How mobile wallets keep propping up plastic (or metal) cards

May 29, 2020 10:55 AM

Since the dawn of the smartphone era, banks and payment companies have struggled with a chicken-and-egg problem: How to get people to adopt mobile wallets when most merchants can't or won’t accept them.

The solution, dating back to 2011's Google Wallet (a predecessor to the modern Google Pay) was to provide a companion plastic card for those stores. But today, that problem is largely solved, as many stores added NFC acceptance as part of their EMV upgrades circa 2015.

The modern mobile wallet no longer uses a card as a crutch. Instead, it sees it as an additional product that can add revenue from interchange, lending and loyalty.

This story was compiled from reporting by PaymentsSource writers including John Adams, Kate Fitzgerald, David Heun, Michael Moeser and Daniel Wolfe.

An employee demonstrates Samsung Electronics Co.'s Samsung Pay application on a Galaxy Note 7 smartphone with stylus during a media event in Seoul, South Korea, on Thursday, Aug. 11, 2016. Samsung's large-screen Galaxy Note 7 smartphone can be unlocked with an iris-scanning camera. Photographer: SeongJoon Cho/Bloomberg

SeongJoon Cho/Bloomberg

Samsung Money

Rewards have been a core part of Samsung Pay since its launch five years ago, and will be central to the Samsung Money debit card when it launches in the summer of 2020.

Such a product may have more appeal right now to cash-strapped consumers, along with interest-earning power for balances on the virtual prepaid debit Mastercard issued by The Bancorp.

Existing Samsung Pay users with at least 1,000 points can flow their rewards into the Samsung Money by SoFi account, and others may enroll in Samsung Pay to earn points on every purchase using Samsung Pay with their device. Samsung Money is compatible with Samsung Galaxy devices.

By releasing Samsung Money by SoFi as a checking account alternative in the midst of the pandemic, Samsung also is getting a jump on Google, which has plans to launch a checking account available through various banks.

Tim Cook, chief executive officer of Apple Inc., speaks during an event at the Steve Jobs Theater in Cupertino, California, U.S., on Monday, March 25, 2019. The company is unveiling streaming video and news subscriptions, key parts of Apple's push to transform itself into a leading digital services provider. Photographer: David Paul Morris/Bloomberg

David Paul Morris/Bloomberg

Apple Card

Apple set the tone for the modern era of mobile wallet-linked cards such as Samsung Money by making it possible to apply for the card within the wallet app itself.

This eliminates the need to enroll the card in the app, and allows Apple to control the relationship through the use of technological bells and whistles, such as a card image that changes color based on what products the user buys. Apple also streamlined the process for using rewards, allowing people to choose to spend their rewards, use them as a statement credit or send them via P2P.

There is an optional titanium card, but it is more an accessory than the core product; it doesn't have an account number printed on it, and its titanium build makes it look as much like a Mac or iPad as it does a payment instrument.

The Google Inc. Mobile Wallet application for cardless payment is displayed on a smartphone screen at the Mobile World Congress in Barcelona, Spain, on Wednesday, Feb. 29, 2012. The Mobile World Congress, operated by the GSMA, expects 60,000 visitors and 1400 companies to attend the four-day technology industry event which runs Feb. 27 through March 1. Photographer: Chris Ratcliffe/Bloomberg

Chris Ratcliffe/Bloomberg

Google Wallet's virtual and plastic cards

When Google Wallet launched in 2011, it had only one issuing partner — Citigroup — and was in direct competition with the major telcos' mobile wallet, which had the unfortunate brand name ISIS.

To make sure more than just Citi cardholders could use its wallet Google made a virtual prepaid card attached to its app. This feature went away one year later, after Google changed its model to make it easier for banks to link to its mobile wallet.

In 2013, Google began offering a plastic debit card meant for use at merchants that did not support NFC mobile wallets.

The American Express Co. application is displayed on an Apple Inc. iPhone in Washington, D.C., U.S., on Thursday, July 12, 2018. American Express is expected to release earnings figures on July 18. Photographer: Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

Amex and the telcos

Once upon a time, three major telcos — Verizon Wireless, AT&T and T-Mobile — launched an ill-fated mobile wallet that they called ISIS. As with other early mobile wallets, the venture (which later changed its brand to Softcard) linked its app to virtual and physical prepaid cards.

The first iteration, a virtual card called ISIS Cash, was short-lived. The telcos teamed up with American Express in 2013 to offer a card through Amex's digital wallet platform, Serve. This also meant the mobile wallet's users could use a Serve card at stores that did not support NFC mobile payments.

The Ebay Inc. Venmo application (app) is arranged for a photograph on an Apple Inc. iPhone 5s in Washington, D.C., U.S., on Friday, Aug. 22, 2014. After downloading the Venmo mobile-payment app onto a smartphone, users can connect them to bank and credit-card accounts, and then link up with friends to send and receive money on-the-go. Venmo, based in New York, alone handled $314 million in mobile payments in the first quarter of this year, up 62 percent from the prior quarter. Photographer: Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

Venmo Card

Despite a reputation for being the go-to P2P app of digital natives, PayPal subsidiary Venmo pushed its market in the opposite direction in 2018 with the debut of a plastic card.

The card follows a move to prune web-based P2P payments, keeping the Venmo experience focused on mobile devices. Prior to launch, the card's application page directed users to open the Venmo app to reserve one of the limited-issue Venmo-branded Mastercards.

In addition to making retail payments, the Venmo card can be used to reload Venmo balances via ATMs.

A sticker of Square, a US mobile-payment company, is seen on a glass door as Ayako Yajima, owner of her vegetable store Suika, arranges a vegetable stand, in Tokyo, Japan, on Thursday, Oct. 10, 2013. Japan, where majority of retail purchases are made in cash, is attracting US mobile-payment companies such as Paypal and Square. Photographer: Yuriko Nakao/Bloomberg *** Local Caption *** Ayako Yajima

Yuriko Nakao/Bloomberg

Square's cards

Square has two audiences: the businesses that use it to accept payments, and the consumers who use its Square Cash app for P2P. Both of these have an optional payment card.

The business debit card was designed in part to bypass banks. "We now offer all sellers who use our point of sale a place to store their money, and a MasterCard to spend it instantly," Jack Dorsey, the CEO of Square and Twitter, said in a 2019 tweet. "No bank account needed."

Though the card is a Mastercard issued by Sutton Bank, Square is clear that a cardholder's balance is not a bank account and is not FDIC insured. For this trade-off, Square offers two major perks: instant funding and instant rewards.

The consumer card, launched in 2017, was notable in part for its design; it allowed consumers to draw a design (such as their signature) that would be printed in white on the card's black background.

Gold Google sign from its Berlin office.

A gold colored Google Inc. logo sits on a sign outside the company's offices in Berlin, Germany, on Friday, Aug. 16, 2013. Google, based in Mountain View, California, is seeking to revive Motorola Mobility's smartphone business, recently announcing a new flagship Moto X smartphone with customizable colors that will be assembled in the U.S. Photographer: Krisztian Bocsi/Bloomberg

Krisztian Bocsi/Bloomberg

Google checking

Google’s reported plan to offer its own version of the Apple Card is less of a play for credit and more of a play for its mobile users' bank accounts.

The few details that have been made public about the product (codenamed Cache) suggest a focus that's more on personal financial management and e-commerce data than establishing quick access to credit, giving the search giant another way to benefit from its trove of shopping data while avoiding some of the challenges Apple Card faced at launch.

Google’s initiative comes as e-commerce use spikes and the overall economy suffers during the coronavirus pandemic. This will create a greater need for digital payments, a demand among merchants for more visibility into shopping trends and consumers who will likely prefer prepaid and debit over accumulating credit card debt.

Google’s prior card, which launched in 2013, was discontinued in 2016 as part of a series of redesigns and relaunches as Google Wallet incrementally evolved into Google Pay.