The New Best Thing: Understanding the Market for Mobile Wallets

Editor’s Note: In what continues to be a fragmented market, no clear winning approach to the future of payments technology has emerged. But one thing is already clear: Both established companies and high-tech startups are dramatically accelerating the pace of change in an industry not exactly known for moving at warp speed. In a series of occasional articles, Anthem will take a closer look at some of the players and products that are shaping the payments debate.

By Cyndie Martini

Rapid technology advancement, unprecedented innovation and a drive to win consumer share of wallet have placed a spotlight on the payments industry, and digital wallets (or mobile wallets or wallets) have taken center stage. Today, the digital wallet competitive landscape is a fragmented, rapidly evolving space.

Will digital wallets win over the consumer audience? Which players will be cast in the lead role, which will play the understudy? And where do credit unions fit in?

What is a Mobile Wallet?

Like their physical counterparts, mobile wallets allow consumers to store preferred payment methods — credit cards, debit cards, bank accounts, etc. — on their PC, mobile phone or tablet. This technology lets consumers make purchases at checkout in a physical or online store without using their physical wallet. 

Digital wallets are a hot topic in financial services – and with good reason.

According to a survey conducted by PayPal, “86 percent of consumers would rather leave traditional wallets at home in favor of a mobile alternative.” Comscore’s 2013 Digital Wallet Roadmap survey, “The Fast Lane to Driving Consumer Adoption,” found that although there is great interest, more than two-thirds of the population still has concerns that will need to be addressed prior to greater adoption. Forty-seven percent of survey respondents rated security, safety, theft and loss of phone as the leading drawbacks to wallet use; 62 percent believed digital wallet technology seemed useful; and 29 percent had no concerns about the product.

Mobile Wallets and Interchange

In the current payments environment, many consumers don’t really understandi wallet functionality and security. Interestingly, the key denominator throughout Comscore’s survey was that even though consumers demonstrated a decent conceptual understanding of wallets, they lacked clarity on key details – the security benefits of alerts, for example, or increased privacy — that could impact their intent to use a digital wallet.

Why is this important? For as long as anyone can remember, electronic transactions have carried fees for processing. These fees, or interchange, generate revenue intended to offset issuer expenses and sustain the security and success of the consumer commerce experience. Now, some acquiring businesses are rapidly moving toward less-conventional methods of payment processing to drastically reduce – or even eliminate – the traditional fees processors and issuers depend on. Wallets, like those offered by Amazon and PayPal, offer ACH as a payment method. ACH is a more-costly transaction and offers zero interchange income.

So far, payment cards that are used in mobile wallet transactions still earn interchange income for card issuers. But if you look at the lineup of brands behind some of the leading mobile wallet products, you’ll see that there’s a potential for disintermediation. For example, MCX – a mobile wallet backed by Walmart, Target and several other retailers – may be a play for an increased share of interchange fees.  And Isis – a joint venture between wireless phone providers Verizon, AT&T and T-Mobile – may ultimately leave card issuers out of the payment loop altogether.

Battle for Supremacy

Big players are investing in this space. Yet even big, innovative companies aren’t necessarily making headway. In the past, Google Wallet was the product to watch. Lately, the trade press has been all but proclaiming its death.

Mobile technology icon Apple remains a wild card in this field.  Apple’s current wallet offering, Passport, doesn’t allow users to carry and deploy credit or debit cards for payment. Passport does enable storage and use of proprietary gift cards from participating merchants, though.

CashStar, the company that makes the digital gift cards used in Passbook, reported in USA Today that “millions of dollars” in gift cards have already been added to Passbook since it debuted in fall 2012. Also, Apple left Near Field Communication out of its iPhone 5, instead focusing on iBeacon technology that uses Bluetooth Low Energy  to conduct in-store transactions.

Apple has filed for a patent on a digital wallet product. With millions of iPhone users already in play (and the incorporation of a fingerprint scanner on the newest iPhone 5S model) Apple could conceivably take over the mobile wallet market in one fell swoop.

The Future of Mobile Wallets

Mobile wallets still have a long way to go before they enter the mainstream. According to a study conducted by the Yankee Group, the largest wallet, PayPal, was used by just 15 percent of mobile phone owners. By comparison, Starbucks’ popular app was used by 6 percent of phone users, Google Wallet by 4 percent.

Perhaps the most important statistic:  76 percent of mobile phone users in the United States have never used a mobile wallet – and that means the market is poised to explode once a front-runner emerges. Mobile wallets will generate an estimated $58 billion by 2017, up from just $539 million in 2012.

Mobile wallets are right on the cusp of wider adoption. Javelin Strategy recently surveyed smartphone users and discovered that three in 10 were likely to start using a wallet application in 2014.

Why Works for Credit Unions

For many credit unions, mobile wallets represent a threat to their credit and debit revenue streams. But offers credit unions a secure mobile wallet for their members that promotes Visa and the credit union’s brand. By encouraging members to use, credit unions encourage card use that generates interchange income.

Many third-party applications, like PayPal Wallet, process transactions through ACH, which costs credit unions money. Worse still, Google Wallet’s new card aims to replace debit cards altogether, and Isis leaves sensitive payment information in the hands of mobile carriers Verizon, AT&T and T-Mobile. Visa’s solution has broad acceptance at thousands of online and brick-and-mortar merchants, and it supports contactless NFC payments, making it easy to pay with a phone. Online, offers enhanced security by replacing card numbers with a single login.

Credit unions have the opportunity to jump into the expanding world of mobile payments with With a mobile wallet as part of their existing mobile banking solutions, credit unions can give their members access to new technology backed by Visa. As a marketing tool, a mobile wallet offering conveys to members and potential members that the credit union is forward-thinking, technologically savvy and committed to providing convenient tools.

With digital wallets set to increase in popularity this year, many credit union members will be shopping for a wallet solution that meets their needs. By supporting, credit unions can strengthen member relationships, retain their interchange revenue, provide an alternative to third-party apps and be a part of a growing payment technology that is expected to reach 9.4 million users by 2016.

Cyndie Martini is president and CEO of Member Access Pacific. For more information about the card-management company and its products, go to

Questions about this story? Contact Gary M. Stein: 503.350.2216,

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