Mobile-Wallet Roundup: Action And Reaction

Two years after the launch of Apple Pay, here’s a look at Cupertino’s entry and at services from the other tech titans that have joined the mobile-payments game—and at how financial institutions are reacting.

Of the three major third-party wallets, Apple Pay is now 2 years old while Alphabet Inc.’s Android Pay and Samsung Electronics Co. Ltd.’s Samsung Pay are a year younger. With these products in the commercial market for at least a year, we thought it was time to step back and take a look at the landscape for mobile payments.

All wallets are operating against a backdrop of disappointing uptake and usage (“What’s the Matter With Wallets,” September). So how are the tech-company wallets faring, what are they up to, and what’s the response from financial institutions, arguably the sector with the most at stake in enabling mobile payments? Here’s our rundown.

Samsung Pay Dubs Itself the ‘Holistic Digital Wallet’

As mobile wallets rapidly evolve, Samsung Electronics Co. Ltd. late in September put out a birthday card of sorts reminding the world that its Samsung Pay service is now a year old in the United States. In that time, Samsung Pay has added payment-card issuing partners, but the wallet’s biggest initial differentiator, its magnetic secure transmission (MST) technology that enables Samsung Pay to work with magnetic-stripe terminals, is declining in importance, a close observer of the mobile-payments scene notes.

In a news release announcing the anniversary, South Korea-based Samsung, the world’s biggest smart-phone manufacturer, said Samsung Pay is working with digital-coupon provider Quotient Technology Inc., formerly Coupons.com Inc., to enable Samsung Pay users to search for, save, and redeem electronic coupons from Quotient’s retailer partners directly within the app.

“Samsung Pay continues to add features and services to make it a holistic digital wallet that extends beyond debit and credit cards,” Samsung said.

Even before the Quotient announcement, loyalty services were one of Samsung Pay’s strong suits, says Aaron McPherson, an independent payments analyst based in the Boston area. He recounts dining with a friend at a Pizzeria Uno a couple of months ago, where the friend seamlessly redeemed the restaurant’s electronic coupon linked to Samsung Pay and paid with a Samsung phone via a kiosk at the table.

“That is exactly the sort of thing that is needed to get consumers to try the wallet and start building habits,” McPherson says via email.

Researchers say that despite all the attention toward mobile wallets, consumer reaction so far has been tepid. Strengthening the links between merchants’ loyalty programs and mobile payments is seen as one way to boost wallet usage.

While Pizzeria Uno with its kiosks may not be representative of all merchants that accept mobile payments, McPherson says the Samsung Pay experience “was the first sign I’ve seen of a mobile wallet driving traffic through offers. Their partnership with Quotient is another positive development.”

Samsung Pay works on a variety of Samsung mobile devices equipped with near-field communication (NFC) contactless technology. Samsung said it launched in the United States with just four payment card issuers as partners whose cards could be loaded into its mobile wallet. Now more than 500 banks representing 80% of U.S. credit and debit cards work with Samsung Pay, the company says.

Despite that big growth, Samsung Pay is “still substantially behind [Apple Inc.’s] Apple Pay in the number of card issuers they have signed up,” says McPherson.

In addition, MST technology, which Samsung acquired when it bought a Boston-based startup called LoopPay Inc. in 2015, is becoming less valuable for payments as the U.S. converts to EMV chip cards, according to McPherson.

MST sends a signal that exploits the same magnetic field at a point-of-sale device that any mag-stripe card uses, essentially emulating the card. That was a big advantage when EMV cards and terminals were rare. But since the card networks’ October 2015 POS liability shifts, payment cards with EMV chips, as well as EMV readers, have become much more common.

Those new terminals will reject a card-based mag-stripe transaction if the chip is available, and in a mobile payment, the transaction will rely on NFC and tokenization.

“There’s no question that the advent of EMV dramatically reduced the value of MST, because it took away the ability they used to have of reading any card’s mag stripe and emulating it at the point of sale,” McPherson says. “We saw this coming back when LoopPay was independent.”

MST will continue to work with mag-stripe-based loyalty and gift cards, he says. “I think it is a problem that for some applications the consumer will need to tap for NFC and for others they will need to hold the phone over the mag-stripe reader.”

Samsung Pay’s mag-stripe issues aside, “overall it looks like they are moving in the right direction, and I hope they will continue to push on loyalty and rewards and offers,” says McPherson. “That is the key to changing consumer behavior.”

As part of the anniversary, Samsung offered Samsung Pay users $100,000 in prizes, including 365 Samsung Gear S2 smart watches. Those devices have NFC and can perform contactless payment transactions.

—Jim Daly

Apple Pay Arrives on the Web. Now What?

Just as its closely watched mobile wallet turned 2 years old, Apple Inc. released an update for Apple computers that enables consumers to pay using Apple Pay on participating Web sites, such as Lululemon.com and Apple.com, but only when using its Safari browser.

On the Web, Apple Pay uses the same stored card data, addresses, and personal information as the mobile-payment service. Apple Pay launched in October 2014 for in-app transactions and as a near-field communication (NFC) contactless service for in-store purchasing. Apple announced in June that it would introduce a Web version, but did not respond to a Digital Transactions inquiry about its update for online transactions.

One problem for Apple is that Safari, according to data provider Net Applications, only has a 4.3% share of the desktop user base. By contrast, Google’s Chrome browser, which works on multiple operating systems, is used by 54% of consumers.

Online retailers must enroll in Apple Pay to offer it on their e-commerce sites. Consumers use the service by clicking the Apple Pay button during the checkout process. On the desktop version of Lululemon.com, an online seller of athletic apparel, the Apple Pay button appears on the product detail page, enabling a quick purchase without additional steps to complete the checkout process. On Apple.com, the Apple Pay button appears once a consumer loads an item into the shopping cart.

In each instance, upon clicking the Apple Pay button, a dialog box appears on the page for the consumer to confirm the shipping and payment card details. The consumer then must confirm the payment by placing a finger on the Touch ID button on her iPhone or by double-tapping the Apple Pay confirmation button on her Apple Watch.

Despite the meager installed base for Safari, expanding Apple Pay to the Web is a wise move, says Marc Abbey, managing partner at First Annapolis Consulting, an Annapolis, Md.-based payments advisory firm.

“There’s a lot of investment in mobile wallets today, but they’re not having much impact yet,” Abbey says. “Apple Pay is building out the functionality of their offer [and] that makes it more relevant.”

The browser-based e-commerce market is huge, Abbey says. The U.S. Census Bureau’s most recent e-commerce sales report says e-commerce sales in the second quarter accounted for 8.1% of all retail sales, up from 7.1% in the same quarter in 2015. “They still have to get merchants enabled,” Abbey says of Apple Pay online, “but it makes the Apple Pay product more functional.”

For Igor Gorin, founder and chief executive of Astound Commerce, a San Francisco-based e-commerce platform provider, Apple Pay on the Web is akin to Amazon.com Inc.’s 1-Click ordering service.

“Amazon had introduced [1-Click] only for use on Amazon and that was one of their unique competitive differentiators,” Gorin says via email. “I do not think this new rollout of Apple Pay is as dramatic as 1-Click Checkout, but if consumers are using all Apple products, it significantly simplifies the payment step of the checkout and therefore drastically improves the shopping experience for the rest of the retail merchants and their customers.”

It is unlikely that Apple will make Apple Pay available in other browsers, Gorin says. “Apple Pay won’t have to move into other browsers to be a success,” he says. “For Apple, Apple Pay isn’t only about creating a new way for consumers to pay, but is also a way for the company to bring new users into their existing product line while solidifying control over their current users.”

Simplifying the checkout experience, especially on mobile devices, is critical to increasing payment volume. That’s one reason mobile wallets garner a lot of attention, Abbey says. What mobile wallets have seen so far is a lot of initial use, but not good repeat usage, he says. Making them available in a browser expands potential use.

Acquirers and others involved in the payment-acceptance side need to monitor such developments, Abbey says. “The question will be, are mobile wallets just displacing other forms of payments or creating new volume?” he says. “It does raise the stakes of acceptance-side players being able to support these mobile wallets.”

—Kevin Woodward

They’ve Got an App, But Is That Enough?

For years, pundits have said consumers trust banks more than any other entity when it comes to payments options, but that doesn’t mean financial institutions are always delivering the most innovative services.

Now a review of mobile-banking and -payments offerings indicates even the nation’s biggest banks have a decidedly mixed record on that score.

For example, 89 out of the 100 largest financial institutions by assets offer a mobile bill-payment option, and all of the top 25 do. But just 36 of the top 100 let customers pay other persons with a mobile device, according to a report by First Annapolis Consulting released in October.

Similarly, a mobile-app offering is just about “ubiquitous,” says Jeff Crawford, a senior manager at Annapolis, Md.-based First Annapolis who worked on the report. Some 94 of the top 100 offer this product. But certain features are likely to be missing. Just nine banks offer card controls, which allow cardholders to disable a lost or stolen card. Six let customers view their FICO risk score, and five allow them to open a new account. Even among the four largest banks, the corresponding numbers are two, three, and one. Meanwhile, just 35 of the top 100 have enabled Touch ID for access to their apps.

The nation’s biggest financial institutions stand at a crossroads, says Crawford. “They’ve gone beyond the first stage of mobile banking, of just doing the basics,” he notes. “The next stage we’re witnessing is account-management services, being able set up alerts, send money externally, move money around, being able to turn cards on and off.”

Support for mobile payments is part of this new wave, and here the 100 biggest banks have a stronger showing. Seventy-one support a mobile wallet, including 48 of the bottom 75. Among the three major third-party wallets, Apple Pay is the most widely supported, with 69 offering Apple Inc.’s payment service, 35 offering Samsung Electronics Co. Ltd.’s Samsung Pay, and 31 making Alphabet Inc.’s Android Pay available.

But Apple Pay’s clear lead may not be as solid as it appears, Crawford says. “Apple Pay came out first, and there was a frantic reaction” among the banks, he says, to sign up with the computing giant for fear of being left out. Two years later, he says, the payment service has fallen “a little bit further down on the priority list” as bank executives begin to question just how badly customers want a mobile-payments service.

“There’s a lot of healthy skepticism,” among these managers, Crawford says, leading them to believe they have time to act and room to maneuver. Indeed, he says some are looking at do-it-yourself models, inspired by examples such as JPMorgan Chase & Co.’s homegrown Chase Pay wallet.

The so-so backing of mobile person-to-person payments, though, strikes Crawford as odd, given the strong consumer uptake of competing non-bank offerings like PayPal Holdings Inc.’s Venmo.

“It’s a little bit surprising that there isn’t more adoption of this” among the 100 largest banks, he says, though he adds that the rebranding next year of Early Warning Services LLC’s clearXchange P2P network as Zelle may help make the service more prominent. ClearXchange will connect a dozen U.S. banks with the expected addition of Citigroup Inc. next year. Also, the adoption rate among the top 100 has already risen from 24% in a similar survey in 2014.

Still, Crawford notes, P2P payments aren’t likely to appeal to banks as much as payment services on which they can earn interchange income. “We’re skeptical that P2P is the mobile-payment case that will spur mobile-payment adoption,” he says. “It’s important, but not as important as card-based offerings.”

—John Stewart