Wednesday, November 23, 2011

Winning the battle for mobile at the retail POS

November 22, 2011

The last year has seen a proliferation of digital wallet announcements, pilots, and launches, some of them promising to reshape the way consumers shop at brick-and-mortar stores.

Banks should respond by throwing their weight behind near field communication technology, according to a recent Celent report. Despite many reservations, such as availability of handsets, required infrastructure investments, and ongoing business model debates with the [mobile network operators], NFC offers the best opportunity for banks, other incumbents, and their partners to remain the architects of a redefined retail point of sale landscape.

“This isn’t just about NFC,” says Zilvinas Bareisis, senior analyst with Celent’s Banking Group and author of the report. “If banks play their cards right, NFC-based solutions offer them an opportunity to remain in control of merchant and consumer relationships. The alternative vision of commerce promoted by cloud-based mobile wallet providers, such as PayPal, is a lot less appealing to banks and other incumbents.”

The report investigates what it takes to bring mobile solutions to the retail point of sale. Key findings include:

• Over the last 12 months or so, there has been a considerable increase in the buzz around mobile and electronic wallets in the developed markets. New wallets have been launched (e.g., Google Wallet, AmexServe) with many more companies announcing their intent to compete in this space (e.g., Visa, PayPal, Isis, and others.) A number of industry leaders proclaimed (again) the end of physical wallets.

• Not all digital wallets are the same. Some are better suited for money transfers and m-commerce, while others aim to bring mobile to the physical retail point of sale. The latter type is the focus of this report.

• Celent's research and analysis indicate that the battle for mobile at the retail point of sale is being fought along four major domains:

1. POS communication technologies: Which technologies should be used to communicate the payments credentials to the merchant's POS: NFC vs. QR codes vs. sound-based data transfers, etc.?

2. Secure element location: Where should the payments credentials be stored—inside the phone (with further options) vs. the cloud?

3. Payment account: Which account is going to be used to settle with the merchant—card vs. bank account vs. mobile network operator vs. a new scheme, etc.?

4. Wallet interface and service provision: Whose app will the customer use more—the one offered by the wallet provider or by the provider of the payment credentials?

• There will be multiple competing wallets at the retail point of sale with customers being the ultimate judges of their success. Celent believes that anyone launching a mobile wallet should think along the following categories:

1. Wallet as a consumer product—availability, distribution, branding, customer service, etc.

2. Availability and management of payment credentials.

3. Provision of relevant information.

4. Availability of other, nonpayment services.

• The sophistication of features under each of those categories is likely to grow over time. When describing the requirements for a successful wallet, Celent distinguishes between:

1. Must-have characteristics, such as the wallet openness and ability to load and manage multiple payment credentials.

2. Features that successful wallets are likely to have, such as provision of digital receipts and integration of merchant offers.

3. Likely future capabilities, such as rule-based auto-selection of a payment mechanism at the time of purchase and ability to load and use other credentials found in most physical wallets today, such as a driver's license, various access cards, etc.

• Celent is skeptical that consumers will soon be able to get rid of their leather wallets. However, various new players, particularly cloud-based wallet providers, threaten to take over the banks' relationships with consumers and merchants at the point of sale.


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