Banks Must Stop Being ‘the Quiet Party’ in the Mobile-Wallet Battle, an Expert Warns

Despite all the fuss the payments industry is making over mobile wallets, financial institutions have been remarkably low-key. With the notable exception of giants like JPMorgan Chase & Co. and Capital One Financial Corp., nearly all banks and credit unions have ceded the initiative to nonbank players like Apple Inc., Samsung Electronics Co. Ltd., Alphabet Inc., and Wal-Mart Stores Inc. Some observers say this is a big mistake.

“The quiet party [in mobile payments] is the financial institutions,” said Richard Crone, principal at San Carlos, Calif.-based Crone Consulting LLC. Crone, who spoke Monday at a payments trade show in Phoenix, said his firm’s data indicates that of 49 million active mobile-payments users in the United States, roughly half are using one of the so-called Pays (Alphabet’s Android Pay, Apple Pay, or Samsung Pay) and half are using a retailer wallet.

He warned the audience, which included bankers involved in card and automated clearing house payments, that nonbank players are signing up financial-institution customers for mobile services that weaken the customers’ ties to their banks and redirect valuable usage data away from the banks.

A big exception is JPMorgan Chase’s Chase Pay, a wallet expected to launch by mid-year. Chase, which has 94 million consumer card accounts, says it will make the wallet available to all of its customers and preload all of their cards.

“Chase is playing into a consumer preference that has been expressed for years, which is to pay with [a product from] your financial institution,” noted Crone, who moderated a panel at the NACHA Payments 2016 conference.

Consumers, however, also prefer wallets that allow them to load all of their cards, including those from favorite retailers where they are accumulating rewards. Here, banks may run up against resistance from merchants, warned panelist James Ward, vice president of credit at JCPenney & Co. “Merchants don’t like to share their data,” he said.

For most merchants, the proprietary cards’ chief purpose is to gather information about customers’ buying patterns, Ward added. That makes the card relationship crucial to retailers. “Don’t expect a merchant to get rid of is proprietary credit card,” he said. “The loyalty-based system is so critical.”

Indeed, that retail impulse is so strong that Wal-Mart in December introduced its own mobile wallet, Walmart Pay. The product works within the retailing giant’s shopping app, which enjoys a signal advantage: it is used by some 22 million customers.