In our first article, we looked at the benefits of an e-wallet from a customer viewpoint. Today we’ll examine how wallets are being adopted globally. Current research on digital wallets focuses on demographics and behaviors and what their implications are for your brand.
Slow to Start, but Momentum is Gathering
Mobile wallets offer tremendous opportunities both for a customer and retailer, but their acceptance has slowly taken off. As recently as 2015, Forrester Research stated:
Despite the accelerating rate of disruption and innovation in mobile payments, no-one including Apple, has yet cracked mobile wallets.
However, at the start of 2017, the tide is turning. While there are several factors still delaying adoption, the growth of mobile payments is accelerating, as shown in the following graphic from Statista.
While mobile payments include proprietary bank apps, consumers who are happy to make mobile payments will soon come to adopt mobile wallets – if they have not already done so – because of the convenience and added security of paying from a wallet. Firstly, a virtual wallet contains all of one’s debit and credit cards; secondly, there is an extra layer of security, in that the payment is made from the wallet and not the payment originator (i.e. the bank).
Roadblocks: Technology adoption and Demographics
As was discussed in Part 1 of this series, most mobile wallets are reliant on NFC (near-field communications), where the customer only has to tap their payment device, such as a phone or smart-watch or even their jacket, to register a transaction. However, this requires a change to point-of-sale terminals to be NFC-compliant. This places a burden on both banks and device suppliers to upgrade the POS footprint. It also requires that the merchant is informed and proactive in requesting the upgrade. While most (but not all) large retailers understand the need, many small retailers are still unaware of the benefits. Also, to take full advantage of how e-wallets complement a store’s retail program, a reworking of the loyalty strategy and some e-commerce development is required, which we will discuss in Part 3.
Different Strokes for Different Folks
While we are living in a global village, there are some very distinct differences in using a mobile wallet, depending on which street you live on. Aimia, the Canadian loyalty program and analytics company, produces an annual “Loyalty Lens” report. In the 2016 report, only 4% of respondents in Germany actually use a digital wallet, contrasted with 23% in India. Additionally, 75% of Germans show little inclination to use one in the future, as it is primarily a cash-based society. There is a much bigger propensity to move to mobile wallets in India (89%) and the UAE (68%). Clearly, a global retailer needs to be sensitive to these differences in attitudes. In the turbulent but connected world we live in, sentiments can also change rapidly; while Europe in general, is lagging, and the developing world is leading in moving their plastic to a virtual wallet, the ease of use may change some mindsets. It was found that 55% of respondents were using their wallets to store their loyalty cards in one convenient place.
While Forrester was bearish on e-wallets in 2015, their 2016 report emphasizes their increased potential for disruption, and what banks need to do to combat the threat. While they also remark on the reluctance of Europeans in general to convert to e-wallets, the Chinese market is rapidly changing thanks to Alibaba’s Alipay and TenCent’s WeChat Pay. These two products have evolved way beyond a simple wallet; in Chinese smart cities, Alipay can even be used to register a birth or a marriage. WeChat Pay also offers lifestyle options like flight check-ins.
I Value my Data
The main pushback to adopting all these electronic conveniences is data privacy. Like it or not Big Brother – whether in public or private – is watching us and storing seemingly random snippets of information about us in big data databases. Very few of us are naive enough not to realize this is happening. Aimia’s research asked their 15,000 respondents to place a financial value on their data organized into four categories; contact, personal, online behavior and lifestyle. Again, there were large demographic differences regarding the value attributed, which is probably also related to income levels. If we look at the services that Alibaba offers to its e-wallet clients, they have access to data that other retailers can only dream of, admittedly in a country that does not have a strong culture of personal freedom.
In our physical wallets we do hold information that approximates to the Alibaba model, such as social security cards, driver’s licences and treasured photos. Perhaps our e-wallets will become more of a repository for ancillary data rather than mere receptacles for our debit and credit cards as acceptance grows. While banks have developed apps that facilitate digital payments based on their customer’s ‘share of wallet’, from a consumer’s point of view an e-wallet is much more convenient and better mimics one’s physical wallet with all its banking and loyalty brands in one place. Service providers who have developed a capability of storing 1500 loyalty cards are thinking ahead; a consumer has difficulty manually keeping track of his current 10 or 20 affiliations; by migrating to an e-wallet, an individual will have a concierge for their discounts, special offers, points accumulation and points redemption. This will give a person the freedom to sign on to as many loyalty programs as they wish. There is also no restriction in the number of wallets a consumer can carry, maybe he will differentiate between one for loyalty and another for payments, online versus offline, personal versus financial; a consumer can slice and dice contents to their heart’s content.
The Service Providers
The number of major players in the mobile wallet industry is limited, and will probably remain so because of cost and complexity. Some of the current competitors may go to the wall, as Forrester predicts and new upstarts will try to get a foothold. However, it is definitely a market with a future, and you do not have to build, you can always buy. The ingenious South African media company Naspers saw the potential of startup TenCent in China and took a 34% shareholding 15 years ago. Not only is Naspers now South Africa’s biggest company by value, they were also able to introduce the TenCent product WeChat into South Africa through their investment.
If you have a loyalty program, are contemplating a loyalty program or have no intention to ever start a loyalty program, this is a good time for introspection. If you have a loyalty program that still requires cards and coupons, you will need to consider how to digitize it, remembering that some consumers will still stick to the tangible program. As a new entrant, you are lucky enough to be able to leapfrog to a digital strategy from day one.
If you really have a compelling argument as to why a loyalty program is not for you (for instance, you only have 1-10 customers or your customers have no alternative) you may be right. You could still benefit from a program that gives you customer feedback on your service and employee performance and acknowledges the feedback. Have a look at the loyalty programs in which you are personally enrolled – maybe there is a strategy for you in the mix.