Mobile payments: The customer is king

I have read several articles on the bank/issuer centric approach to the mobile wallet. Sometimes I read what these analysts say and I hang my head in disappointment. Some say the mobile wallet will never be more than an idea; others say they disintermediate banks; and then there are those who say we are on the brink of something really great (I really dig it when they say this).

Take a moment and think about how you generally pay for “stuff” — that cup of coffee at the local shop, those awesome new shoes, the insanely expensive tank of gas and even that half-pint of Ben & Jerry’s. When you think about it, we buy a lot of “stuff.” So much so that, according to the U.S. Bureau of Economic Analysis, U.S. consumers spent USD $9.672 trillion in fourth quarter 2012. As a country, that means we dug deep into our wallets.

During my sophomore year in college, my Accounting 101 professor (who rivaled Doc Brown from Back to the Future), shouted, “Cash is king!” from atop his desk as he stared fervently into the auditorium of students on the first day of class. I am not sure that is the case these days. If I were in his class today, I would shout back, “No, the customer is king!” The customer is king. Our industry spends countless hours and dollars studying customer preferences, behaviors and drivers, yet as practitioners we seldom keep our customer perspective when strategies are being developed.

So, keep your customer hat on for a second.

Pull out your wallet.

Do you see a bank logo on your wallet?

I’m guessing (and hoping) there’s not a bank logo on your wallet. If there is, you failed the litmus test and you can stop reading at this point. If there isn’t, there’s probably a good reason.

I am not convinced financial institutions can be successful in providing mobile wallets to consumers. Although banks may own their card or account, I do not believe consumers are willing to give them complete control of their wallet. It is similar to the account aggregation issue that we have seen in the market since the early 2000s: Consumers do not trust institutions to have that much control nor that much data. Individuals who use personal financial management (PFM) tools or interbank aggregation services prefer to use solutions that are not provided by their financial institution. Instead, they flock to sites like Mint, Personal Capital and others. It’s also the reason why the industry shows that only between 4 and 7 percent of online banking customers want bank-provided PFM tools.  

Many people who support leading mobile payment capabilities for financial institutions may disagree with me, but we have to consider the customer: He or she does not want to be tied down to one card or one wallet, much less one account; it’s the reason most of us, as consumers, have more than one bank account and multiple cards in our wallet. A debit card(s) may serve as our primary card for everyday purchases and ATM withdrawals, a rewards credit card(s) offers us a return on our spending, a store card(s) provides discounts on  purchases at our favorite department stores or shops, and, finally, a spare card(s) serves as a back-up or emergency card. In most cases, multiple issuers or banks provide these cards.

In the beginning, successful mobile wallets will be provided by unaffiliated third parties. I am a big proponent of mobile wallets like Square, Dwolla and Lemon. All three have successfully designed a rich user experience on the device and a clean and seamless experience at the point-of-sale (POS). In my opinion, these wallets have been and will continue to be successful because they built their products based on consumer need and they are neutral in terms of the financial institution the client uses. And, as we have seen with Square and Dwolla, the more merchants that accept their payments, the more customers we see adopting their wallets, which will ideally drive usage.

Mobile wallets that have been less successful include Google, Visa, Sprint and even Isis, which I believe foreshadows a bank’s future in payments. Many of these providers chose to lead with the bank or issuer, and — even worse — the carrier, rather than the customer. Before a bank chooses to develop a wallet for its clients, the first thing it needs to do is foster constructive interactions with its primary users. We cannot forget that the customer is king!

Many of the clients I speak with often ask, “How do we compete in mobile payments?” The answer is simple: Talk to your customers and listen to what they say and don’t say. One of the most important lessons I learned early in my career is that you often learn more from a customer by what they don’t say than by what they do say. For banks, this means studying consumer behaviors as it relates to spending, debit and credit card usage, frequency of transactions, places where they spend money, etc. It also means that, to the degree possible, banks need to learn about consumers’ offline behaviors as well. The voice of the customer is one of the most powerful pieces of data available to us, but, unfortunately, it is one of the most seldom used. To stay relevant in payments, the bank needs to continue to offer compelling reasons to remain top of wallet, even if that means it’s a mobile wallet. Where I feel most financial institutions go astray is that they view the mobile wallet as a different utility than the wallet in a guy’s back pocket.

I believe mobile wallets will be one of the most important advancements we have seen since the mobile phone. The potential for applications such as Apple’s Passbook combined with transactional data owned by financial institutions plus the opportunity to access data on a secure device or in a secure cloud can change the way we shop, spend, save and interact. I understand and welcome the energy coming from our industry surrounding the future of payments. We should use this as an opportunity to help set the stage for success — learning from the years of experience in all things digital.

If you have not had the opportunity to use the applications referenced above, I strongly recommend you give them a try. I promise they are going to revolutionize our patterns of behavior.

What do you think the future holds for mobile wallets? Join the discussion.