When mobile wallets like Apple Pay arrived on iPhone home screens in 2014, the emerging technology was met with a mix of fear and skepticism. Three years later, this technology is no longer new and there are several trends in the works that are changing the future of mobile payment technology.
Early Innovators Still Rule the Day
Apple Pay streamlined and revolutionized mobile wallet technology pioneered by PayPal, with Android and Samsung releasing mobile wallet apps a year later. Even now, the four biggest mobile wallet companies are PayPal, Apple Pay, Android Pay and Samsung Pay. All four systems can be loaded with credit and debit cards and used at tap-and-pay retail locations around the world.
With the average American juggling a wallet packed with cash, receipts, loyalty cards and more than four credit and debit cards, it’s no surprise that innovators from Silicon Valley to Wall Street began looking for ways to help consumers get by with nothing more than a smartphone.
How Walmart Pay Works
This goal has spawned a wealth of mobile wallet apps — from Capital One Wallet and Walmart Pay, to Gyft gift card manager and the loyalty card app Key Ring. Storing your loyalty cards, debit cards and credit cards all on one seamless device, most mobile wallets are free to download and use. The best mobile wallets give you the option of storing a variety of cards, including cards from national and local banks, as well as store-branded cards, consumer loyalty cards and even gift card numbers and balances.
The Big Banks are Coming
Set in their ways, many traditional banks failed to understand the promise and possibilities of mobile wallet technology. Now major financial institutions like Chase and Wells Fargo are entering the market with new field communication (NFC) technology that allows phones to wirelessly transfer data directly to ATMs.
Joining Barclays and Capital One, banking giant Citibank recently launched Citi Pay — enabling consumers to make online, in-app and ATM payments via NFC technology. Though they are slow to enter the mobile wallet market, the clout of big banks cannot be underestimated. With years of consumer trust locked in their vaults, traditional banks remain the financial institutions consumers trust most.
And since banks will not have to spend money to acquire new customers, mobile wallets are poised to become yet another service in the bank-to-consumer relationship. As competition in the mobile wallet wars heats up, expect more big banks to enter the market in the years to come.
Trust in Mobile Wallets Will Increase
As financial apps like Venmo become more and more popular, mobile wallets will likely gain traction as trust in the technology increases. While many smartphone users avoid wallet apps due to security concerns, most mobile wallets use tokenization and encryption technology to secure point-of-sales transactions.
Mobile wallet security is so strong that the biggest threat isn’t theft during the transaction process, but loss of the phone itself — making PINs, thumbprint technology and Find My Phone technology vital. And since mobile wallets utilize NFC technology, there are no cards for thieves to steal.
Android, Apple and Samsung utilize tokenization to protect data during a transaction, so the details are encrypted, sent to company servers and only decrypted when the card’s payment network is identified. The data is then re-encrypted and assigned a Device Account Number. This number can’t be decrypted or stored by the device manufacturer, and it is kept separate from the phone’s operating system and isn’t backed up in the cloud.
Still, no technology is without risk. Verification lapses between banks and Apple Pay have resulted in a small number of hackers linking accounts to Device Account Numbers. And with only 9.6% of users making mobile wallet transactions last year, widespread adoption is still a long way off. In a 2015 survey by market research firm Walker Sands, only 1% of respondents viewed mobile payments as secure — behind cash, credit cards, debit cards, digital currency and checks.
Mobile Wallet Uses Expand in 2017
While many merchants will not upgrade to contactless POS equipment without widespread consumer adoption, many customers aren’t using the technology because it’s not widely accepted by merchants. Regardless of the reasons, there are many signs that this stalemate is coming to an end and the tipping point for mobile wallet adoption has finally arrived.
With Apple Pay gaining one million new users per week, more and more consumers are realizing the benefits of fast, seamless, frictionless payment technology. And as government regulations shift fraud liability to merchants who fail to adopt EMV-capable equipment, these new POS systems come with NFC technology built in, ensuring they can accept mobile wallet payments from apps like Apple Pay and Android Pay.
For years traditional banks have competed with banks down the street, but increasingly they are being challenged by the apps in consumers’ hands. This new competition is forcing traditional banks to transform their mobile and digital strategies and rethink what it means to be a bank. In the coming years, banks will attempt to meld their trusted reputations with emerging mobile and digital technologies.
Businesses Will Get on Board
Over the next decade mobile wallets are poised to gain traction among small and large businesses alike. They provide businesses with yet another payment channel — making it easier for consumers to spend money and retain customer loyalty since one in four digital wallet users reported a willingness to switch to a business that accepts mobile wallets.
Beneficial to businesses, PayPal has the largest customer base, and Samsung Pay works with existing magnetic stripe terminals. Adding to the appeal of mobile wallets, Apple Pay and Android Pay are poised to experience a 200% increase in mobile payment transactions in 2017, making them top options for businesses looking to switch to NFC-enabled POS systems.
Protection in the Age of Mobile Wallets
While the mobile wallet marketplace remains fragmented and customers remain loyal to traditional forms of payment, mobile loyalty cards will lead the way toward a consumer landscape driven by mobile wallets. By 2020, transactions made using mobile wallets will reach $503 billion — marking an annual growth rate of 80% between 2015 and 2020.
Point-to-point encryption (P2PE) will remain a vital security technology in the mobile world, as its purpose is to encrypt payment card data immediately upon entry within the POS terminal. In combination with EMV chip technology and tokenization, P2PE is keeping consumers and businesses safe in a financial landscape that may eventually be defined by mobile wallets. To keep your company safe and secure in the future, contact Bluefin today to learn more about our seamless P2PE encryption solutions.