Wallet War


Apple Pay wasn’t the first consumer smartphone payments wallet to market

By Phil Britt

Is PayPal a Mobile Wallet Player?

Ecommerce exchange company PayPal Inc. in Palo Alto, Calif., has an app that, while not touted as a mobile wallet, makes it another player in the mobile payments space, according to some technology analysts.

The Yankee Group has ranked PayPal as the leader of the mobile wallet race, with 15 percent of consumers having used its application for an in-store transaction during a one-month study period, nearly four times the adoption of Google Wallet, its nearest competitor.

To use PayPal’s app, consumers can load money to their PayPal account in advance of a mobile payment. PayPal earns money based on the unused balances, or the consumer can register a payments card or bank account with the company to fund online and offline purchases with its partners. The app integrates ordering, couponing and paying within PayPal’s merchant network.

PayPal, which has a partnership with Discover, offers consumers the option of paying online in advance for some restaurant pickup or delivery orders. For point-of-sale purchases at merchants that accept PayPal, the consumer first authorizes the merchant on the app, then the merchant chooses the user’s photo once it appears on the merchant’s transaction terminal if enabled. Retailers without photo-enabled terminals require registration of a customer’s phone number and PIN.

Several digital mobile wallet platforms are competing for the attention of smartphone-carrying consumers at the checkout counter. However, all digital wallets are still struggling to gain a crucial foothold in the retail payments marketplace. As with any payments system, the future success of digital wallets will hinge on mutual participation—whether consumers widely use and merchants widely accept the payments platforms, several payments experts agree.

Many are anticipating whether the introduction of Apple Pay might spur greater acceptance of mobile wallets. Consumers will use the payments method with which they are most comfortable that the merchant accepts.

Most mobile wallets rely on Near Field Communication “contactless” card technology that isn’t yet available at all point-of-sale terminals. Even though many merchants are upgrading their terminals to accept chip-embedded smartcards by October 2015, some may hesitate to turn on NFC transmissions to avoid additional processing fees.

Here is a summary of a few of the most prominent mobile wallets in the marketplace, including how they might affect consumers and community banks.

The Apple Pay wallet. Major credit card issuers and some merchants, including grocer Whole Foods Market and fast-food Panera Bread cafes, have also been energetically promoting Apple Pay to their customers. Visa and MasterCard are promoting the platform as well, hoping to support as many transactions for their cardholders and card issuers.

In addition to using NFC transmission technology, Apple Pay uses the same tokenization security standard being adopted by smart-chip cards. It also uses authentication via fingerprint and a secure method for storing the data.

Yet for all of the attention the wallet has received in the media, Apple Pay is accepted at only 220,000 of some 12 million point-of-sale devices and only for owners of iPhone 6 and iPhone 6 Plus smartphones. The iOS platform restriction, of course, eliminates users of Apple Inc.’s smartphone rival Android, which represents more than half of the overall smartphone market.

Another issue is Apple Pay’s still-limited acceptance. Not all issuers, even the biggest ones, are permitting all of their cards to be enrolled (Chase debit is a participant, but not Chase credit, for example).

For community banks, another issue is interchange erosion; Apple charges issuers 15 to 25 basis points per transaction, reducing their net interchange (typically 160 to 180 basis points) that banks receive.

Card-issuer wallets. Visa Checkout and MasterCard MasterPass are mobile wallets with similar features and functionality as Apple Pay, including the use of tokenization to secure payments as well as loyalty offers for consumers and merchants. Both wallets are designed to facilitate online purchases with one-click purchase functionality, but they do not yet have a retail transaction presence. However, Visa and MasterCard are partnering with the Apple Pay wallet to process mobile payments.

The CurrentC wallet. CurrentC is the digital wallet offering from the Merchant Customer Exchange, a merchant consortium headed by Wal-Mart, Best Buy and Target Corp. In a move largely designed to skirt traditional interchange fees for transactions cleared over the credit card networks, big-box merchants banded together to develop a mobile wallet operating on automated clearing house infrastructure.


However, Aite Group LLC analyst Nathalie Reinelt figures that merchants backing the CurrentC wallet will, at least initially, spend as much or more on special loyalty rewards and other discounts to entice consumers to use the wallet as they might save on interchange fees. Like Apple Pay, CurrentC Wallet will rely on NFC technology. However, much of the wallet’s functionality, including the use of tokenization, had yet to be determined or announced at press time.

To allow merchants to avoid interchange fees, however, Google Wallet would likely be tied to a bank or a prepaid CurrentC account. More technical details about how CurrentC will work are expected to be available when the wallet is introduced sometime early this year.

The Google Wallet platform. Google Wallet debuted in early 2011, but it hasn’t established any “first to market” advantage among consumers and merchants. The mother ship Google Inc. touts more than 10 million downloads of the wallet, according to the company’s app store, but the number of active users is nearly nil.

Google Wallet faces further challenges from Apple Pay and other competitors, but also from internal company decisions. Only Android phones running its 4.4 KitKat operating platform or higher can take advantage of the wallet’s tap-and-pay functionality.

Google announced in early November that it would no longer accept its own digital wallet as a payments method for apps and software, though it will still support payments for Google Play Store apps. The newest version debuted less than 10 days after Apple Pay and enables users to set up recurring transfers and to establish alerts when the wallet amount falls below a certain threshold. Whereas Apple has major press events, Google typically makes no announcements beyond what it posts on its blog.

Phil Britt is a financial writer in Illinois.