In September of 2014, Apple CEO Tim Cook promised that his company’s upcoming mobile payment offering would forever change the way we buy. The announcement of Apple Pay undeniably accelerated our collective migration towards mobile payments. Even though Apple has received most of the media attention, I believe it will be banks that will emerge as the winners after the dust has settled. This is because they are the undisputed masters of the two most influential factors for consumers, loyalty programs and security.
Early mobile wallet introductions from Google, Softcard (at the time ISIS), and others garnered significant industry media attention at the time of their announcements but never converted into more than a trickle of commerce when pushed out to Main Street.
There isn’t going to be much traffic on Main Street anytime soon anyway. Analyst estimates of the mobile payments business are conservative at best. The consensus for two years out from now is still around $100 billion, which is about 2% of the approximately $5 trillion of total retail transactions.
Don’t overlook the fact that through the last five years of mobile payments evolution, one winner has already been clearly established and that is Starbucks. While Apple boasted of 1 million credit cards collected so far. That number is dwarfed by Starbucks’ 7 million weekly transactions. And the number of mobile payments that they process is growing at 50% annually. Here’s what most impressive – Starbucks processed 90% of all mobile payments made in 2013 (latest data available from Starbucks). CEO Howard Schultz related that the secret to their success lies in their their loyalty program. Banks are masters of the universe when it comes to executing successful loyalty programs, so watch out Starbucks.
The other deciding factor will be security and no one comes close to approaching the success of banks at securing consumers. Consumers want to know that their money and their privacy are safe. In the end, reputation will trump all of the techno-babble about Secure Card and Host Card Emulation. Consumers still trust their banks with their money more than they trust any other institution.
Apple also loses out in platform support as well. Banks and retailers mobile apps work with both Apple and Android. Apple is locked out of more than half of the market simply by their platform limitation.
Starbucks gained a true advantage by being first with a great app that consumers are using, but banks are just a step away with their mobile banking applications. According to a March 2014 report from the Board of Governors of the Federal Reserve, 51 percent of smartphone owners have used mobile banking in the past 12 months, that’s up from 48 percent a year earlier. And 12 percent of mobile phone users who are not currently using mobile banking think that they will probably use it within the next 12 months. That’s tens of millions of consumers already using their bank’s mobile application and that places them just a simple feature addition app away from being the platform of choice in mobile payments.