Who Won’t Win The Mobile Wallet “Wars” And Why

Blame it on the promotional run-up to the December 2015 release of Star Wars Episode 7, but the subject of the mobile wallet “wars” seems back in the news. And like all wars – intergalactic or otherwise –  there’s no shortage of opinions about who’ll win and why.

So what better opportunity to share my perspective on the players who are manning their mobile wallet battle stations and preparing for the onslaught.

Apple won’t win the mobile wallet wars, although they could win a few key battles and capture some valuable territory.

Neither will Google, despite their size and years of slogging it out trying to gain ground.

Microsoft doesn’t stand a chance.

PayPal, Amazon, Alipay, and even Starbucks are well-positioned.

Samsung with LoopPay, is potentially too.

Facebook is a wildcard with a shot.

And Visa and MasterCard are potentially the big winners, no matter what happens (at least in the short term).

But not for any of the reasons that you’ve probably read about previously.

What I’m about to lay out is an entirely new way to look at these mobile wallet warriors and then how to handicap their chances of winning what we, in payments, so fondly refer to as the “mobile wallet wars.”

Here goes.

To even remotely stand a chance of winning the “war,” a mobile “wallet” can’t be captive to just one mobile operating system or device and the set of customers that that particular operating system has gotten on board its platform – and then the subset of those consumers who have decided to download and activate its “wallet.”

The “winner” has to work across operating systems, shopping channels, browsers and technology platforms.

With an app enabling the payments capabilities that consumers like and want to use at their favorite merchants, businesses and possibly even to pay their friends.

And adapt to whatever connected devices come along in the years and decades to come that consumers want to use in support of commerce.

Because the weapon that’s most needed to win what everyone is calling the mobile wallet wars is  … drumroll please….

Enough consumers using those wallets for merchants to care enough to accept them.

And just like their leather wallets today, consumers want one mobile “wallet” that enables them to use it pretty much everywhere that they like to shop.

Controversial, you say? Here are the proof points behind what you might be thinking are some pretty big and bold claims.

Consumers don’t use just one device to shop – and they never will.

The number of Internet-enabled devices that consumers own is growing and not shrinking – everywhere in the world. Digitas conducts a study annually on retail trends and the impact of digital devices on consumer shopping behaviors. In 2014, their 17 country survey (including India, Australia, China, U.K., and the U.S.) revealed that consumers, on average, used 2.8 devices as part of their shopping experience.

A year later, that number is now 5.

And, that’s not terribly inconsistent with the most recent data from Nielsen (2014) that reported that consumers in the U.S. owned 4 digital devices, excluding TVs, and relied on all of them at some point to both consume content and shop.

Now, this isn’t because consumers have ADD.

Digital devices are now with consumers at all points throughout the day and consumers move between all of them seamlessly to opportunistically and episodically look for and/or respond to offers to buy things. Searches that may start on the desktop during the lunch break, in response to a conversation with a friend, might end up in a sale via a tablet later that day after the kids are in bed. Searches that start on a mobile device on the commute into the office are completed on the desktop at the office with a larger screen. An offer that’s pushed to the front of a device on the walk to lunch is completed in the physical storefront within a few minutes of receiving it. In emerging economies, offers pushed to a feature phone might be completed online at a terminal in the local bodega or at the checkout at the retailer.

Or any number of permutations in between.

It’s not a “millennial” thing either. This pattern of device-shifting crosses all age groups – just think of how you and your family members use the many devices accessible to you and use them to browse and buy.

This behavior will just continue to proliferate as the number of things with an IP address expand.

Just take a look at the Amazon Dash device – a very simple example of an Internet of Things experience for the home that enables the ordering of a single branded item and payment tied to Amazon. Tide laundry detergent is ordered via the Dash button affixed to the front of the washer in the laundry room and paid for using a registered Amazon account. Bounty paper towels are ordered and paid for in the very same way via the Dash button affixed to the cabinet in the kitchen. Dash is a crazy looking plastic device and is, I’m sure, Amazon’s way of seeing how people interact with an Internet of Things experience in their homes. This will only evolve to become more elegant and useful over time.

In fact, estimates say that by the year 2020, 50 billion devices will be connected to the Internet as Dash version 32, cars, appliances, clothing and who knows what else will be equipped and enabled for commerce.

Commerce that is made possible and much less friction-filled if a single “wallet” or registered payment account is attached to all of those devices, whatever they may be.

No single operating system dominates the channels consumers shop either. 

If the typical consumer has and/or uses 5 devices to browse and buy, then it’s probably pretty likely that at least 2 of them, if not more, run different operating systems. Their desktop or laptop might run the most current version of Windows, their tablet, iOS and their Samsung phone, some version of Android – and likely not even its most current version.

Operating system based wallets aren’t, by their very nature, interoperable and won’t likely ever be. It will be a cold day in you-know-where before we see Apple operating in the Android environment and vice versa. That means that consumer shopping habits and preferences which we’ve just established cross devices, then, very naturally forces a fragmentation of the “wallet” market.

And that’s even before taking into account the challenges of gaining critical mass in an environment where operating system dependent wallets only work at certain merchants with specific technologies installed and with specific devices capable of accommodating that technology in a store, in an app or online.

The following chart makes the fragmentation issue pretty tangible.

This fragmentation becomes even more acute when factoring in how consumers use their various devices to search for the things they might like to buy.

Which, according to a study of 8k consumers done late last year, consumers do a lot – and via the mobile Web.

When those consumers do their searching on those devices, naturally, the browser used is highly correlated to the device they are using at the time. Windows and IE, which is the most popular operating system on the desktop, accounts for only 2.5 percent of mobile Web searches. That’s because Android and iOS users use Google and/or Apple browsers, respectively, and Windows smartphones have a very tiny share of the smartphone market.

So, here’s the upshot. Apple may control its own ecosystem within iOS but that doesn’t necessarily position Apple Pay well for payments at scale.

Apple Pay, as is well understood, only works on iPhone 6’s – a small (but growing) subset of iPhones –  and at those physical merchants that enable NFC. Apple Pay works in app, but again only for those consumers with iPhone 6’s, and at merchants that have enabled it. And it doesn’t work at all in the mobile browser, where it does have a pretty healthy share or the desktop browser where it doesn’t.

That means that even a consumer who is a diehard Apple/Mac user is unable to use her Apple Pay wallet for all of her digital buying which probably happens a lot on tablets and via the mobile Web. And if that consumer happens to use a PC that runs Windows, owns an iPhone 5 that on which she does her mobile searching, and a year-old iPad, than Apple Pay is totally out of bounds for her.

Mobile shopping at the Top 10 retail sites crosses operating systems, browsers and devices.
To make the point a bit more real, take a look at comScore’s Top 10 retailer list for January 2015. It’s an interesting collection of brands and use cases for mobile.

Tickets (Ticketmaster) and content (Netflix) drive an enormously high percentage of mobile shoppers by the very nature of the experience that they support. Apple does too with its iTunes store. But even Apple derives 41 percent of its traffic from the Web, and, if you believe the numbers I shared earlier, a large chunk of that probably via desktops that aren’t Macs. For instance, I am an iPhone, iPod, iPad user who also owns and uses a ThinkPad. I’ve purchased more than my fair share of Apple products using it and the Windows OS. And my iPad which is just a year old and is not Apple Pay enabled.

The practical point here is that none of these retailers can – or would even want to – make long term decisions about mobile wallet acceptance strictly on the basis of the operating system that supports it. And at least today, there’s simply not enough of a critical mass of consumers with OS-specific wallets for them to want to make that bet at the expense of others with broader reach.

And, that will be the case for a very long time to come.

Mobile devices will increasingly drive retail spend.
Yes, we all know this. But Demandware recently released the results of a study they did of consumer shopping behaviors in Q4 of 2014 that drives that point home. They looked at 100 million shoppers across 1,100 retail sites. They found that 47 percent of retail traffic online and 33 percent of online retailer orders were driven by smartphones and tablets.

And, even though tablets drove only about 14 percent of that volume, tablets accounted for a higher percentage of orders. Based on those results, Demandware estimates that 40 percent of all digital orders by year end will be driven by the smartphones and tablets.

That means that still, more than half, will be driven by PCs that run a different operating system (Windows) and browser which gives Microsoft an advantage, yes?

Not really.

The momentum is moving to smartphones, tablets and other digital devices where Microsoft has a microscopic share of devices and browsers. Enabling Microsoft via the desktop browser could be a very short term play that has a huge risk of falling flat as consumers increasingly shift their browsing and buying to a mobile world dominated by Apple and Android operating systems.

So now you see why I believe strongly that the “winners” will be those who are able to cross operating systems, shopping channels and devices. 

Merchants have a bunch of priorities to address right now, with their highest priorities being how to move consumers to buy more in their stores. That means that they have to make choices about what mobile wallets to enable, when and through what channels to do so. In their stores, they know that plastic cards work and work well. There’s no friction in the physical store today for consumers to use a card. Could the experience be better? Of course it could, but if merchants are looking to add value, eliminate and not introduce friction, leaving the physical store payments experience alone for now wouldn’t be the worst decision for them to make in the short term.

Because there are many other ways for merchants to add value to the consumer in the physical store by using apps and technologies that equip the sales associate to make the customer experience more efficient. Consumers can buy online – digital – and pick up in store. And be given an amazing experience once they get there and see more stuff to buy. I was shopping last weekend and my sales person had an app on her phone that allowed her to scan the tags of the clothing that I had taken into the fitting room to see if other sizes were available and where they were. If they were in the store, she was directed where to find it, including one piece which was on a mannequin. If they weren’t in the store but available in another, and I wanted the item, she was able to order it and have it shipped to the store for me to pick up or directly to my home. At the end of my very digital experience, I gave her my old-fashioned plastic credit card to pay. The friction, that day, was finding the right sizes for the things that I wanted to buy — which she could remove for me with her app — not paying for what I bought.

But where retailers do experience friction is online. And, in a very big way.

Consumers feel the friction when using smaller screens to shop and as a result, abandon carts like crazy – something like 70 percent of the time. Converting those consumers to buyers is the quickest path to revenue for merchants looking for incremental sales.

And, doing that is all about making payment easier. Online is a very clear example where simply making payment for the sake of payment easier adds huge value to consumers – and retailers.

And that’s where an app that works across browsers, operating systems, channels and devices has an edge.

For example, PayPal and Alipay bring merchants hundreds of millions of consumers with wallets enabled for payment that can drive conversions for merchants by simply making it easier for them to pay online wherever they happen to call up a website or their app – on a mobile device, tablet or desktop.

And, the more opportunity that these mobile wallet warriors have to do that, the more momentum they have the opportunity to generate, the more registered accounts they have the opportunity to amass, and the greater the possibility that they have to simply leapfrog the operating specific, browser specific mobile wallet schemes to gain a compelling and strategic advantage for doing business on a global, digital stage – provided that the payment experience is simple and frictionless. That’s especially true as more merchants adopt responsive Web design that make it easier to do a mobile search, click through to a website and enjoy a mobile experience that’s very app-like in look and feel.

Amazon, of course, makes shopping online easier too, but on their own marketplace. Amazon’s quest to win the mobile wallet wars is not to duke it out in the landscape of mobile and digital shopping where the rest of the world is focused, but to shift the battlefield altogether. They want to do whatever they can to bring consumers into a digital shopping channel that begins and ends with their platform – which is extending further and further into related verticals – Home Services, travel and the home via the Internet of Things.

So, I think that’s where I think merchants will turn their attention as they prioritize how not to leave a huge chunk of consumers on the sidelines, especially as commerce becomes more global and point of sale (even in stores), becomes less about devices on counters, and more about the cloud and whatever devices consumers want to use to buy things – phones, tablets, devices, Dash buttons, cars, whatever.

The proof is in the numbers and the use cases we have so far to examine.

Eight hundred million consumers have Alipay accounts and can take those accounts with them to shop anywhere and on any device they happen to have access to. PayPal’s mobile volume is up significantly as is their acceptance online and monetization per customer. M-Pesa is among the most successful mobile payments schemes in emerging countries whose success is totally independent of any handset or operating system. Starbucks is the most successful in-store mobile payments scheme because it’s an app that’s independent of handsets and operating systems. LevelUp has similar success for the same reason in the subset of food services merchants that they enable. Facebook has many failed attempts as a payments platform, but with 700 million people on the Messenger platform seems invested in giving Messenger for Business a way to “back door” payments and retail in both developed (for now) and developing (for sure later) economies.

What’s more, all of these cross-channel, cross-technology and cross-operating system wallets also allow consumers to load and use any underlying payment tender they wish – making Visa and MasterCard the big winners across all mobile wallets, at least for now. And why we see both of them investing in initiatives that enable easy access to network capabilities for developers and other third-party partners.

Speaking of winners, there also won’t be just one.

The regulators, for one thing, would never let that happen! But a lot depends too on how one defines a winner.

Apple Pay could win a slice of valuable consumers just like American Express has “won” a slice of valuable consumers over the years, if it ignites. In fact, before Apple Pay launched last year I wrote a piece positing that Apple Pay could become the American Express of mobile payments.

Google, like Discover, could also capture a small but valuable slice of users.

But the bigger winners at real scale, the “wallets” that grab consumer share and merchant volume, won’t be tethered to a device or an operating system or a channel. Those who are best positioned for success long term – where success is getting enough consumers in the habit of using those wallets at enough merchants for the network effects to kick in – won’t force a consumer to be tethered to a narrow channel that accommodates a specific technology or a device with an operating system that limits their merchant options. They will, instead, tether themselves to the cloud and the path that the consumer wants to follow – wherever those consumers want to take their wallets.

And, they, like others with those constraints, have a battle field advantage, at least right now.

Jedi Master, Obi-Wan, is Luke Skywalker’s mentor and generally wise sage. During one of his thoughtful conversations in which he was imparting advice to Luke, he said, “Luke, you’re going to find that many of the truths we cling to depend greatly on our own point of view.”

I just channeled my inner Obi-Wan to share my perspective from my point of view on mobile wallet wars and the warriors fighting it. What does your inner Obi-Wan say?