then the longed-for scenario where people leave their traditional purses at home in favor of mobile wallets will never happen.
This opinion piece is based on some of the key findings from Ovum’s new report, “Mobile Wallets Unwrapped”.
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