Mobile wallets address the evolving needs of merchants and consumers.
Credit: NFC image via Shutterstock
There are more ways than ever for small businesses to accept payments — and mobile technology is leading the revolution. Mobile wallets, the strictly digital cousin of mobile credit-card payments, are gaining traction among shoppers who want an easy, convenient and autonomous way to make purchases. What does this mean for small businesses? According to a PayPal representative, it means consumers are changing the way they spend money, thus presenting an opportunity for businesses to grow with their customers. The question is, as a relatively new technology, are mobile wallets right for your business? Here's a guide to help you find out.
What are mobile wallets?
Mobile wallets allow shoppers to pay for in-person purchases using their mobile devices. Payment information — such as credit cards and online accounts — are stored via mobile apps, freeing shoppers from cash payments and having to swipe their credit cards each time they make a purchase. Because there is currently no standard industry definition, "mobile wallets" has become an umbrella term for different types of cashless, credit-card-less mobile payments. [Mobile Wallet: Definition & Apps]
"There are many definitions for a 'mobile wallet ,'" said Edward Katzin, former head of global product strategy and innovation at Visa who oversaw the architecture and development of Visa's digital wallet V.me. "The spectrum ranges from the near-field-communication (NFC)-enabled mobile devices with proprietary wallets [to] application-based mobile wallets."
NFC mobile wallets require users to hold their mobile phones close to the NFC terminal at checkout, while app-based mobile wallets enable users to pay for in-person purchases directly from their mobile phones. Popular mobile wallets include Isis Mobile Wallet, Google Wallet and Square Wallet.
What are the benefits of mobile wallets?
The primary benefit of mobile wallets is that they fulfill the changing needs of merchants and consumers — changes brought on by the growing use of mobile devices to conduct financial transactions.
"Merchants want complete control over their payment systems and consumer experience, [and] consumers want a delightful, seamless experience that is easy and convenient," Katzin said. However, most of the legacy point-of-sale (POS) systems and traditional payments infrastructure are not leveraging the power of the mobile device to address the evolving needs of merchants and consumers, he said.
As such, mobile wallets benefit both merchants and customers by enabling businesses to stay on the cutting edge of technology, enhance the customer experience and gather valuable information about their customers.
The emergence of mobile wallets presents an opportunity for businesses to stay on the cusp of innovation, allowing them to take part in the future of mobile technology as it intersects with payment processing and consumer behavior.
"[With mobile wallets], consumers are being trained to enter their payment method once when they register and then never consider it again, unless it expires or they have insufficient funds," Katzin said. "This is exemplified by the experience a consumer has when they use a service like Uber." Uber, a transportation startup that connects users with drivers via Uber's mobile app, lets users pay for their rides via the app as well. Payment experiences offered by Square Wallet and Apple's Easy Pay are also training consumers to use their mobile devices to make a payment, he said.
In addition, taking advantage of the latest technologies can also help businesses expand their consumer base.
"Merchants who serve customer segments that tend to be more 'bleeding edge' can find brand benefit to implementing new technology solutions," said Greg Garson, associate partner at Boston-based consulting firm High Start Group. By accepting mobile wallet payments, businesses can grow by attracting and catering to more tech-savvy shoppers.
Enhanced customer experience
Customer experience is everything in today's retail landscape, and mobile wallets help businesses deliver the best one possible by making purchases easier and more convenient than ever.
"When integrated into the merchant's mobile application or as part of a new app development, the implementation of mobile payments can provide operational efficiencies," Garson said. "It can help take steps out of the checkout process, enable self-service for transaction-related customer queries and enable digital receipts to replace the old paper versions."
Furthermore, mobile wallets eliminate the fuss of cash payments and credit cards, giving customers more autonomy and freedom to shop their own way.
"There's less friction with mobile wallet payments, where no money exchanges hands," said Matt Hulett, CEO of online marketplace ClickBank. "That means better security for brick-and-mortar stores, as they don't have to hold cash on-site, but it also gives consumers a better experience at checkout."
For instance, with Square Wallet's identity-based payments, customers can just walk into a restaurant, make an order and state their name to finalize the purchase. Using Isis Wallet, customers simply launch the app, choose a credit card and hold their smartphones next to the NFC terminal, and they are ready to go. With mobile wallets, in-person shopping will never be the same.
"Mobile wallet payments could nearly eliminate the long lines we see during the holiday shopping [season], which could bring more consumers back into stores," Hulett said.
Mobile wallets contain treasure troves of data that businesses can use to better serve their customers and increase sales.
"If a merchant were to leverage a mobile payment solution from one of the major players [PayPal, MasterCard, Visa] or even one of the more successful new providers [LevelUp, Paydiant, Square], they should be in a position to leverage data that enables better customer segmentation, better targeting and better lifetime value assessments," Garson said.
One way businesses can leverage customer data is to incorporate loyalty and reward programs to offer products based on consumer preferences gleaned from previous mobile wallet payment data.
"When integrated with the merchant's loyalty program, mobile payments enable instant cross- and up-sell opportunities based on purchase history," Garson said. "[They can] be presented before the customer finalizes their transaction and leaves the store, significantly increasing the likelihood of offer uptake."
What are the drawbacks of mobile wallets?
Although it offers many benefits for businesses, there are several disadvantages of adopting mobile wallet payments. The first is that the technology is relatively new, leaving plenty of room for change and uncertainty.
"This space is very much in its infancy," Garson said. "Standards are still being determined, and disruptions are happening every day. This investment risks obsolescence at any moment by changes or disruptions that are swarming around."
Such is the case with payment networks and NFC gateways. "It's not clear what the path for USA adoption of the Europay, MasterCard and Visa (EMV) standard is," Katzin said. "My understanding is that the payment networks have pushed the mandate for the adoption of EMV to 2015." The path for NFC adoption is also unclear, although some merchants use host card emulation (HCE), for which Google also introduced support with the release of Android 4.4 KitKat, he added.
Other drawbacks include big changes in a business's infrastructure, fleeting reliability and having to retrain employees.
Changes in infrastructure
"Mobile wallets are a huge commitment for the business and their customers," Hulett said. "Mobile wallets require changes to infrastructure, and integration with financial institutions."
This includes changing hardware and software, such as POS systems that support mobile wallet technologies; installing NFC terminals; and creating and maintaining mobile apps. These burdens ultimately fall on businesses, Hulett said.
Reliability and availability
Because the technology is still in its infancy, not all mobile wallets are universally reliable. Some quirks can be attributed to consumer smartphone settings and individual merchant setups.
"One of the challenges with the use of the Square Wallet is the availability of network connectivity," Katzin said. In this case, some consumers complain that their Square Wallet does not work at Starbucks even though it works at other merchants, he said. "What they are dealing with is their phone switching to the AT&T Wi-Fi service at some Starbucks stores — if the user is not authenticated on the AT&T Wi-Fi network, their Square Wallet hangs," Katzin added. "They need to turn off Wi-Fi to get their Square Wallet working. Most consumers do not like this."
As with any new technology, to successfully adopt mobile wallet payments, businesses must invest in employee training.
"Merchants need to train their in-store personnel [who work the registers] to use the new technologies," Katzin said. They also need to have the team to support their use of these technologies to ensure the availability and reliability of these services, he added.
What should businesses look for in a mobile wallet processor/vendor?
When selecting a mobile wallet processor, businesses should choose systems that will result in seamless, easy transactions for both the merchant and its customers.
One thing to look for is flexibility in technology, such as supported mobile devices, computer terminals and POS systems, said John Pironti, security and risk advisor at IT association ISACA and President of IP Architects. This also means making sure the technology is compatible with the business's existing systems, such as its customer relationship management (CRM) software and accounting solutions.
Additional features to look for include the visibility and capability to leverage the system to improve the way companies do business — for instance, via analytics and target marketing — low interchange fees, quick payout, and assistance in dealing with payment issues such as fraud and chargeback," Pironti added.
Mobile wallet vendors should also have the proper security measures in place to protect merchant and consumer information.
"Small business owners should take a shared approach to security with the vendors they work with," Pironti said. He suggested following a trust-but-verify approach to security with vendors, in which the small business owner will regularly request proof-of-security controls and capabilities to ensure they meet their expectations and needs.
"This needs to go beyond an annual certificate of compliance to an industry standard and extend to a regular dialogue about the vendor's perspective, approach and capabilities for security," Pironti said.
In evaluating mobile wallet providers, Pironti said businesses should confirm that a vendor has the following security features:
- Compliant with the Payment Card Industry (PCI) standard;
- Strong encryption for data at rest and in-transit, such as AES algorithm and SSL for Web activities;
- Strong authentication capabilities (more than a simple password);
- Anti-fraud protection; and
- Comprehensive transaction monitoring to identify inappropriate activities and behaviors.
Originally published on BusinessNewsDaily.