How the next decade of mobile wallet development will change payments

For the better part of the past decade, a war was raging among banks, fintechs, technology companies and retailers: Who would be the go-to mobile wallet for consumers?

As of now, there is no single winner, but the battlefield has shifted substantially. Companies no longer see themselves as providing an exclusive app for all payments; instead, they see themselves weaving payments seamlessly into other digital services.

The winner of this next phase of development won't be an app. Instead, it will be almost invisibly woven into the DNA of the internet of things.

In 2020, the best performing mobile wallets are those based on — and seamlessly integrated with — an existing functionality. Starbucks gained early momentum by building on its already popular Starbucks Card; and the new Uber Wallet is an extension of the ride-sharing provider's famously invisible payment experience.

Bloomberg News

"You can't look at the mobile payments story without seeing that the idea of embedding payment into the customer's experience with a preferred retailer or service provider was the real game changer," said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.

All major providers are now trying to create an embedded payment in some form going forward, Crone said.

Singapore-based Grab provides an excellent example of what this market could become in a few years. Grab began as a ride-hailing service in the same vein as Uber, and aggressively added financial services features, culminating in 2018's creation of Grab Financial. As of this week, Grab is seeking a banking license in Singapore to further its goals in mobile payments and financial services.

Apple Pay is among the most well-known mobile wallets, but it was a wallet in the strictest sense — it held other companies' payment cards, loyalty accounts, tickets and credentials, but provided little in the way of direct financial services.

The launch of Apple Card may seem like a big, splashy financial product with a digital twist, but it is much more notable for how it transforms Apple's Wallet app: Anyone who wants to set up Apple Pay no longer needs to bring their own credit card.

Goldman Sachs became the Apple Card's issuer, predicting how the virtual card being embedded into the Apple Pay ecosystem would open the door for other digital services.

In the meantime, Google has turned to what it considers its next step into the future of mobile wallets, offering checking accounts (code-named Cache) from Citi and a Silicon Valley credit union through the Google Pay wallet.

"We will think of Google Cache and Google Pay as an origination point for demand-deposit or checking accounts," Crone said. "If that is the case, and Google can pull it off, Google can do all kinds of special things to enlighten consumers about their payment activity before, during and after a purchase."

It's a bit premature to say mobile wallet development has moved beyond its early years of experimentation. The basic premise of business — to be innovative and consistent at the same time in meeting customer needs — will hold true for mobile wallets moving forward. If anything has been learned in the past decade it would be that mobile wallet development doesn't want to get too far ahead of itself.

Within that broader view, Apple Pay has stood out as the most consistent. Apple's mobile wallet joined the fray a little later than some of the early models, especially those that have come and gone like the Softcard (previously Isis) Wallet, Chase Pay's consumer app, Google Wallet and the MCX CurrentC wallet.

Apple stuck with Near Field Communication and the secure element within the phone as the key technology behind Apple Pay. This decision may have once seemed limiting, especially since it prevented Apple Pay from running on older iPhones, but it does not appear to have hurt mobile wallet acceptance in a major way. Apple needed NFC to take hold, thus making it easier to get issuing banks on board and for acquirers to feel comfortable about security.

Other wallet apps operate through host card emulation (which does not require access to the secure element) and through the use of QR codes. Yet, all of the mobile wallets had a more difficult time gaining traction in the U.S., compared to countries like China, where AliPay and WeChat Pay have become a normal part of payments and money transfers.

It has been clear, however, that Apple Pay has continued to grow and gave itself a shot in the arm with the addition of the Apple Card. Most importantly, Apple Card did not detract from Apple Pay, which operated as a separate business on the Apple accounting books.

Apple CEO Tim Cook declared early in 2019 that Apple Pay was completing 1 billion transactions per month. It was a statement clearly fueled by Apple Pay getting ingrained in far more consumer transportation settings and the continued ease with which consumers are completing more daily tasks through their smartphones than ever before.

Even though Google launched its mobile wallet before Apple did, Google was quick to adapt to follow the path Apple paved. Google rebranded its mobile wallet twice, settling on Google Pay as the name of the product that most resembled Apple Pay in functionality.

Google Pay has moved rapidly into the digital age with various customer-engagement tools wrapped into its Gmail, Google Maps, virtual transit tickets and loyalty cards.

Apple has similarly adapted its technology to make it a better fit for transit fare payments. In this way, both Apple and Google are getting closer to the territory dominated by the likes of Uber, Lyft and Grab. The boundaries between transportation and banking are getting blurrier.

In the coming decade, just as many revolutionary changes in payments are likely to unfold. Even though the concept of a one-size-fits-all wallet has faded in favor of apps that have a non-financial function as their core service, the ramifications of that reality are just beginning to set in.

Banks will be monitoring their P2P and mobile banking apps closely, determining what would take them to the next level of customer engagement and, ultimately, customer loyalty.

"Financial services is a digital business," Crone said. "It has no physical boundaries, thus no financial institution can have scale with its own mobile banking app. It means in order to thrive in this new world, you have to embed your services into other wallets."