The Impact of Mobile Wallet Startups In The Digital Revolution

A payment is the trade of value from one party to another for goods, or services, or to fulfill a legal obligation. In the last 20 years, plastic money and physical cash, bank transfer or wire transfer have been the popular options that people used for all kinds of needs from buying candy to transferring money.

Plastic money comes at the expense of users having to remember too many passwords, PINS, TANs etc. which have become the stumbling blocks in letting the user have a smooth digital payment experience. This also prevents the users who are used to physical transactions in cash to switch to digital platforms. Many businesses these days come up with their own loyalty programs enabling their users to make a transaction in points and in some cases with their own currencies. However, it is lofty to carry all the cards, plastic money, or apps for every time a user makes a transaction. This is where mobile wallets come in.

Euphoria Toward A New Type Of Banking

Great euphoria was generated since the launch of Apple, Samsung, and Android Pay. Three factors play a major role in the success of these players. They are (1) access, (2) interoperability and (3) sustainability of the operators. Obviously, the player who has access to the consumer's bank account and their tie-ups with the number financial institutions will be the winner in the race. Google has tied up with 41, while Apple has tied up with 1199 banks in the US alone, 88 retailers and is available in 6 countries, while Samsung Pay has tied up with 133 banks, is accepted at 101 retailers, and Android Pay has partnered with over 41 banks and is accepted at 64 retailers. These numbers keep increasing as each of the players is trying their best to capture the market. If we go by numbers, obviously, Apple Pay is the winner for time being.

Mobile Wallets On The Rise

Mobile wallets are versatile and secure which serves multiple purposes. They can act as a consolidated platform for different types of financial services at your fingertips without having the need to go to a physical bank. Thanks to pervasive computing, mobile wallets are master pointers for different types of payments. To say it in a computer science jargon, mobile wallets are used for opening and closing a transaction and choosing which sub-pointer to assign – in other words, the payment type is a pointer to the source of money that is the mobile wallet in this case. In this sense, a payment type can become a wallet, and a wallet can become a payment type. The wallet sometimes can be used as an app at a retail outlet and vice versa pointing to a card and in turn points to a bank account.

Payments are always subject to banking regulations. Banks have an aversion toward too many transactions enabled via wallets for the fear of limiting their reach in comparison to mobile wallet startups. Traditional banks would be happier if their customers stick to plastic money. From a customer's perspective why carry a card when direct transfer can be done from a mobile? Customers definitely don't want to carry a lofty wallet with plastic money (credit cards, debit cards, loyalty cards) to make a payment. How about using a mobile phone for making payments wherever they go? This is where mobile wallets make their great entrance. Unlike leather wallets, which are atom agnostic, payment type agnostic and lofty to carry, mobile wallets promise the user the flexibility and the power as a consolidated platform for making payments.

Trends & Opportunities For Mobile Wallet Startups

There are many opportunities in developing countries where regimes of these respective countries are bringing reforms aiming at financial inclusion at a rapid pace. As part of it, they have daunting tasks ahead of them: easing the banking regulations to include unbanked in conjunction with the transformation on the technology front keeping up with the rest of the world. Here lies the opportunity for mobile wallets to collaborate and complement by solving major problems on the banking front and also on the technology front. A good example of the former case is RecargaPay. Founded in 2010, RecargaPay is a mobile payment platform and wallet for the Brazilian market.. The app allows anyone to access the benefits and convenience of a mobile payment system without needing a bank account thus empowering unbanked people. The startup covers financial services such as sending money and requesting money in addition to facilitating conversion loyalty points to currency and vice-versa.

In most of the existing contactless payments such as Apple Pay, Android Pay, and Samsung Pay rely on Near-Field Communication (NFC in addition to QR codes) which means the smartphone being used should have NFC enabled. This presents a new question, whether there are any other alternatives for contactless payments other than NFC. Google officially unveiled its first foray into mobile payments in Asia. The search giant has launched Tez in India, a free mobile wallet that lets users link their phones to their bank accounts to pay for goods securely in physical stores and online, and for person-to-person money transfers with a new twist: Audio QR (AQR) which uses ultrasonic sounds to let you exchange money, bypassing any need for NFC. AQR — the sound-based format for transferring money securely between devices — is its own proprietary technology. This appears to be the first time that Google has used it for payments, although it has used ultrasonic sound for transferring information between devices before. For example, the technology has been used in Chromecast to connect devices since 2014. Other startups that have used audio-based "codes" to transfer payments and other data before include Lisnr and Chirp.

Forecasting the future is always tricky. Who doesn't want to have better control over one's finances? This is where the scope for innovation lies. If mobile wallet startups can offer more control to the customer by the consolidation of all important banking information, payment cards and details of customers, favorites stores simultaneously letting people know what they could afford and keeping daily spending in control. This forecast could be calculated based on the history of purchase patterns (complemented with pre-approved invoices and recurring payments). Providing the customer with long-term and short-term consumption, indicating immediately at opening the app, whether the user is doing good or bad.

Mobile wallet startups could forge an alliance or work with current payment service providers that can provide the consumer with real-time inter-bank electronic funds transfers through the use of virtual payment address mechanism provided by banks. A good example of this is UPI, which is currently shaping the FinTech industry in India.

Bottlenecks and Competition

A serious competition can be expected from banks or telecom operators which are rolling out their own 'tap to pay' functionality in their banking apps, meaning big players could lose out on attracting users who aren't early adopters and trust their bank's app for payments. While payment interfaces that are part of mobile wallets are largely used in personal experiences in day to day life, wallet companies utilize customers as data. They make transactions inconvenient for users by asking them to share extensive personal information. For any user who is not comfortable saving their bank or card details on a third-party app, it is likely to stick to the reliable mode of payment through an app from a bank. Mobile wallet startups have to rely on partners to gain access to advanced and secured platforms which could give them an edge by offering online banking as a payment method to pay online. Another option, or the gap where mobile wallets could make their foray, are other m-commerce services such as hyperlocal transactions, cash pick up and micro-credit facilities.

The future for mobile wallet startups in this segment seems to be promising. Ubiquitous computing together with an ease of regulations in the banking industry is shaping the FinTech industry like never before and startups in the sphere are taking the driver seat in this revolution.

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