WHITE PAPER. BANKing on the Mobile Wallet Achieve significant benefits through proactive involvement in mobile wallets

Transcription

1 WHITE PAPER BANKing on the Mobile Wallet Achieve significant benefits through proactive involvement in mobile wallets

2 Mobile wallet: Facts and trends Mobile wallets enable users to securely store their personal financial information, cards (debit, credit, prepaid, gift, loyalty), vouchers, transit tickets and more in an organized form on their smartphone. It allows users to view the cards, choose the payment method and card for a transaction and also enables other commercerelated features (e.g. coupons, offers, rewards, loyalty, product information, etc.). The least fee (FX, overdraft), threshold for revolve, special coupons/discounts, bonus points applicable, float optimization are few of the considerations automatically enabled by the wallet in choosing the most effective card for a specific payment. Mobile wallets are witnessing increased adoption across geographies. The Google (Google Wallet) and ISIS initiative in the US and Orange & Barclaycard (Quick App), Visa (V.me) initiatives in the UK are a few examples. In Japan, it is estimated that nearly 75% of new phones possess mobile wallet capabilities. Today, the value perception of the mobile wallet has significantly changed from being just an alternative tool for payments to that of a robust customer engagement tool. This is not surprising, considering the rapid growth in smartphone usage and the developments around the adoption of NFC technology. For example, it is estimated that after three years, more than a quarter of American users will possess NFCenabled handsets. It is no wonder, then, that the mobile wallet has been gaining the attention of many organization types financial institutions, merchants, technology players and mobile carriers to name a few. While some organizations have ventured alone to launch their own mobile wallets (e.g. Starbucks, Google), others have done so in partnership with other organizations (like ISIS).

3 Why should your bank not ignore mobile wallets? It is advisable that banks, in alignment with their constant business goal of increasing customer wallet share, take heed of the above facts and trends; and proactively work towards enabling mobile wallet services for their customers. Three key factors make it imperative for your bank to do so, as shown in Figure 1. Competition Customer Bank s inherent strengths Figure 1: Why mobile wallets?

4 Competition Major technology players (like Google and Apple), mobile carriers, retail providers, merchants, startups, new financial service providers (e.g. PayPal) and others (Facebook, Amazon, etc.) are all competing for a piece of the pie in the mobile wallet space. This competition will only become more aggressive in the future. If banks don t focus on good mobile wallet enablement for their customers, they run the risk of losing out to these competitions, and see their role reduced to that of a commodity transaction services provider. With the increased integration of social, shopping and payments experiences on mobile wallets, banks cannot afford to overlook this space. Today, many banks mobile wallet offerings lack publicly available PoS capabilities, are closed (do not support cards across all financial institutions), are not visually appealing, and not easy to set up and use. On the other hand, in the mobile wallet space, technology players like Apple and Google provide far better social and shopping services, and manage incentive categories better than many banks. Real-time incentive generation, ratings and reviews, search-and-shop capabilities, sharing purchases and creating/sharing wish lists are some of the areas where technology and other non-bank players have an upper hand. Unsurprisingly, today, the majority of customers are willing to adopt mobile wallets provided by non-bank providers. Further, many of these customers are also willing to leverage these alternative providers in place of their primary banks, if they offered them banking services. Customer 1. Young and relatively affluent customers (household incomes of over US$50,000 per year) are, unsurprisingly, more interested in mobile wallets. Further, technology-savvy users amongst these are attracted to the social and shopping features of mobile wallets, and expect their mobile wallet to provide not just a great shopping experience but optimized payment decisions as well. As a result, mobile wallets present banks with a great opportunity to reach tech-savvy and savings-oriented customer segments. 2. Mobile wallets can help banks address other existing customer pain points need to carry too many cards, keep track of due dates and offers, being overwhelmed with numerous options, not being able to decide when to use which card, etc. 3. Mobile wallets can help banks capture a wealth of data pertaining to a customer s financial behavior. This data repository, along with location-based information, can be mined to provide superior and bespoke services to customers. 4. Using mobile coupons and loyalty programs, banks can collaborate with retailers and mobile marketers to enable targeted and relevant offerings and discounts at the point of sale. Such an approach will help banks build their brand, including in places where they are not typically visible. 5. In emerging markets, mobile wallets can enable the storage and reception of newly electronic cash flows. As a result, this benefits the underbanked and ultimately, the bank, too. The mobile phone-based money transfer service M-Pesa, which is widely accepted as the most developed system of its kind in the world, is a good example. Today, over 70% of Kenya s adult population use M-PESA. Inherent strengths of banks Owing to their well-established core transaction processing systems, banks currently have advantages over other players in providing better transaction services and payment choices to their customers. A large customer base and the ability to enable multiple payment integration options tied to a wallet are other inherent advantages that banks have. By combining the ocean of customer transaction data typically available to a bank; through collaboration with external organizations in the ecosystem and access to external data sources (posts, tweets, etc.), banks are better positioned to serve customers using a mobile wallet (for example, by enabling more optimized payment choices and offers at the PoS). Further, over the years, banks have established themselves as bulwarks of security and customers usually rate a bank s security infrastructure higher than those of other organizations. Banks are considered to be more trustworthy at handling the financial and personal information of their customers. They are also perceived to do better job of receipt management and documentation.

5 How should banks approach their mobile wallet strategy? Banks must not be in wait-andwatch mode vis-a-vis offering mobile wallet services. Rather, they must proactively act now towards developing the flexible foundation required to support robust mobile wallet features. Figure 2 indicates the key factors that banks must work upon to enable a successful mobile wallet. Partnership Enable better capabilities Security Approach towards enabling mobile wallets Figure 2: Approach towards enabling mobile wallets Core system transformation Analytics Open architecture

6 Partnership Developing mobile wallet solutions in-house may not be the best approach for banks. This is because numerous factors crucial to mobile wallet success are outside the core competencies of banks. The high costs involved in such an undertaking would be another impediment. Instead, banks can proactively engage and partner with other mobile wallet ecosystem players. This ecosystem comprises merchants, mobile network operator, payment processors, payment service providers, handset manufacturers, card issuers, card network, influence engine service provider, POS providers and equipment manufacturers, NFC chip manufacturer, technology service and solution provider, and other valueadded service providers. As an example of value that partners can add, take Fundamo s mobile wallet, a standalone banking solution that consists of a fully secure and functional account that the customer can use for making payments. It is typically delivered by the MNO and financial services organizations. It can be included as a component of a bank s mobile payments solution or purchased in isolation. Another example is of icashe mobile wallet, which is bank-oriented bank s customers can access it from within their bank s mobile banking application. It enables banks to partner with various stakeholders in the ecosystem and, by doing so, help banks boost adoption of their mobile wallets among customers. Today, many users are concerned about the relative lack of widespread acceptance of their mobile wallets by everyday service providers like healthcare providers, merchants, gas stations, restaurants, law enforcement agencies, etc. Through partnerships, ecosystem players can enable the acceptance of mobile wallets by a large number of organizations. Banks should also work with others in developing the business, technical and security standards for mobile wallets. For e.g., banks can collaborate with and support organized initiatives such as Mobey Forum, NFC Forum, Mobile Payments Industry Workgroup, NACHA, Smart Card Alliance, etc. Core system transformation Banks must work towards transforming their systems and processes to adapt to the requirements of the mobile wallet. Today, many banks are still beset with old, legacy systems that have outlived their utility. Enhancing core systems for improved adaptability and flexibility is crucial. Banks must have in place robust core transaction processing systems in order to provide robust shopping and transaction experiences on their mobile wallets. Legacy core systems that are unable to support myriad products, channels and enormous amounts of customer data should be replaced with flexible systems based on service-oriented architecture (SOA) and other modern technology platforms. The bank s transformed core systems should enable an enriched customer experience, seamless multichannel operations, analytics-driven business intelligence, streamlined back-office processes, innovative product propositions, time-to-market advantage and flexibility in adapting to dynamic market conditions. Moving to centralized payment hub architecture is also advisable for banks. Analytics Banks must leverage robust analytics solutions to target customers as per their behavioral market segments, as opposed to traditional segmentation strategies (income level, age, etc.). For example, technology-savvy users are more inclined towards the social and shopping features of mobile wallets. Yet another segment is concerned primarily with making effective use of their cards by making the best payment decision vis-à-vis loyalty benefits, financial situation, costs involved, etc. For having robust behavioral analytics, enabling big data analytics capabilities is crucial. Through effective leverage of big data analytics, banks can, in real-time, sift through large quantities of internal and external structured and unstructured data feeds. By including purchase history, financial habits and location-based intelligence, banks can provide their customers with compelling and personalized services and offers. An analytics-powered mobile wallet will be a game-changing competitive differentiator for banks. Figure 3 illustrates the key role that analytics can play in the success of mobile wallets.

7 Data sources Analytics enablers Mobile wallet Capabilities Cards transaction (credit/debit/loyalty etc.) Other commercial and non-commercial transactions using the wallet Merchant data Big Data MDM ETL, data cleanup and warehousing Web analytics Predictive Prescriptive Descriptive Filters Triggers Reports Personalized marketing Location-based offers Fraud prevention and alerts Coupons Social media Data visualization tools Optimized Loyalty and reward points Campaigns BI tools Decisive Dashboard Best card usage recommendation Figure 3: The role of analytics in the success of mobile wallets Open architecture Banks must focus on enabling architecturally open mobile wallets that accept all cards across all of the customer s financial institutions. This will enable the wallet to support multiple payment options, loyalty programs and accounts across many financial institutions. This approach will also help integrate thirdparty content and other value-added services like couponing and loyalty programs. Open mobile wallets will also result in the rapid mass-market adoption of mobile wallets. After all, users are not keen on keeping multiple mobile wallets for each of their financial institutions or retailer. Security Banks must focus on alleviating customers security and privacy concerns vis-a-vis their mobile wallets. As things stand today, most users are amenable to using their mobile wallets for low-risk and low-value transactions (e.g. membership/loyalty card usage, paperless tickets, coupons, etc.). However, not many users are very comfortable storing cash or social security cards, or with making very high value in-store purchases. Figure 4 highlights some of the key customer security concerns along with recommended solutions for banks.

8 Mobile wallet - key security concerns With mobile wallet capabilities, smartphones can become more appealing to fraudsters Concern of having key personal information on mobile wallet-enabled smartphones. Concerns that with the theft of the smartphone, private information residing in the wallet can also be stolen Concern that the phone company may be able to access the customer s information Possibility of information theft during wireless transmission at PoS If smartphone is stolen, there would be temporary loss of use of the mobile wallet s functionality (e.g. in making purchases) Other usual security concerns virus downloads, malware, bad application download, unauthorized access at NFC PoS Recommended solutions Collaborate with ecosystem players to address security holistically (security for mobile app, wireless network, NFC secure element, customer authentication, payment transaction, security on cloud, physical security of the mobile device, etc.) Collaboratively enable compliance to PCI and other security norms; enable fraud prevention and risk monitoring education to ecosystem players and end users; enhance testing and certification standards Where feasible, limit transaction amount; enable robust real-time automatic monitoring and alerts for transaction notification and any other suspicious transaction Enable sophisticated security e.g. AES encryption, secondary id, multi-factor authentication, biometric authentication, etc.) Enable remote device deactivation, lock and wipe; swift/instant blockage and replacement (e.g. 24- hour replacement guarantee of lost / stolen mobile wallet) As a policy, track shopping and location behavior of users only after obtaining explicit permission; instill confidence on security to the users and explain clearly how such tracking benefits them Enable security through the cloud (e.g. Google Wallet), thereby obviating the need to store individual cards on the secure element within an NFC phone. Rather, store only a proxy master card in the secure element. Store the user s other pre-registered cards details in the cloud. The PoS terminal and remote secure element on the cloud will communicate, with the mobile phone simply acting as a secure antenna Figure 4: Key security concerns and solutions for mobile wallets

9 Enable better capabilities to enhance customer experience Customers typically use mobile wallets for money transfer, in-store payments through cards, store money, cash withdrawal from the stored funds, in-store payments using stored money etc. Further, with their mobile wallet, customers seek enablement of robust payment choices (maximization of loyalty programs, minimization of interest payments, etc.), good management of receipts and documents, real-time incentive, ability to search/review/rate, and shop-and-share purchases capabilities. Ultimately, customers find that the true value of a mobile wallet lies in the time and money saved, convenience, loyalty cards and coupons, housing of ids and proofs (like auto or medical insurance), money allocation and tracking, physical location identification, and for social uses (like recommendation of products to friends). Figure 5 lists the primary mobile wallet capabilities that enable superior customer experience.

10 Depth and variety of mobile payment enablement (airtime top-ups, payments at restaurants, convenience stores, m-ticketing (event, airline, parking, public transit), P2P etc.) Depth and variety of merchant acceptance for payments Support for multiple card types from multiple institutions Support for multiple payment technologies - remote (SMS, WAP browser, mobile apps), proximity (QR/2D barcode app [including aggregation of QR codes from loyalty and gift cards, retailers, coupons, movie tickets, boarding passes, etc.], POS, NFC+Cloud) Device compatibility (iphone, BlackBerry, Windows, Android and others); ease of wallet set-up and intuitiveness Guidance on the best card for payment for a particular transaction Incentives for mobile wallet usage through discounts, coupons, reward points, etc. Integrated offers, coupons and loyalty rewards; automatic redemption at the PoS; linkage of promotions and ads to the fulfillment of the sale and the payment settlement; more efficient tracking of rewards/loyalty cards Location-based alerts and card/offer notifications (e.g. Apple Passbook s ability to automatically bring up the coupons, tickets, etc. on the screen-based on the user s location, etc.) Capability to integrate the payment into the shopping experience (retail price comparison, receive offers, product information, locate merchant, social media, shopping lists, personalization, etc.), and the personal finance management advice into a seamless user experience; enable contextual relevance and streamlined post purchase activities Figure 5: Mobile wallet capabilities that enable a superior customer experience

11 Summary For banks, the mobile wallet presents an opportunity to increase their share of the customer s wallet. As the number of players entering the mobile wallet fray increases by the day, the race for dominance in this space will only get more competitive. It would be a mistake for banks to look at the mobile wallet as just another alternative payment instrument. Also, banks must not go solo in their mobile wallet offerings undertaking. Collaborative partnership is the key. As an example, Infosys WalletEdge is an end-to-end platform that enables a financial ecosystem of banks, consumers, telecom enterprises, merchants and others. Delivered through a private cloud, its allembracing shared services framework helps ecosystem members transition to the digital business model. It enables wallet management, transaction management, merchant management, supply chain management, commission and fees, and much more. About the authors Anjani Kumar is a Principal Consultant with the Consumer and Commercial Banking Practice at Infosys. He has over 16 years of comprehensive IT, domain and process consulting experience. Currently, he manages several strategic initiatives including the Competency Development Program and thought leadership showcasing efforts. Over the years, he has provided consulting services and managed many large and critical IT engagements for numerous clients. He was also recognized as the lead process auditor for the consumer banking division of a major global bank. He has extensive techno-functional skills and an in-depth understanding of quality and process models CMMI, Six Sigma, ITIL, etc. Anjani holds a Bachelor of Engineering degree from IIT Roorkee and, over the years, has earned many reputed and industry-recognized domain and process certifications. He can be reached at anjani_kumar@infosys.com Sai Prasad Seri is a Senior Consultant with the Consumer and Commercial Banking Practice at Infosys. He has over 6 years of experience in business analysis and IT consulting services. He has worked extensively in retail and wholesale payment systems and is a subject matter expert in SEPA payments as well as credit cards. He holds a PGDM degree in Finance and Marketing from the T A Pai Management Institute at Manipal in India. He can be reached at sai_seri01@infosys.com

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