Businesses which integrate robust loyalty offerings into their mobile wallets will see an increased number of consumers adopting mobile payments as a way to pay for in-store purchases, according to Euromonitor senior consumer finance analyst Michelle Evans.
"The two biggest reasons why mobile wallets are struggling to gain adoption are consumer concerns about security and privacy," Evans told Mobile Payments Today. Other barriers to mobile wallet adoption include the lack of the necessary infrastructure for mobile payments, and the convenience of existing payments methods, she said.
"Ultimately, mobile payments must be as cheap, safe and easy to use as traditional payment methods to even be considered a viable option," Evans said.
Evans argues that consumer uptake of mobile payments will be directly related to the added value received from using mobile wallets instead of physical wallets. This added value could take the form of monetary savings, improved security, convenience, or increased loyalty offerings. "Of all these potential benefits, mobile-driven loyalty may be the factor with the greatest potential to drive consumer adoption of mobile payments," Evans wrote in her Euromonitor white paper 'Leveraging Consumer Loyalty to Drive Mobile Payments Adoption.' "Without a mobile loyalty platform embedded into the mobile payment, mobile wallets offer few benefits over a plastic card payment."
However, loyalty has to have a broader definition than just points, miles or free hotel nights. "As we come out of the recession, consumers are spending more and earning more loyalty points, but not necessarily redeeming their rewards," Evans said.
Retailers need to use big data analytics technology and take advantage of smartphones' geolocation capability to provide mobile wallet users with an individual shopping experience. "Loyalty-driven mobile payment initiatives will be about one-to-one customer engagement," Evans said. "Retailers need to know when mobile shoppers are in their stores, so they can provide personalized offers based on knowing what brands consumers like. Consumers now expect offers to be personalized and relevant to them, rather than just mass marketing."
According to the Yankee Group's December 2013 U.S. Consumer Survey, 61 percent of respondents said that receiving discounted offers on products and services would be highly important in getting them to pay with mobile wallets in stores. Also, 53 percent of respondents said that automatically receiving points on their linked loyalty card would be highly important in persuading them to use mobile wallets.
The importance of combining m-payments with marketing was a theme at the February 2014 Mobile World Congress in Barcelona, said Yankee Group vice president Brian Partridge. "Players in the mobile transactions space are focusing on partnerships and value-added services that bolster adoption and keep users hooked for the long term," Partridge wrote in a Yankee Group commentary on MWC 2014. "The rise of the marketing-driven payments platform will play a big role. The real m-payments opportunity is around marketing and engagement."
Partridge singled out Accenture's mobile wallet platform, which was launched at MWC 2014, as one of the first to deliver robust big data analytics and recommendation tools.
The Accenture mobile wallet platform supports both NFC and QR code-based transactions and includes the Accenture Recommendation Engine customer data analysis solution. "Powered by the Accenture Recommendation Engine, third-party wallet owners can offer their partner merchants a means of marrying location, stated preferences and purchase history to distribute highly contextual offers to end-users," Partridge wrote.
Mobile wallet providers must be very transparent about how they collect and use personal data collected from mobile shoppers, Evans stressed. "One of the worst things a mobile wallet provider can do is to be unclear about their consumer data collection policy," she said.
Evans said many mobile phone users are concerned about what information is being collected via their devices and how that data is being used. In the U.S., 57 percent of mobile app users have either uninstalled an app over concerns about having to share their personal information, or declined to install an app in the first place due to similar concerns, according to a Pew Research Center study.
Mobile loyalty will mainly be a driver to mobile wallet adoption in developed markets such as the U.S., U.K., Canada and Australia, Evans said. "Mobile loyalty isn't so relevant in developing markets," she said. "In countries which lack a good payments infrastructure, consumers don't need to be incentivized to use mobile wallets. For example, mobile payments are growing very fast in Latin America, which has a high level of unbanked consumers."
According to Euromonitor, the U.S. is one of the leading markets for smartphone adoption. "Euromonitor's research found that not even half of U.S. mobile phones sold in 2011 were smartphones," Evans said. "But Euromonitor predicts that 80 percent of mobile phones sold in the U.S. in 2014 will be smartphones."
Globally, 33 percent of mobile phones sold worldwide in 2011 were smartphones, with the rest being feature phones, Euromonitor found. In 2014, 59 percent of mobile phones sold worldwide will be smartphones, it predicts.
Starbucks and Isis
Evans says Starbucks and Isis have both enjoyed success in linking loyalty to their mobile wallets. "The Starbucks mobile wallet, which is funded by a linked prepaid Starbucks card, has become the poster child for what retailers can do with mobile wallets," she said. "Starbucks was ahead of the curve when it launched its mobile wallet in 2011, and now has 10 million users."
Starbucks mobile wallet users earn "stars" for each purchase which they can redeem for free drinks, food or refills. The Starbucks app displays a QR code which the barista scans as payment for the mobile wallet user's purchase.
Starbucks currently processes 5 million weekly mobile payments, up from 2 million a week at the end of 2012. "A third of Starbucks' North American sales are funded by one of the store's prepaid cards, with the mobile app itself processing 10 percent of them," Evans said.
The integration of Starbucks' loyalty program with its mobile app has been a big factor in driving the app’s usage, Evans said. "Starbucks is different to other QSR companies in that its customer base is more sophisticated, more comfortable with mobile devices and more affluent," she said. "This helps to explain the popularity of the Starbucks app."
Isis, the mobile wallet joint venture between AT&T Mobility, T-Mobile USA and Verizon Wireless, has seen greater adoption since it started to push loyalty, Evans said. The Isis wallet enables users to make payments, collect points and redeem coupons using NFC-based smartphones at POS terminals.
"Isis is in the initial days of nationwide deployment in the U.S., but early results have shown greater adoption by those that signed up for the attached loyalty programs," Evans said. A year-long trial conducted by Isis in Salt Lake City, Utah and Austin, Texas from October 2012 found that Isis users tap their device to pay for goods 10 times per month on average.
"Isis users who signed up for loyalty schemes were found to tap their devices nearly twice as often as those that did not," Evans wrote in her white paper. "Two-thirds of users had opted to receive offers and messages from the participating brands, with the average user following seven brands. Some of the first merchants to have adopted Isis have gone so far as to say the loyalty and data opportunities the wallet provided were of far greater value to them than the mobile payment capabilities."
Maverik, a gas station and convenience store chain with 250 locations across 10 Western states, said at the National Retail Federation convention in January 2014 that getting people to use their loyalty cards has always been a bigger hurdle than collecting the actual payment. "Isis' embedded loyalty component, however, can ensure consumers use the loyalty program for all purchases," Evans wrote.
Host Card Emulation (HCE) enables NFC applications on Android devices running KitKat 4.4 to emulate contactless smart cards and issuers to host payment accounts in a virtual cloud. BlackBerry also supports HCE.
Without HCE, NFC-based payment and loyalty cards and digital vouchers need to be stored in a secure element that is embedded in smartphone SIM cards and controlled by a mobile operator. Visa and MasterCard both announced in February 2014 that they support HCE.
Evans wrote in a Euromonitor blog that HCE will provide a boost for NFC-based mobile wallets. "Thanks to HCE, the NFC payment ecosystem is now more open than it has ever been in the past," she wrote. "This means developers can add NFC-based mobile payment functionality to apps without having to get approval (from mobile operators) to integrate it within the phone's hardware. A wide range of businesses — from banks to fast-food operators to retail chains — can now more easily leverage their sizeable user base and consumer trust to integrate NFC payments into their existing mobile apps and become contenders in the world of in-store mobile payments."
One of the first North American retailers to support HCE is Tim Hortons. In December 2013, the QSR chains launched an NFC payments app based on HCE at its Canadian and U.S. restaurants.