Digital wallets have been generating a lot of buzz in recent years for one main reason — the companies doing the buzzing. Indeed, when Apple introduced Apple Pay in 2014, it wasn’t via something as common as a press release; it was in front of millions of Apple fans during one of the company’s live product launch events. It wasn’t long before Samsung launched its own digital wallet technology, which it made very loud in the many (many) television ads the company pushes to consumers everywhere. Of course, there are other digital wallet providers and technologies in the market, but between Apple and Samsung, the two should get credit for creating the most mindshare among consumers. It’s that mindshare that’s translating to an opportunity for VARs and software developers today.
However, there’s still a lot to be sorted out before you declare digital wallets as your next big revenue generator. I recently spoke with four EXPERTS to help cut through the hype and get to the core of what’s going on with digital wallets to help identify the real opportunities for the channel.
Why Care About Digital Wallets?
Before we venture further, it might help to jump ahead a bit and explore the reasons why you should care about digital wallets. Joe Kaplan, CEO of Total Merchant Services, says VARs and developers should care about digital wallets because they will continue to gain market share due to increased consumer preference. In short, it’s a foregone conclusion that digital wallets will be in our future. “Younger consumers continue to use their smart phones for more activities, and the time-consuming process of using EMV chip cards at checkout will drive merchant preference for wallet payments,” he says. “As mobile wallets become more popular, VARs and ISVs will need to include payment acceptance capabilities that include wallet-based solutions.”
Jonathan Brandon, VP of channel sales for Harbortouch, agrees. “Mobile payment methods such as Apple Pay and Android Pay represent the biggest evolution the payments industry has seen in many years,” he says. “As these mobile wallets become more widely used, they are going to impact every area of the POS and payments ecosystem.” He adds that, not only do mobile wallets deliver undeniable benefits in terms of convenience and security, but they can also enable new capabilities at the point of sale. “By turning payments into a platform, mobile transactions can add value for the consumer, the merchant, and the VAR,” he explains.
Peter Osberg, SVP worldwide integrated payments, eCommerce & U.S. product, EVO Payments International, says, that although adoption rates are fairly low today, all indicators point to the fact that mobile wallets will become a more standard part of payment and loyalty behavior for consumers in the future. “As the trend takes hold, VARs will want to ensure they are aligned with innovative ISVs who are future proofing their solutions with new services, including wallets, to ensure they have the most current and relevant solutions to offer their customer base.”
Make Money Today
Of course, one of the biggest reasons why you might want to care about digital wallets is the fact that there’s money to be made. Kaplan points out that ISVs and VARs can make money off of this trend by upgrading their customers to payment solutions that enable payments from digital wallets. If you still have customers who require an EMV upgrade and are having trouble getting them to see the advantage, you should consider combining the upgrade with new features and functions such as digital wallets. “Most EMV-upgraded terminals and other payment solutions also provide NFC (near field communication) capabilities to accept digital wallet transactions so merchants have two strong reasons to make the upgrade,” he says.
Bill Lodes, SVP of business development and strategy for First American Payment Systems, adds that VARs and ISVs that implement mobile wallet acceptance in their POS can create market differentiation from their competitors and have increased customer acquisition resulting in more transactions and more revenue.
Brandon adds that, since VARs typically take a consultative approach with their clients, it is especially important for you to be well-educated on the various payment technologies being used. This knowledge and expertise offer value in itself that can help you sell more products and services.
While digital wallets might still be new technology yet to realize its full potential, that doesn’t mean you should let the opportunity to provide value to your customers pass you by. “The secret to sustainable residual income will always be centered on providing additional value around core solution offerings — whether it’s a piece of software or a service contract,” says Osberg. “Mobile wallets provide a natural platform to support the introduction of new value-added services including loyalty programs, customer service, and customer engagement programs.”
Understand The Different Wallets
If you’re interested in adding digital wallet acceptance to your POS solutions, it’s important to have a basic understanding of the technologies and brands currently dominating the field. Kaplan explains that most of the digital wallets today are offerings from wireless phone providers. The most popular wallets are Apple Pay, Samsung Pay, Android Pay, and PayPal. The wallets have a great deal in common, including enabling payments by loading your credit and debit cards.
One important difference among these wallets is the way transactions are enabled. For example, most wallets, including Apple Pay and Android Pay, enable payments today via NFC. Depending on the hardware you currently sell and install, an upgrade might be needed to add NFC capability.
Lodes adds that Samsung Pay is unique in that it works with both NFC technology and also the mag-stripe on a terminal. Therefore, anyone with a standard mag-stripe terminal would be able to accept Samsung Pay without a hardware upgrade.
Brandon explains that Samsung Pay accomplishes this feat through a technology called Magnetic Secure Transmission (MST). Using MST, the phone emits a magnetic signal that simulates the magnetic strip found on the back of a credit or debit card.
The Future Of Digital Wallets
By now, most of us should have chip cards and have experienced at least a handful of retail experiences where we check out by dipping the card. The process, while not a huge burden, definitely takes a little longer and is slightly inconvenient. This is especially true when you compare that checkout process with that of a digital wallet. For this reason alone, Kaplan believes digital wallets should continue to gain market share, particularly among millennials. In addition, he says, it seems likely that rewards and loyalty programs will continue to be integrated with digital wallets, enabling consumers to save money and merchants to drive desired consumer behavior.
Brandon adds that we are just scraping the surface of the capabilities that mobile wallets can offer. “Some examples of future applications include automated loyalty functionality, direct marketing opportunities, e-receipts, cross-sell/up-sell opportunities, and more,” he says. “Additionally, we are sure to see mobile wallets being used in new situations such as pay-at-the-table and line-busting scenarios.”
What’s Slowing Digital Wallet Adoption?
Despite the hype, digital wallets have been slow to gain much traction in the United States. Lodes explains that the strategy so far by the major wallet players is to drive awareness and merchant adoption. “The adoption totals have been underwhelming so far, and I believe it is because they haven’t partnered with the ISV/VAR community,” he says. “Our community has enormous impact on small businesses and the end users through their POS solutions. The companies developing mobile wallets should be partnering with VARs/ISVs to drive adoption through their ecosystem. Once that is done, there will be a significant increase in merchant adoption and end-user mobile wallet transactions.”
Kaplan points to other factors at play. “One of the biggest issues related to mobile wallet adoption is awareness among consumers that they easily can use their smartphone to make payments and enjoy the convenience that provides,” he says. “Further, many merchants don’t understand how to accept NFC payments and are reluctant to adopt what they consider a new technology, which they fear may also require additional training for their staff.” He goes on to say that many merchants and consumers also have concerns about the security of NFC payments, though most experts agree that mobile wallet payments are more secure than traditional payment methods. The above concerns in mind, a great deal of education and awareness building among both consumers and merchants will be required to drive adoption of mobile wallets. To Lodes’ earlier point, this education is something VARs and ISVs can play an active role in with merchants.
As mentioned earlier, it’s true that digital wallets are still in the early stages of adoption. However, that doesn’t mean you should wait to offer such technology to your customers. With the majority of your customers still probably needing an EMV upgrade, you can add value by including new payment capabilities that give your customers a competitive edge by enhancing the customer experience.