How Many Mobile Wallets Are Too Many?


mobile-wallet-12-22-15.pngFor many years, the mobile wallet landscape was filled with small niche offerings that tested some important ideas, but never really gained much national traction. However, over the past 15 months, four major players have introduced their wallets and the tipping point for widespread mobile wallet adoption appears close. Apple Pay, Android Pay, Samsung Pay and Chase Pay have extended the technology and functionality of those early wallets and have started to close the gap on a wallet that would deliver value to the trifecta of stakeholders: consumers, merchants and the wallet providers.

Should every bank be preparing to support one or more of the existing mobile wallets? CG sees five prerequisites for widespread adoption of mobile wallets.

  1. Better security. Consumers have well documented doubts about the security of mobile payments versus more traditional payment methods. Mobile wallets must implement improved authentication processes (e.g., biometrics, account number tokenization) to allay these fears as the price of admission.
  2. More large-scale mobile wallet providers. The recent addition of providers (including Chase Pay) offers the market a wide range of mobile wallet options and a key move toward critical mass for merchant acceptance.
  3. More smartphones. By 2020, there will be 6.1 billion smartphones in the global market (most with biometric security features). That’s a stark difference from the 2.6 billion smartphones in today’s market—most of which do not have biometric capabilities.
  4. More merchant acceptance of contactless payments. Many of the new terminals that merchants are implementing support both contactless payments and the EMV chip.
  5. A good reason to keep using the mobile wallet. The new wallets either have or are planning to implement rewards programs into their product, which will give consumers a compelling reason to habitually use their mobile wallets.

Each of these prerequisites to mass adoption is trending in the right direction, which means every bank should be working to support one or more of the large mobile wallets as part of their future strategy.

Many banks seem content to support the provisioning of their card accounts into Apple, Android and Samsung. The announcement of Chase Pay at the payments-focused conference Money20/20 in Las Vegas in October sent shock waves through the 10,000 conference participants. If Chase felt it needed its own proprietary wallet, will other large banks follow?

The decision to invest in a proprietary wallet should be based on three key elements in each bank’s strategic direction.

  1. Does the bank have a customer profile that wants a mobile wallet offering and would that group prefer a proprietary wallet over a large national wallet like Apple or Android?
  2. Does the bank have the internal resources or external partnerships required to develop and sustain a wallet in a very dynamic environment? (The wallet of 2020 is likely to be very different from the wallet of 2016).
  3. What are the banks’ competitors inclined to do and how will their actions affect the banks’ customers?

Each bank must consider its own strategic differentiation when determining whether to build or borrow. What distinguishes it in the marketplace and how might that change in the future? What will draw new customers to the bank in the next five or ten years?

One feasible strategy is to let others pave the way in developing new products and then figure out when and how to offer them to your own customers. It’s an approach that can minimize risk without necessarily jeopardizing the reward.

The bottom line is, mobile wallets are coming. (We really mean it this time.) Most banks must allow their card accounts to be provisioned into at least some of them. Some banks (but not most) should offer a proprietary wallet, but only if it fits into their larger strategy. Add the wallet to fit your strategy; don’t change your strategy to fit the wallet. Focus on your strategic differentiator and ensure that most of your future effort and investment are focused on the differentiator and not spread across all the possible initiatives in which you could invest (including wallets).

Making Interest Checking More Interesting


Retail-banking-6-26-15.pngFor consumers, having an interest checking account these days is, well, uninteresting.

Financial institutions only pay a few basis points of an interest rate at most, which requires a significant balance to generate meaningful interest income to customers. Even high-yield checking accounts average just 1-2 percent, but with qualifying balances capped around $10,000, customers annually make barely enough to go out for a nice dinner for two.

What can your financial institution do to make interest checking more interesting? In most cases, you can’t afford to pay a lot more interest than you’re paying today. And while you understand that, many customers don’t (just ask them).

So you have to think differently about what a checking account that pays interest delivers to customers. 

The essence of interest checking is that it lets your customers experience “making money on their money.” When this happens, it increases personal net worth. With increased net worth, customers now have more effective purchasing power (in terms of reinvesting and spending capacity).

When you think of interest checking as just “making money,” here’s a typical case of what your customer experiences today: The average balance of an interest checking account from StrategyCorps’ CheckingScore database tracking nearly four million checking accounts is almost $12,546. Earning two basis points of annual interest, the account makes the customer a whopping income of about $2.50. Not a great financial or emotional experience for your customer.

However, when you think of extending the essence of an interest checking account to include providing money-saving benefits, the financial and emotional experience a $12,546  average  balance checking customer has is much more relevant and meaningful.

So what are these money-saving benefits that can be offered in a checking account and how much can they typically save? Our experience in providing in-store local merchant discounts easily generates at least $10 per month for places everyone spends money—the dry cleaners, auto maintenance shops, restaurants and grocery stores. Offer travel-related discounts on hotels, rental cars and theme parks for an annual trip, and at least $100 can be saved. Add discounts for prescriptions and vision care, and saving another $50 is not difficult. And providing in-demand services like cell phone insurance ($120), roadside assistance ($70) and identity theft protection ($120) to replace what nearly one in three consumers already pay directly to companies providing these services, and that’s another $310 in total savings.

Now let’s compare customer experiences. A traditional interest checking account rewards a $12,546 DDA customer $2.50 in interest income. A modernized interest checking rewards the same customer with $2.50 in interest income and $580 in easily realized savings on things that a customer spends his/her hard-earned money on every day, resulting in $582.50 of effective yield or about 4.6 percent instead of .02 percent.

Said another way, to earn $582.50 with a .02 percent interest rate would require an average balance of just over $2.9 million, which isn’t realistic except for very few customers per financial institution. But wouldn’t it be a positive experience if many more of your customers could feel like they were being offered a product that provided the potential reward to be treated like a multi-million dollar relationship customer.

Granted, a customer has to use these benefits to earn the savings yield, but all of these benefits have mass market appeal with spending situations that are frequent and common. They also are delivered via a mobile app or a website, which are the preferred channels that your customers want to bank with you anyway.

If you’re wondering how to improve the user experience of your interest checking customer, pay them as much interest as you can afford so they’re able to make as much money as possible, but also provide the tools to let them save as much money as possible on things they have to buy. Until interest rates recover to levels to generate material amounts of interest income, the money-saving ability of these kinds of benefits will make interest checking more interesting.

Smart, top performing financial institutions are already successfully employing this to retain and grow interest checking customers. If you want to keep your interest checking uninteresting, then keep paying your $12,546 checking balance customer $2.50 in interest.