We are seeing another rush now. Well, its not exactly a gold rush, but the rush to reach the consumer pocket – the wallet rush!
Lets define an e-wallet – at least in a broad sense. A container that can hold the credit card details ; that can hold other payment instruments – debit card , bank account and check; that can hold new digital cash instruments – bitcoin( probably), and M-Pesa (why not?) and now the Canadian MintChip. Add a coupon compartment, and loyalty rewards compartment and a receipt compartment. This is what is an e-wallet – more or less. Supposed to be a panacea for the customer!
As of today, the wallet can be a mobile wallet (ISIS, Google) or a cloud wallet (Paypal, Visa , Amex, Amazon, Facebook), but in the next couple of years, it will all be seamless – online, offline, physical, mobile.
Before I get into why there is a rush and what the major wallet aspirers are doing , here is the depiction of the mad rush!
The rush to be in your pocket!
What is the secret behind this wallet rush?
Let us see why this is such a hot area. Will the customer pay any money to get this wallet? Probably not. Will the merchant support? Probably not directly. So , where is the money for all these wallet manufacturers?
Actually, each company has its own agenda in trying to bring up their wallet initiative. But, the core idea is that the wallet manufacturer will have the closest relationship with the consumer. The further you are away from the consumer, the less stickier you are. As one of the payment industry experts say, “the one who enrolls the customer controls the customer!” . So true !! At the crucial moment of payment, if the wallet suggests/recommends a particular payment instrument to be used by way of discounts/loyalty, it is influencing the customer.
Another big reason for this mad rush is – and this is where the money is – that you can track the consumer behavior. What he pays, where she pays, how he pays and this is the goldmine! Today, in the current payment ecosystem, no single company is in a position to have a complete view of the consumer payment (and the behavior). The merchant has access to some information, the payment gateway has access to some other information, the payment networks have access to yet other information, but no single organization has a complete information of the consumer buying process and the behavior. The wallet can get this!
The final major reason for this mad rush is that you can create a strong ecosystem with a strong wallet and you can dis-intermediate other players in the industry! Yes, why do you need payment gateways and payment networks if the banks have a strong hold on the wallet? Or why do you need other players like the intermediaries, if Facebook/Google/Amazon can create their own payment system?
So, what are each of these players doing to get into this space?
In the next few days, I will get into the details of each of these companies, but in a nutshell, here is what is the motivation.
1. I have already explained why the payment networks (Visa/Amex/ Mastercard/..) are trying to get into this space in this blog here. If they are not close to the customer, they could be dis-intermediated! So Visa with its V.me and Amex with its Serve program, are trying to capture the hearts of the consumers. Serve is operational as of April 2012 but V.me is still running trials with limited users.
2. Paypal is in the best position of all to be called as the online wallet leader as of today. With its 120 million customers, it is getting into offline space as well with its trials with Home depot and other merchants. With its P2P functionality, it has created a strong stickiness with the consumers. With its paypal money and direct connectivity with the ACH network, it can “promote” direct bank account payments instead of the credit/debit and can dis-intermediate the payment networks. Why do you think Visa/Amex/Mastercard are worried? They are in the best position to re-create the M-Pesa like system in the US. No kidding!!
3. Google started off with a grand plan four years back by getting a patent on its wallet technology. It started off with the “Google Checkout” in the online space and the “Google Wallet” in the mobile space. So, far it has not been able to make a big impact in either of these. It went into the complicated route of NFC enabled phones for the Google Wallet and stuck with the Chicken and Egg problem. As of today, there are very few wallets in use – due to the limited number of NFC enabled phones on android AND on Sprint AND the merchants with NFC enabled POS systems.
4. The MNOs – AT&T, Verizon and T-mobile formed a $100m funded ISIS and started with the plans to be the de-facto wallet without the support of the payment networks. After all, with their $250m subscribers in the US (AT&T, Verizon and T-mobile mobile subscribers), what stopped them from becoming the wallet leader and work directly with the banks. Well, they realized mid way that they are Telecom giants and could not move forward at the same pace as the technology companies and it is better to get as many incumbent players on their boat. They then started recruiting partners for their ecosystem. Today, they are in the process of getting the buy-ins of all the payment networks, the POS manufacturers, major banks, handset manufacturers and Trusted Service managers (TSMs). As of March 2012, it is yet to be operational, but this looks promising. The NFC chicken and egg problem affects ISIS too, but since they have the support of the handset manufacturers and the POS manufacturers, they are hopeful to be a major mobile wallet player. But without the support of Android and iOS owners, they have only a small field to play in!
5. Apple hasn’t publicly announced their payment strategy yet, but they can sweep the market when they launch. After all, they have $200m iTunes customers and the ecosystem to create an impact in the digital market. They control the hardware and the software and the ecosystem and they set the rules. Is there an alternate way to pay within the iTunes ecosystem? Heck, no!
They can afford to not join ISIS or any other initiative for the mobile wallet system . They have filed several patents on some wallet functionality. Their 2013 iPhone will definitely rock the payment industry in the offline/mobile wallet segment if not this year!
6. Facebook has already created a wallet within its ecosystem and controls it with the Facebook credit system. Lot of payment startups thrive on this ecosystem and is the leader for virtual good market. 15% of 2011 revenues came from their payment system. But, can they get into the mobile wallet space? Yes, they can. Let me talk about this later.
7. How about the darling eCommerce company – “The” Amazon? They have a $150m customer base where they can rule. So, they are the de facto Wallet in their system. How about the mobile wallet or the wallet that can be used to shop in other ecosystems? Interesting topic, ain’t it? Let us talk about it separately.
8. Now the child prodigy – Square, who has stolen the thunder from Paypal since last year. They have an interesting concept, usability is second to none and a gen-Y appeal. But do they have the strategy to first create the big ecosystem that is required to survive? The recent $100m funding is helping them to get there, but they have their own set of challenges.
9. Some merchants have their own initiatives. No wonder Starbucks has beaten the hell out of all other wallets and has been the most successful mobile wallet in 2011. Walmart and Target have started their own initiatives on this, but are way behind.
10. The banks are starting on their wallet initiatives. They need the help of FISs, FiServes and the ACIs (the payment technology service providers)to get them off the ground and maneuver in this space.
11. Of course, the service providers have their challenges. How to integrate with Google Wallet or ISIS or Paypal or Amazon and how to be on top of all these developments? and obviously, this is their opportunity is. Who ever wins the wallet race, these providers will win!