Complementary Mobile Experiences Key for Banks to Remain Top of Wallet

Apple Passbook Key for Banks

By Mike Davidsen, Senior Associate within the Financial Services Strategy and Operations team, KPMG in the US.

Global Head of Banking and Capital Markets

KPMG in the UK


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Mobile payments have long been the hot topic in financial services that generates much media hype but ultimately fails to take off. Outside of just a few success stories in the quick service restaurant industry, mobile payment solutions at-large have struggled to gain any meaningful traction. But, with the October 2014 launch of Apple Pay, consumer interest in making both in-store and in-app payments is expected to gradually rise, prompting both merchants and banks to sort out their strategy on digital wallets.

Up until this point, banks have lacked the business case for developing a proprietary wallet. Instead, most large banks have shown a willingness for having their cards included in third-party mobile wallets as a way of indirectly addressing new consumer payment demands. Though some wallets like Apple Pay take a cut of interchange fees, banks have justified the revenue sharing through a forecasted fall in fraud from biometric and tokenization security mechanisms.

A Hands off Approach

Banks’ ‘hands off’ approach to mobile payments prevents them from over-committing to a specific wallet infrastructure but leaves their cards susceptible to commoditization. Consumers often choose to add multiple payment cards when enrolling in a third-party wallet like Passbook (Apple Pay) or LevelUp, which gives way to a battle for branding and interchange between card issuers. Consequently, banks have made a push to be the default card in a given wallet.

Being ‘top of wallet’ is so important that Passbook automatically updates expiring credit cards so that card credentials do not have to be re-entered and the default position is never lost, according to 9to5mac. As opposed to a physical wallet, digital wallets lack the tangible interface that encourages consumers to more closely evaluate payment options before making a purchase. In a digital setting, more times than not, consumers are forced to navigate away from the payment execution screen to switch payment cards within a wallet app.

Threat of Commoditization

Capital One has addressed this threat of commoditization by offering its own wallet app that complements the Apple Pay experience. The app sends real-time purchase notifications for detecting fraud and provides detailed transaction history with merchant information like store locations, according to an article from Tech Crunch. Similarly, another card issuer provides a transaction history feature within Apple’s Passbook app that redirects users to the native mobile banking app when drilling down into a transaction.

Competing banks should follow suit by offering similar features to customers or by building new features on top of existing products and services. Larger banks might consider integrating their rewards platforms with mobile payments to increase transparency of rewards or to allow for redemption of points at the point-of-sale.

The ability to highlight points earned on each incremental purchase can help customers reinforce commitment to the bank’s loyalty programs. Similarly, real-time purchase notifications can increase exposure of the bank’s brand and be integrated with existing mobile banking features like low balance alerts to help drive consumer engagement.

A Threat and an Opportunity

The proliferation of third-party wallet apps comes as both a threat and opportunity for the financial services industry. Burdened with costs related to regulatory reporting compliance and IT infrastructure, banks have taken the right approach in allowing third parties to host the digital payment experience. However, banks must assert ancillary payment features to consumers to avoid being seen as just a commodity in retail payments and having their cards buried in third-party wallets.

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