April 22, 2013
Despite a recent comScore survey that found U.S. consumers reluctant to buy into the “virtual wallet” trend of mobile payments, there has been significant activity in the space this year.
ComScore’s survey of 2,283 online U.S. consumers indicated just 12 percent were aware of and used non-PayPal digital wallets on a regular basis, and 23 percent of those surveyed indicated they have no plans to do so in the future. Yet despite what appears to be a long road ahead for adoption of the technology, major players have recently thrown their hats into the ring.
On February 26 news broke that MasterCard had unveiled its MasterPass service, which is basically a smartphone app that will let users scan items in a store and show a digital receipt to a cashier on the way out. The day after Baird’s conference ended, Samsung announced its Wallet app.
These offerings join a growing field of contenders that are attempting to gain share in the market – including Apple’s Passbook, Google Wallet, Square Wallet, PayPal, Visa’s V.me, MasterCard’s Paypass, ISIS, Lemon Wallet, FidMe and Level Up. The offerings are mainly mobile/online wallets, where consumers can choose from multiple payment mechanisms (like their Visa- and MasterCard-branded cards), and then use these established accounts for payment. While several of these wallets are already useful in online transactions, they could eventually become more meaningful in sparking growth in mobile payments as well. And part of what Baird expects to fuel that growth is adoption overseas.
Payments Without Borders
Baird is seeing increased appetite for mobile payment technology internationally. There are billions of people in the world who have cell phones but no bank account. That sets up a very interesting situation where the proliferation of the technology may surpass the penetration of traditional banking services. In certain countries, you could envision the cell phone being used as a banking device with funds deposited directly into a phone-based account. If that occurs, there would be a segment of consumers in underdeveloped countries who might almost totally bypass the entire physical banking system.
Major card companies appear to be recognizing that international markets present a major opportunity for incremental, long-term mobile payment growth. This would help explain why MasterCard identified the United States as a second-phase market – following Australia and Canada – for rollout of its new virtual wallet app. For investment banks that want to shepherd deals involving these companies, success will be contingent on their ability to bring together multi-sector teams with deep knowledge of both the underlying technologies and the client industry targeted by the service (both being areas of particular strength at Baird).
Developing countries throughout Asia, Africa and Latin America could be where card companies will focus most on mobile adoption. They have much lower barriers to entry due to minimal existing card penetration. There are also opportunities in countries like Japan where there is a cultural emphasis on mobile technology as well as infrastructure to support integration and mass adoption by consumers.
Why U.S. Consumers Aren’t Blazing the Trail
Baird believes there are several factors that have contributed to slower progress for mobile payments in the United States. Many U.S. consumers just aren’t as mobile-friendly as those in other markets and still find the technology too complex. Comparatively, swiping a card at the point of sale seems easy.
There are also headwinds related to the implementation of new mobile technology. The first comes from phone companies, which must invest resources to develop and install technology on consumer devices to easily execute payments. Additionally, merchants must purchase new devices to receive payments. The reality is that these barriers are all tied together and may fade as more resources are allocated for mobile and the technology proliferates during the next couple of years. Consumers should become more comfortable with both the evolving technology and the idea of paying for in-store purchases with a mobile device.
David J. Koning, CFA
Senior Research Analyst