Over the last decade, technology has touched nearly every aspect of our lives.  The digital revolution brought upon by the internet, mobile devices, telecommunications and cloud computing have made the biggest impact on our personal, professional and social lives.  The next stage of transformation of business will come from the universal adoption of mobile wallets for payments.

The change in how we think about cash and wallets will be apparent in the next few years. For the most part, cash and cards will be kept at home and used only on rare occasions when needed. Physical wallets will slide into oblivion.

This disruption of the payments mechanism is expected to affect both consumers and merchants alike. Advancements in mobile technology are enabling consumers to use their mobile devices as wallets and make payments anywhere possible – whether online or offline.

Mobile wallets are usually enabled by device platforms (e.g. Apple iOS or Google Android), manufacturers (e.g. Samsung) and third party application developers. At their basic level, they were used primarily to store information of the debit/credit cards, loyalty cards and make payments at certain access points. However, this limited their usage and prevalence.

Now mobile wallets have evolved in technology (e.g. Near Field Communication – NFC and Host Card Emulator – HCE), global acceptance (e.g. flourishing online business models accepting mobile wallets) and options available to the consumers. Mobile wallets, apart from allowing consumers to store personal financial information and cards, are now able to securely store money, view and choose payment methods, and include other commerce features such as coupons, offers, rewards, loyalty, and product information.

The request for speed and convenience from consumers is a major driving force behind the cashless or cardless revolution. From making contactless payments for a flight or a train journey, to a one-click shop on Amazon, quick and easy options made possible by the mobile wallets are winning over consumers. The need to store money on a separate card or visit ATMs has been eliminated.

The benefits of the mobile wallet though go beyond speed and convenience. There are no more paper receipts since all the spending is itemized and categorized in an easy-to-use app, and loyalty points and tickets are captured and stored automatically.  Some of the mobile wallet service providers (e.g. PayTM in India and AliPay in China) are also considering payment of interest on stored cash. Additionally, the prolification of smartphones has enhanced the potential of mobile wallets   to reach the unbanked and those living in the remote regions without easy access to the financial system.

Mobile wallets with their benefits are resulting in the disruption of banks and card networks. Competitive threats are no longer coming from their industry peers, but from disrupters across telecom (e.g. Bharati Airtel which has applied for banking license in India), cash rich retail (e.g. Amazon and Alibaba providing lending services), and smartphone manufacturers (e.g. Apple and Samsung).   Some startups (e.g. PayTM and MobiKwik in India) are also contributing to the disruption in the financial transactions industry.

In our next post, we will analyze the unfolding of this disruption and and understand what the banks and card networks are doing to address it . In the meanwhile, please check out our detailed white paper on this topic.

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