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Up against determined competition from big technology companies, financial institutions have always reassured themselves that they still have an edge in payments when it comes to consumer trust. Now, that edge appears to be eroding fast.
On the question of consumer trust, banks and financial institutions are losing ground to five major technology companies that have claimed prominent positions in payments, according to a new report from Javelin Strategy & Research.
In multiple surveys of at least 3,000 consumers, Javelin found in 2014 that 78% of them trusted the so-call Gang of Five to protect their private information, which has grown from 73% in 2013. That is nearly at par with the 79% who said they did so with the top four payment networks, a decrease from 91% in 2013.
As for banks, 43% said they trusted the top five banks in 2014, down from 51% in 2013. Javelin’s “2015 Gang of Five: Apple Pay vs. Android Pay vs. Samsung Pay vs. PayPal ‘Pay’?” that also examines Facebook.
The smart-phone makers in particular have an edge, says Mary Monahan, who follows mobile payments at Pleasanton, Calif.-based consultancy Javelin. “These companies built entertainment platforms for books, music, films, and games,” she tells Digital Transactions News. “The more time [consumers] spent on them, the more trust they develop with that entity. It seems to be that innovation eventually distills trust.”
Consumers, however, would use their primary financial institution’s mobile wallet, if it offered one. In the report, 45% of consumers say they are likely or very likely to use one. That is more than then 42% for PayPal; 31% for Google Wallet; and 28% each for Apple and MasterCard. “FIs need to begin making moves to offer a mobile wallet now, or abandon hope of building out a bank-branded wallet,” Monahan says in the report.
In Monahan’s model, PayPal Inc. places at the top when consumers are asked to rank the payments-technology companies according to their perceptions of trust, innovation, and privacy.
PayPal, with its acquisition of Paydiant Inc., a mobile-payments startup that provides white-label mobile wallets, presents a quandary for banks and credit unions. Paydiant has been the choice for many of them, yet, as Monahan says, many banks and credit unions view PayPal as a competitive threat and may be wary.
Paydiant also is providing the technology for the CurrentC mobile wallet that retailer-backed Merchant Customer Exchange plans to launch in a single, mid-size market later this year.
What can banks and credit unions do to bolster their mobile-wallet trustworthiness among consumers? “You can see that every year we ask consumer who they want mobile wallets from,” Monahan says. “Number one is their own bank. As long as there is something there to access they will feel comfortable with their banks.”
In addition to developing a mobile wallet, other recommendations include supporting Apple Pay and urging consumers to make their bank’s credit or debit card the default card.
