We interviewed Johan Fagerberg, CEO of wireless analyst firm Berg Insight, to get his views of the ever-evolving mobile wallet payments arena and give us a few basic facts on a sector that is likely to experience triple-digit growth rates over the next few years.
In a nutshell, what is a mobile wallet?
A mobile wallet is an application that enables in-store payments to be authorized with a mobile phone. Furthermore, a mobile wallet facilitates the delivery of value-added services such as offers, coupons and receipts. Eventually, mobile wallet services will make it possible for consumers to leave their leather wallets at home, as all shopping can be done using a mobile phone. In addition to in-store payments, mobile wallets can typically be used for other purposes such as conducting person-to-person money transfers or online purchases. There is a range of technologies that can be used for completing a purchase with a mobile phone. NFC is often considered to be the obvious future technology, but there are also several alternative technologies such as 2D barcodes, RFID tags, encrypted sound and Bluetooth. See this announcement by Vodafone and Visa early last year
Why do mobile wallet services matter and what is the status of the market today?
Mobile wallet services will change both offline and online commerce by enabling new shopping experiences for consumers and by creating an unprecedented opportunity for retailers and brands to interact with their customers while purchase decisions are being made. However, the mobile wallet market is still in its infancy. Relatively few companies have launched mobile wallet services that are commercially available to consumers, and mobile wallets are still accepted at very few stores. The market is nevertheless now moving rapidly and commercial rollouts of numerous NFC and non-NFC wallet services are underway.
The required infrastructure for mobile wallet services is being rolled out and key partnerships are being formed between mobile network operators, financial institutions, retailers and other companies. This will result in a proliferation of mobile wallet services during the next few years, which will be a very important time during which wallet operators have an opportunity to learn and improve their services. Before mobile wallets can attract the mass market, a broad range of services beyond payments need to be made available to consumers. People do not have a problem with cash or payment cards today. Value-added services that enable new shopping experiences before, during and after payments will be what truly distinguish mobile wallets from the traditional payment instruments.
How is the European market for mobile wallet services developing?
The European market for mobile wallet services is developing quickly, with substantial momentum behind NFC wallet services and many launches of non-NFC wallet services are also in progress. Commercial mobile wallet services will have been launched by companies such as Telefónica, Orange, T-Mobile, Vodafone, ING Bank, BNP Paribas, Barclaycard, Swedbank, mBank, PKO Bank Polski, Seamless, Auchan and PayPal by the end of 2013. As a result, there will be mobile wallet services live in nearly half of the EU27+2 countries at the end of the year. Berg Insight expects that 2016–2017 will be the first years in which mobile wallets approach mass market penetration and more than ten million new wallet users will then be added on an annual basis. The number of active mobile wallet users is projected to increase from 500,000 in 2012 to 42 million in 2017, whereas the in-store payments volume will grow from well below €0.1 billion in 2012 to €45 billion in 2017.
How is the North American market for mobile wallet services developing?
There were approximately 7.5 million mobile wallet users in North America at the end of 2012, which completed in-store payments for a total of $0.5 billion (€0.4 billion) during the year. However, this relatively high number of users and transactions was almost exclusively due to the phenomenal success of Starbucks’ application for mobile payments that had around 7 million users at the end of 2012. Mobile wallets that can be used at multiple merchants only had a few hundred thousand users in the region at the end of 2012. However, many promising initiatives are underway in both the US and Canada. Companies and consortiums such as Google, Isis, MCX, PayPal, CIBC, LevelUp and Square are competing to become the consumer’s wallet of choice, each with a unique approach to the market. Berg Insight expects that several of these initiatives will have a significant impact on the market already in 2014. The number of active mobile wallet users will increase to 29 million in 2017, whereas the in-store payments volume will grow to $44 billion (€33 billion) in the same year.
How large is the mobile wallet opportunity?
The emergence of mobile wallet services is the most significant development in the payments industry during the foreseeable future, as mobile wallets will eventually replace cash, credit cards, debit cards and checks to become the most common payment method for both in-store and remote purchases. Currently, payments with credit cards and debit cards worldwide amount to approximately €10 trillion on an annual basis, which corresponds to roughly 20 per cent of the world’s GDP, or one third of global household consumption expenditures. Cash and checks are used to pay for another €15 trillion in purchases worldwide each year.