Mobile wallets: definition and control points

This article summarizes the two mobile wallet white papers published by Mobey Forum. The papers offer a workable definition for the mobile wallet, and explore use cases, stakeholders in the ecosystem, and the ‘control points’ that will define how the technology develops.


Mobile wallet – definition and need for openness



This article summarizes the two mobile wallet white papers published by Mobey Forum. The papers offer a workable definition for the mobile wallet, and explore use cases, stakeholders in the ecosystem, and the ‘control points’ that will define how the technology develops.


Mobile wallet – definition and need for openness


The deployment of the mobile wallet has begun and already there are many different definitions for the term in circulation. The term ‘mobile wallet’ points to similarities with a conventional wallet but the word ‘mobile’ refers to the main characteristic that a traditional leather wallet lacks: connectivity. Mobey Forum defines a mobile wallet as ‘functionality on a mobile device that can securely interact with digitized valuables’.  This is a deliberately broad definition. A mobile wallet of the future could conceivably contain all manner of payment mechanisms which to us, at this early stage of the technology, are unfamiliar.


For the mobile wallet to give the end user the maximum benefit, Mobey Forum believes it should operate as an open platform. Conventional wallets do not place restrictions on the user; it is important that this attribute is carried forward to the mobile wallet. As a ‘white-labeled service’ the user will retain the power to decide which services and brands they include in their mobile wallet. Competing brands coexist peacefully in the physical wallet and Mobey Forum believes that users will expect this also to be the case in their mobile wallet.


Use case and success factors for the mobile wallet


In recent years, conventional portable items such as cameras, maps, diaries and notebooks have all been successfully integrated onto the mobile device. Today the physical items that most consumers still carry in their pockets are their keys and wallets. Merging the wallet into the mobile phone therefore seems like the natural next step from both the user’s and the payment industry’s point of view.


The roadmap for the development of a viable, sustainable mobile wallet solution is far from clear. Convenience, security and value are all critical factors in making the mobile wallet a success and there is still a long way to go before any mobile provider can claim to have developed a ‘definitive’ model.


The ease of having all a user’s payment information present in the mobile wallet gives it an advantage of convenience over the physical wallet. Users can access complimentary financial services that are linked to their payment information from within the mobile wallet itself. Another key benefit that sets the mobile wallet apart from the traditional counterpart is speed. Early trials indicate reductions in time consumers spend paying for goods and services when using their mobile device.  An increase in payment speeds is especially convenient when users are rushing through high traffic places, such as train stations at rush hour or petrol stations for example.


Mobey Forum believes that a simple, one-to-one migration of the characteristics of the physical wallet onto a mobile device will drastically limit its appeal and inhibit the technology’s success. If mass user adoption is to take place, a mobile wallet needs to provide the user with additional value added services. At this early stage, it is beyond our imagination to foresee all the possible services that could be offered as part of the mobile wallet. It has the potential to contain a wide variety of functions, we have already mentioned complimentary financial capabilities, but identification and mobile marketing services may also prove popular. Ticketing functionality and identification credentials such as e-driving licenses and even e-passports may coexist happily alongside incentivized marketing campaigns such as location-based offers, electronic coupons, loyalty currencies and more.


Mobey Forum believes that although the ability to pay for goods is central to the mobile wallet, it is these value added services that will tempt consumers into adopting the technology over their conventional wallets. In short, the driving force behind the mobile wallet will be the marketing opportunities it offers to businesses, and the incentives those opportunities deliver to end users..


Importance of standardization and interoperability


With so many players competing for influence in the market, standardization and interoperability will be difficult to achieve. This may lead to a proliferation of competing solutions and result in a fragmented market, which in turn will hamper consumer adoption. Through cooperation, however, different players may be able to develop common business models and technical standards for the mobile wallet, driving greater choice and healthy competition between models.


If however standardization fails to occur through cooperation, the free market will eventually favor a solution, which will then become the de facto standard, allowing the  majority of ‘control points’ to be dominated by individual players.


Stakeholders for the mobile wallet


There are a number of stakeholders looking to have control of the mobile wallet market and all offer different advantages for controlling specific parts of the ecosystem.


The main advantage that banks and financial institutions have over the other stakeholders is that their customers trust them with their money. However, they still need to consider time to market, speed of execution, new security and authentication schemes as well as an understanding of the opportunities represented by mobile payments.


Payment scheme owners are already present at point-of-sale networks and have an existing security infrastructure in place. However, their intent for the mobile wallet is unclear and there are also non-card payment schemes, such as PayPal, that are looking to control specific parts of the mobile wallet.


Device manufacturers have the advantage of holding strong consumer brands. They play an important role in ensuring the wallet is integrated onto the handset and provides a positive experience for the consumer. Operating system (OS) providers, such as Google, can embed and control vital security provisions and native applications of the mobile wallet as well as update them to ensure that the devices remain secure. They too are critical for ensuring a good customer experience.


Merchants’ commitment and involvement is vital to the success of the mobile wallet. However, they are only likely to invest if mobile wallets prove popular with their customers and offer a more cost effective, faster, easier and safer way to pay than other payment methods. Merchants could also use the mobile wallet to gain brand exposure and enhance customer relationships by offering loyalty incentives, discounts and other marketing offers.


Mobile network operators (MNOs) have the advantage of a large customer base and control of the network and SIM cards, through which they can install applications and functionality onto their customers’ handsets. However, their limited experience in payments will require them to forge partnerships with financial institutions in order to develop competitive services.


For internet technology companies, such as Amazon, Google, Groupon and Paypal, mobile is another channel to provide services to customers. These companies also hold key data on customer behavior and interests, and can offer technology based consumer profiling for acquisition and retention.


Control points in the mobile wallet ecosystem


Mobey Forum has identified specific points of control in the mobile wallet ecosystem, and within these points, two main groups. The first group is concerned with the initiation of the mobile wallet and determines if and how users can enable the mobile wallet on their devices. The second group determines the operation of the wallet, including the management of connections, data flow, access to the data and getting value in and out of the wallet.


Control point: access management


One of the control points for the initiation of the mobile wallet is ‘access management’. This defines the types of devices, operating system and wallet implementation that can be connected to the services. It also defines the delivery of the content. The obvious candidate to control this point would be the mobile wallet provider.


There are a variety of distribution channels for the mobile wallet which are likely to be utilized by different stakeholders according to their conventional capabilities. Device manufacturers, for example, can embed the wallet in the handset and update it through firmware upgrades, while operating system vendors can implement the wallet functionality in the same way they do with, say, messaging or calendar applications.


MNOs have the advantage of widespread retail presence and the ability to distribute the wallet on the SIM card. Application stores, such as Appstore, Android Market and Windows Phone Marketplace, meanwhile, have established themselves as distribution channels for downloadable applications. Other possible distribution methods include technologies such as Bluetooth, side-loading or memory cards.


Control point: acquisition and enrollment


The customer acquisition and enrollment control point includes signing up users, registration, marketing, education, promotion and training. Although any stakeholder in the mobile wallet ecosystem could control this point, the ones that currently have the advantage are banks, MNOs and merchants. This control point is the main access route to existing customer segments and marketing channels. Banks are well placed to manage this point as they already have in place the ‘Know Your Customer’ process required to issue payment instruments, they have cash management products and also have access to a large customer base.


MNOs also have the advantage of an extensive customer base and a large network of retail shops. Furthermore, if they subsidize devices, they control which mobile wallet implementations they accept on their networks and can pre-install software onto the handsets. Although merchants and public institutions are expected to issue applications for the mobile wallet they could, in some markets, control enrolment and acquisition, especially those that have a large customer base and are already familiar with customer identification and marketing.


Control point: connection technologies


The bearer/connection technology control point refers to those stakeholders capable of setting connection exclusivity, defining cross-network compatibility or limiting specific connection types. These stakeholders are likely to be the networks and device manufacturers. Possible bearer technologies include SMS, unstructured supplementary service data (USSD), WAP, Bluetooth, near field communication (NFC), Wi-Fi and cellular technologies. If USSD or SMS are used, MNOs have an advantage as these technologies require the management of short codes, something that the MNOs have great experience in handling through their history in SMS services.


Control point: driving value


The options for driving value in and out of the mobile wallet will most likely be controlled by banks or issuers of virtual currencies. This could be done through a direct link to the user’s bank account or credit / debit card, or through a stored value mobile account. There are also virtual currencies, such as Linden Dollars and Facebook Credits that could play a significant role. Coupons and special offers can also be used to bring value to the wallet. Getting value out of the mobile wallet is done through value transfer, payment for goods or redeeming coupons. These channels will use remote and proximity based technologies to execute payments in ways that are specifically tailored to suit individual users’ needs.


Control point: data flow


Finally, data flow is controlled by stakeholders that manage the transaction / session, provide interconnections between payment networks or control any protocol conversion point. Typically, this data is controlled by the mobile wallet content provider, value added service provider, a public or legal authority, a merchant, or an MNO.


The question of who really owns the data in a mobile wallet remains unanswered. Many stakeholders claim ownership of the data; customers because they produce it, retailers because it is their products that are being bought, and payment institutions because they are required to keep payment and transaction data secure.


Conclusion


Mobey Forum’s ‘control point’ approach illustrates how particular stakeholders can control one or more parts of the mobile wallet ecosystem. This approach enables the ecosystem to be mapped out by responsibility, highlighting the areas where stakeholders that share ownership of a control point could cooperate in order to facilitate a better end user experience.


Mobey Forum believes it is in the interest of each stakeholder to be crystal clear about why it should be the one to control a specific control point, the resulting consequences of that control and how to resolve conflicting stakeholder interests.  After all, any conflicts around control points could harm the potential for widespread end user adoption and therefore damage the ecosystem as a whole.