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Digital Wallets are Gaining Ground as Consumers Grow More Comfortable with Mobile Devices

Mobile Commerce Insider Featured Article

January 07, 2014

Digital Wallets are Gaining Ground as Consumers Grow More Comfortable with Mobile Devices


Earlier this year, Vibes did a study and found that 85 percent of consumers say they would receive at least some benefit from a digital wallet. Another company, Chadwick Martin Bailey, found in a survey that only 16 percent of respondents had used a mobile wallet in the previous 6 months. Clearly, the interest in the technology is there, so what’s keeping mobile wallets from mainstream adoption?

Although consumers have widely adopted mobile payments (such as buying a song on iTunes or donating to the Red Cross via SMS), mobile wallets (which manage multiple payment sources) still depend on brave early adopters.

As I see it, there are three main challenges to mainstream adoption:

  1. Technology standardization. How will mobile wallet transactions be handled? NFC-enabled phones are forecasted to grow to 1 billion units by 2017. But should retailers install NFC-based POS equipment? That’s a risky investment if consumers adopt some other technology.
  2. Security and Big data. Consumers worry about personal data being hacked or stolen and fear that marketers will abuse their data.
  3. Physical wallets. The public is comfortable with physical credit cards, but this was not always the case. Credit cards did not really become ubiquitous until the 1980s and ‘90s when co-branded cards emerged. The major card brands gave consumers the trust, incentive and centralization they needed to make credit cards a mainstream payment option.

Like credit cards, loyalty programs were widely adopted by brands and consumers, largely due to the pioneering efforts of American Airlines and its AAdvantage frequent flyer program.

Loyalty rewards became a kind of currency in the form of points or miles, which could only be redeemed within a single-brand loyalty program. Thus, consumers had an incentive to stay loyal to that brand, earn points and miles and redeem them.

Consumers have since signed up to loyalty programs in droves. The average American household belongs to 22 loyalty programs, which goes to show how cluttered and fragmented (and at the same time, popular) they have become.

Because loyalty programs are already mainstream and consumers are comfortable storing virtual currency in the form of points and miles, loyalty points could be a bridge to get people to adopt digital wallets. According to Points' research, 78 percent of consumers say they would be more likely to make a purchase if offered points or miles, and 73 percent wish there were more ways to earn points and miles in their favorite programs. If consumers are hesitant to manage real currency with digital wallets, why not ease them in and incentivize them with loyalty points?

Mobile First: Consolidating the Consumer Experience

But why should the loyalty industry help the digital wallet industry? The answer is simple: mobile devices.

Mobile is the new battleground for consumer loyalty. Redemption of real-time location-based offers is one of the most popular smartphone uses. According to First Data Corporation, 60 percent of smartphone users do comparison shopping on their phone, and 56 percent perform at least some banking transactions. A survey by Carlisle & Gallagher Consulting Group found that 65 percent of respondents rated the ability to make better payment choices, like maximizing their loyalty programs, as the most valued mobile wallet service. 57 percent said that managing receipts and additional documentation was also important.

Even though mobile device activity has increased, Forrester Research (News - Alert) found that only 35 percent of loyalty program members actually redeem their rewards. Programs are just too fragmented and rewards are not adequately integrated into a larger network of consumer choice. Points is already consolidating loyalty programs from major brands into one software platform where consumers can redeem, trade, exchange and buy points and miles. This is exactly the kind of virtual coordination that mobile wallets could bring to real currency, if only they could borrow the mainstream trust that loyalty programs already have.

In an increasingly interconnected marketplace, loyalty and currency-based digital wallets simplify consumer spending and allow brands to focus on what really matters, like loyalty, communication and, of course, sales. That is possible because companies and consumers are uniting around mobile devices. So the strategy should be clear: use loyalty programs to incentivize digital wallet adoption, and use digital wallets to better integrate loyalty rewards into mobile spending. That creates value for both industries and transitions consumers to a truly mobile marketplace.

Want to learn more?  Download a copy of the “Loyalty & Digital Wallets Report” and read about the future of mobile wallets and loyalty programs.

Edited by Cassandra Tucker

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