Today’s announced partnership between the West Coast innovators Square and Starbucks represents a significant milestone in the advancement of mobile payment and digital wallets. Here’s why:
New entrant scale. The Pay With Square digital wallet has suddenly catapulted from a respectable new entrant in mobile payments, driving adoption within the long-tail of retail, to soon being present in every Starbucks, and in NYC, that’s just about every other block. Starbucks, the leader of in-store mobile payments, says that 1 million people per week use its mobile payment app to pay in-store. Its existing mobile payment customers will now be Square’s customers, giving Square an immediate boost in the number of locations and consumers it reaches within the market.
Accelerated adoption. As with the Starbucks app, consumers have only to download the Pay With Square wallet and load their funding source in order to use it. But unlike the existing Starbucks app, the Square digital wallet works with other merchants. According to Square, merchant acceptance is very quick and no-to-low cost, and Square promotes its participating merchants to users of the wallet. I think this set of factors will motivate other merchants — both large and small — to use this as an opportunity to trial mobile payments in their stores. Today’s announcement is unclear about whether the initial implementation will have Starbucks embedded in the Pay With Square wallet, but at a minimum, this deal gives Square broader visibility and awareness and the opportunity to earn the confidence of new customers with its digital wallet, which will drive broader adoption overall.
In my coverage as Forrester’s new payments analyst, I'll serve consumer product strategists who accept or facilitate payments as they create, navigate, and capitalize on digital disruption within payments.
We are in the early stages of unprecedented innovation and transformation of the consumer payments industry, and emergence of a digital wallet marketplace is the next act. The definition of a digital wallet continues to evolve as innovations come to market, and the term is sometimes used synonymously with “mobile payment.” However, there are significant differences. Forrester defines a digital wallet as:
A digital service — accessed via the web or a mobile application — that authorizes payment transactions from one or more payment sources and facilitates other commerce-related features, such as offers, coupons, loyalty rewards, electronic receipts, and product information.
As new wallets are introduced into the market, we will see consumers and merchants accelerate their trial and adoption. Yesterday, Google announced a new cloud-based version of their digital wallet that intends to address many of impediments associated with their first version. In my new report out today, titled “Why The Digital Wallet Wars Matter," I frame the emerging digital wallet landscape, provide a profile of early adopters and how to capture their attention, and outline which wallets will ultimately win in the marketplace. Here are the key takeaways:
The longer we spend researching mobile banking, the more convinced I become that mobile banking is the most important innovation, or cluster of innovations, in retail banking in years, arguably in a century. Here’s why I think mobile banking is a much bigger deal than cash machines (ATMs), credit cards or home-based online banking:
In developing economies that lack a dense infrastructure of branches, ATMs and fixed-line telecoms, mobile banking and payments are bringing millions of people into the formal banking system for the first time.
In developed economies mobile banking will become the primary way many, perhaps most, customers interact with their banks. Banks need mobile banking to provide a platform for mobile payments and to protect their retail payments businesses from digital disruption as mobile payments start to replace card payments in shops.
I attended Finovatethis week to get a preview of new financial services digital technology vendors. I say preview because if you have ever been to Finovate, you know it’s a little like speed dating, where 63 vendors have 7 minutes each to show you their best moves. The themes at Finovate this year were not much different as previous years with the focus being on mobile banking, personal financial management, and payments. However, this year, a few new topics emerged: rewards, coupons, and mobile banking services for Pre-Paid Visas customers. Apparently, Pre-Paid Visas are the new black.
While there was plenty of interesting and innovative demonstrations, Forrester attended the conference to identify trends and solutions relevant for our retail digital financial services clients. Specifically, we looked at innovative solutions for our clients related to mobile banking, personal financial management, and payments. The following vendors stood out as innovative solutions for mobile banking, personal financial management, and payments:
DWOLLAis a next-generation social, mobile and online payment network. Its financial service product, FiSynch, integrates its technology into financial institutions.
IP Commercesolves the development challenge of multi-payer acceptance and multi-payee disbursement
iQuantifiprovides users with automated and personalized financial advice online
Money Desktopoffers the next generation of personal financial management. Its slick design makes excellent use of the native app features.
Mobile digital wallets are emerging and going beyond payment. New technologies, mixing QR codes, apps, personal financial management software, NFC, and many more, are combining to convert mobile handsets into digital wallets that combine not just payments but also receipts, vouchers, and loyalty. Beyond the convenience of using the phone for payment, consumers will benefit from post-transaction elements such as location-based coupons or enhanced product information at the point of sale (POS).
We’ve not seen a single day without a new product launch, start-up creation, or acquisition — or a new strategic alliance between banks, payment networks, Internet firms, or mobile operators.
So what’s new today? Telefonica 02 just announced the launch of O2 Wallet in the UK.
We believe that the O2 Wallet is, for now, the most comprehensive mobile payment solution in the UK – available to a majority of smartphone owners, whether they are O2 customers or not. The new product combines the following functions:
Money Message — This gives customers the ability to easily transfer money to any UK mobile phone number.
For those of you who aren’t familiar with Finovate, it’s a fast-paced format with seven-minute live demos and pitches from 35 financial technology vendors. It’s produced by Online Financial Innovations, the people behind the excellent NetBanker blog.
I was lucky enough to go along to the show in London today. Unlike last year, when four or five themes dominated the day, this year’s exhibitors were more diverse. Among them were:
Over the summer, I asked you all whether we are finally headed toward a cashless society. Since then the battle for the digital wallet has certainly heated up. Well today, I am thrilled to announce the newest addition to Forrester's Consumer Product Strategy practice. Her name is Denée Carrington, and she will be joining us as a Senior Analyst, covering consumer payments, starting January 3, 2012.
To provide more specifics, here's a sneak peek at some of the coverage areas where Denée will be able to help Forrester clients with consumer payment strategy in the new year:
Defining the future of consumer payments
Managing a portfolio of payment products (e.g. credit, debit, prepaid, contactless, mobile, person-to-person (P2P), etc.)
The business models and profitability of these payment systems
Understanding the dynamics of customer (consumer and merchant) payment behavior
Understanding the payments needs of different markets
Sizing the different payments market opportunities
Driving customer (consumer and merchant) adoption of payments systems
Building and developing new payment systems
Optimizing existing payment products to improve security and increase convenience
Over the past couple of years I have been intrigued by the concept of a 'digital wallet' that will combine mobile payments with a variety of other benefits for customers. The more people I talk to, the more convinced I am that mobile digital wallets will mark a big shift in retail payments. A mobile digital wallet is more than just a mobile payment system because it combines:
Mobile payment. Digital wallets are likely combine several different payments systems into a single service, including mobile contactless payments, online (i.e. web) payments, and over-the-network mobile payments, making it easy for customers to make a variety of different types of payment from a mobile device.
Barcode scanning. Scanning barcodes or QR codes will let customers get more information about products, and let them pay for items on their phones before showing an on-screen receipt to leave the store.
Loyalty rewards. Instead of carrying (and sometimes forgetting) a separate loyalty card, digital wallets will track customers’ spending and offer merchant-funded rewards, either on the phone or at the point of sale.
Coupons and offers. Digital wallets are likely to offer customers coupons and location-based offers.
PayPal recently shared its new peer-to-peer payment functionality that allows Android users to pay each other by tapping two Near Field Communication (NFC) enabled devices together. A user enters the transaction information and then taps her phone up against another phone also equipped with the same PayPal widget. After the phones buzz together, the recipient can decide to send or receive money by entering a PIN number.
Sounds very interesting, but are consumers interested in this functionality?
My colleague Charlie Golvin recently blogged about the Google Wallet initiative and its hurdles, one of them being lack of consumer interest. In fact, our Technographics® surveys show that interest in mobile payments is low and has not translated into activity in the US: Less than 6% of US online adults have ever used any type of mobile payment. Over the past three years, Forrester has seen interest in mobile payments continue to grow slowly.
These are exciting—and challenging—times for anyone who is responsible for developing, managing, and innovating consumer products. Why? Because digital technology is disrupting everything—the way we communicate with each other; the way we access, store, and share information; the way we purchase and interact with the products and services we use every day; and yes—even the way in which we actually pay for those products and services. Whether you like it or not, digital disruption is happening everywhere, it’s happening fast, and it’s accelerating.