Mobile wallets: QR code technology builds on consumer trust

Mobile wallets: QR code technology builds on consumer trust

As they look to meet consumer demand, financial institutions are starting out with some important advantages.

As consumers become increasingly savvy about Internet and

WHY SWITCH?

mobile-based banking services, they are demanding products

Customers are willing to adopt new, convenient payment methods—such as mobile walDiscount on athe right incentives. lets—for 44%

and services that meet their needs, provide mobility, and honor their affinities—and they have demonstrated that they’re willing to switch to get what they want. Nonetheless, many financial institutions remain skeptical about the impact new payment technologies will have on their costs, security, and revenue. It’s become clear that if financial institutions are to attract and retain cardholders, they must offer innovative and personalized mobile services that complement the banking experience while still maintaining the level of protection, security, and trustworthiness that consumers have come to expect. This paper will discuss some solutions.

purchase

Discount on a purchase

44%

Added rewards

42%

Added rewards

42%

Fee added to current payment type

42%

Fee added to current payment type

42%

Breach or unauthorized charges toBreach a cardor

24% 24%

unauthorized charges to a card

0% 0%

25%

50%

25%

50%

Source: Vantiv/Mercator Insight Research 2013 Source: Vantiv/Mercator Insight Research 2013

Trusted Advisors

Different Wallets from Different Players Gatekeeper Wallets such as Google, Isis, and Square control commerce on the phone, gaining access to data and analytics.

Bank Wallets are the next evolutionary step in banking. Solutions built into financial institutions’ existing mobile applications will preserve brand equity and strengthen customer loyalty.

Retailer Wallets let merchants use mobile technology to build relationships with consumers via loyalty programs, rewards, and offers. eCommerce Wallets such as PayPal, Amazon, and iTunes maintain an enormous number of existing active accounts and have the ability to leverage those accounts across mobile and in-store platforms.

Aggregator Wallets such as Apple Passbook capture customer loyalty cards, prepaid cards, and gift cards in one place for easy access.

Single-Feature Wallets dominate the start-up community and typically have one feature that performs very well, such as payment for a cup of coffee or delivery services.

Despite the hesitation of financial institutions to adopt new payment technologies, and despite the increasing array of choices at the consumer’s disposal, it appears that consumers are still looking to their financial institution for guidance. According to recent Vantiv/Mercator research, 50% of consumers would turn to their financial institution, for example, for a mobile wallet. Confirming this, a 2012 Carlisle and Gallagher Consulting study found that 53% of U.S. consumers trust their banks the most when it comes to making financial transactions via a mobile device.

Still, financial institutions understand that being a trusted partner is not enough; they must also demonstrate that they are in tune with the evolving needs of their cardholder base by consistently delivering solutions that increase innovation, security, and value.

Many Wallet Categories Complicating the situation, however, are the numerous wallets, in many categories, already in use or in development from a broad range of players (see sidebar, left). Many of these solutions require financial institutions, merchants, and processors to deploy wallets and platforms that are thirdparty brands, inserting intermediaries into the payment process.

These companies often leverage customer data for their own benefit.

They insert themselves between the financial institution and its customers.

They enroll users, capture transaction volume, amount and classification of spend, and generate their own revenue opportunities.

These players also want to monetize the interaction with the customer through advertising and loyalty. Over time, this can seriously upset the current economics of the interchange revenue model for financial institutions and can change the relationship dramatically.

High Value, Low Investment Even if financial institutions expect slow mass adoption of digital wallets, they should introduce cardholders to the mobile payment experience early on to gain loyalty, remain competitive, and satisfy the needs of high-value early adopters.

Proprietary solutions tend to be costprohibitive, slow to market, and fraught with technical issues. Rather than build, many financial institutions are choosing to buy a cloud-based “white-label” wallet from partners. A white-label wallet allows the issuer to maintain the loyalty and affinity of its cardholder.

In contrast, other wallet providers are designed to be the “brand” to the customer and sit between the issuer and the customer. A financial institutionbranded wallet also provides more frequent touch points by embedding the wallet into an existing mobile banking app with minimal investment or technical customization.

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A cloud-based wallet means that card credentials and user information are stored securely in “the cloud,” rather than on the smartphone, handset, or point-of-sale (POS). Google and ISIS solutions require that card credentials be stored in the phone itself and wirelessly transferred to the pointof-sale. A cloud-based wallet using QR codes to initiate a transaction is not dependent on Near Field Communication (NFC). Mobile wallets from Google and ISIS depend on the merchant’s having NFC-equipment at the POS, a costly and complicated solution currently available in less than 1% of U.S. merchant endpoints.

Implementation for the merchant is easy. Software is pushed remotely to countertop payment terminals such as Verifone, MICROS, etc. data. Such a wallet supports any payment type, including credit, debit, prepaid, loyalty, or gift cards, in any purchase scenario—in-store, online, dining, bill-pay, and more. A cloud-based wallet is also poised for the long run by supporting both QR codes and NFC and other evolving interfaces in the future.

Understanding QR Technology A QR code is a seven-character token that represents the transaction. It is one of the safest ways to purchase merchandise via phone, as the token fully represents the transaction only, without the need for personal data, such as name-, card-, or SKU-level information. Since it is simply a string of numbers and letters, the QR code has

no discernible value if translated.

Cloud-based mobile wallets are more secure than credit card swipes. These wallets reduce opportunities for fraud, since no payment card data is ever stored on the phone or exchanged at the time of the sale, whether online or in person. There can be no skimming, and a breached or lost smartphone will not compromise the card or consumer data.

The simple technology behind the QR code-based wallet will enable users to participate in many payment options as the market matures. For example, this wallet could be used to pay for gasoline at the pump or for dinner at a restaurant. It can work with online purchases and printed utility bills. It will allow consumers to make purchases directly from magazine ads or TV commercials.

A QR code-based wallet allows merchants and financial institutions to keep cardholders in their own branded app all the way through checkout, regardless of who issued their card. This protects their brands and their positions in the payments ecosystem, at the same time that it maintains control over cardholder relationships and data.

No purchase information will ever go into the analytics engine of competitors such as Google and PayPal.

New Payment Methods—and New Revenue Opportunities Ultimately, consumer demand will drive both mass-market implementation of mobile wallet products and

Bank or credit union

50%

Major card network

43%

Online payment provider

20%

Major technology company

13%

Major eCommerce retailer

13%

Wireless cellular phone provider

13%

Major retailer

12%

Third party

9%

Would never use a mobile wallet 0%

28% 20%

40%

60%

Source: Vantiv/Mercator Insight Research 2013

IN BANKS THEY TRUST Consumers rank banks and credit unions at the top in terms of preferred wallet providers—a reflection of the trust built up by those institutions.

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merchant acceptance. However, financial institutions and merchants that adopt a cloud-based white-label solution will find the benefits equally compelling.

Mobile wallet payments present an opportunity for a new age of payment lifecycle advertising for merchants, including targeted offers, instant redemption, and loyalty incentives. These strategies help boost sales, lift ticket amounts, and increase foot traffic.

For financial institutions, mobile payments behavior analysis is a great springboard for cross-selling products such as overdraft protection, loans, and new credit instruments.

Transaction-level data is available to the wallet issuer for both its own and foreign cards. This data can create a comprehensive profile of the customer’s spending habits. Since customers receive the wallets from a trusted entity, they are not sharing their sensitive personal data with third parties that can sell it or use it for their own marketing purposes. The integrated marketing engine can be used to drive campaigns.

As mobile payment methods evolve, they are likely to be integrated into the wallet experience. This will extend the revenue capability of the issuer

QR code-based mobile wallet transaction flow

Customer at POS would like to pay with their mobile app.

Merchant selects mobile tender type and a unique QR code is generated.

and simplify the experience for the merchant.

In adopting a turnkey mobile wallet technology, financial institutions benefit most by demonstrating that they understand the desires of today’s cardholder, deepening existing cardholder loyalty and preference, thereby minimizing fears of attrition and improving customer acquisition. Other benefits include: •A turnkey offering with no technical integration is low-risk and quick to market.

•T he ease of adoption means organizations can quickly share in new

Customer scans QR code with their phone and selects desired payment type.

Authorization completes in the cloud and is sent to POS. The customer’s receipt is presented in the mobile wallet.

revenue streams.

• Better understanding of customer spending habits lets organizations market more effectively.

• A potential increase in payment volumes through targeted marketing can move the institution’s own credit cards to the top of the wallet.

Executives should ensure that whatever wallet they select leaves the door open for future payment technologies as consumer choices evolve. Thus, it’s critical to choose a technology partner that can grow and navigate market changes over time.

About Vantiv Vantiv is one of the leading integrated payment processors in the United States.

Known as Fifth Third Processing Solutions since 1971, the company, headquartered in Cincinnati, Ohio, changed its name to Vantiv in 2011, and became a public company in 2012. Vantiv’s credit, debit, prepaid, and mobile solutions help businesses and financial institutions of all sizes get the most out of payment activities.

Vantiv Corporate Headquarters 8500 Governors Hill Drive, Cincinnati, OH 45249 866-622-2880 | www.vantiv.com TL0002 7/13