The Mobile Wallet Wars: Are Protectionist Practices Stifling to Innovation?

  • May 2013
  • Posted By hsgdev

Mobile Wallet

The Payments Situation:

It is no surprise that each day new players are entering the payment arena. From enabling small merchants to take payments (e.g. Square, GoPayment, PayPal Here) to making payments (e.g. LevelUp, Starbucks, Dunkin Donuts) and mobile wallets (e.g. Paydiant, ERN Global, MC MasterPass,, there is a tremendous amount of activity in and around mobile payments. Particularly interesting at the moment are mobile wallet companies that are muddying the payment waters by offering payment, personal financial management (PFM), customer experience, and commerce functionality.

Traditional payment processors are seeing a new threat from mobile wallets. In a bold move, MasterCard has announced that they will be charging a fee to mobile wallet providers who do not properly transfer the same level of transaction details to MasterCard as they would get from a normal point of sale device. While MasterCard claims this fee will ensure that data from the new mobile wallet sources is properly recorded on customer’s credit and debit card statements many view it as a direct attack on mobile wallet development. Other processors, such as Visa, have chimed in with support for MasterCard. In a recent statement, Visa has defended the need for the fee as “totally appropriate” for the networks to charge.

Why MasterCard Views Mobile Wallets as a threat:
On the face of it, some consumers might be surprised at MasterCard’s actions, given that mobile wallet is just a container for individual’s credit and debit cards. Why should payment companies feel threatened if consumers are still ultimately using their credit cards?

  • Issue 1: When people link their credit or debit cards to a mobile wallet, the payment processor (e.g. Visa and MasterCard) is now an additional step removed from the transaction. While before Visa might be able to collect data on the transaction, such as “Consumer X bought Y amount from Grocery Store location Z”, now the mobile wallet provider will be capturing this data, and could choose not to share it with Visa. In addition, the mobile wallet provider can combine multiple small transactions into one larger transaction, giving the payment processor even less data. The payment company is being cut off of valuable transaction level data.
  • Issue 2: In addition to losing data, payment companies are also losing revenue. Many mobile wallets aggregate multiple small transactions into one larger transaction, leverage alternative ways to process transactions (e.g. directly from a customer’s checking account bypassing the payment card all together), or hold deposits from the customer from which to make payment (e.g. pre-paying money into your Starbucks account in order to make payments using the mobile payment application) – all of which cuts into the payment processor’s margins.
  • Issue 3: Payment processors worry that leaving these threats unchecked, they are inviting further encroaches onto their business.

What MasterCard is Overlooking:
While MasterCard is focused around the threat that mobile wallets are posing to payments, this is the wrong focus.

It is true that mobile wallets are handling payments, but the heart of mobile wallets is not payments; rather mobile wallets exist to create a commerce experience (not just a payments experience). Mobile wallets are being created to make everything about shopping easier; payments just happens to be one cog in the wheel.
Looking more closely at mobile wallets, it is easy to see a greater purpose beyond simply payments:

  • Disney’s MyMagic keeps track of park tickets, fast pass assignments, room keys.
  • Catalina’s Mobile ScanIT app is used to help grocery stores facilitate easier coupon redemption and faster self-checkout.
  • ERN’s Global Looop Wallet is centered on helping store multiple payment and loyalty card information and transactions so a consumer has an easier time accessing this information.

The truth is that many of the mobile wallet applications aren’t focused on competing around payment. They’re focused on innovating around new areas that enrich a customer’s experience. Even industry disrupters like LevelUp, are focusing on the use of mobile as an offer and loyalty platform and not on the payment functionality.

Why MasterCard Should Change its Position:
Viewing mobile wallets as a commerce experience, rather than another payment vendor, immediately changes what MasterCard’s position should be. Rather than competitors, mobile wallets might actually help MasterCard. MasterCard can take advantage of new innovation that mobile wallets create, without heavy testing costs. We are still in the early days of this developing space with hundreds of new mobile commerce start-ups. Seeing what works and what doesn’t can allow MasterCard to avoid failures of its own.

Additionally, consumers are just now becoming accustomed to using apps for commerce. Encouraging more commerce, rather than closing avenues to consumers, can create new profit opportunities for MasterCard and other payment vendors.

MasterCard and the other “incumbents” are better served using “carrots” to encourage the innovation versus “sticks” to control and direct the innovation. If I were MasterCard, I would look into creating partnerships with mobile wallets, as they have in the past. This would encourage mobile wallet innovation, helping create the ecosystem and encourage mass adoption. This creates a win-win solution for both MasterCard and mobile wallets.

In my experience, impediments to innovation tend to be met with vigorous efforts to circumvent the impediment. As we the mobile commerce and mobile payments space is in its infancy, it is not prudent to try and construct barriers and “walls” that isolate yourself from wide participation. This is especially true given we all have no idea how this space will shake out. Consumers have not yet spoken on how mobile payments will play into their lives.

By: Greg Garson
Greg Garson


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