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Payments are Not the Future of Mobile Wallets

Nearly 75 percent of the U.S. population owns a smartphone—that’s 182 million people, the vast majority of whom regularly use theirs to hail a taxi, transfer money to their friends or check in for a flight. And, much to the dismay of start-ups and tech-savvy retailers alike, they probably all still carry a wallet, as paper and plastic continue to be the payment method of choice for consumers.

For the uninitiated, mobile wallets are apps that store pre-loaded credit card information so shoppers can pay for products by simply tapping their smartphones to a terminal at checkout. Google has offered Google Wallet for years and last September, Apple announced it was getting into the tap-to-pay space with Apple Pay, which is now accepted at 700,000 locations around the U.S.

While Forrester Research expects mobile payments to rise to $67 billion this year, convincing consumers that tapping a phone is better than swiping a credit is no easy feat and some experts say that in order for mobile wallet apps to gain real traction in the marketplace, they have to be more than a means of payment.

“Everyone seems so obsessed with the payment features of mobile wallets but consumers are actually more interested in the non-payment features,” said Mark Tack, vice president of marketing at Vibes, a Chicago-based mobile marketing company whose clients include Gap, Lord & Taylor and Men’s Wearhouse.

When Apple debuted its infamous “There’s an app for that” slogan in 2009, few could have predicted that six years later apps would exist for everything from fitness tracking to finding free hugs—and consumers, frankly, are tired of it, meaning that it’s harder than ever for retailers’ efforts to stand out from the crowd. A Forrester study warns that while U.K. and U.S. consumers use an average of 24 apps per month, they spend more than 80 percent of their time on just five (Facebook, not surprisingly, is No. 1).

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“Consumers are really only going to use the apps that are extremely valuable,” Tack continued, defining value as a re-imagined mobile experience that enhances customer relationships.

“Merchants only want to do a couple of things: sell more stuff and keep consumers coming back for more stuff. Anything that can help do that is a win for them,” agreed Thad Peterson, senior analyst at Boston-based research firm Aite Group.

But where to start? “Get that plastic loyalty card into Passbook or Google Wallet and turn a one-way static loyalty program into a two-way real-time loyalty program,” Tack suggested, explaining that mobile wallets can help consumers organize everything they need to shop. “They can get rid of coupons, get rid of plastic loyalty cards and mobilize those assets that as shoppers we’re always scrambling to find. And by doing that a retailer has the opportunity to provide real-time point balances and communication around special offers.”

Chander Chawla, CMO of customer facing device and mobile app security company Moki, added that a mobile wallet could also allow retailers to gather rich customer data and serve personalized offers to customers. “A big part of the benefits of mobile wallets for retailers come from understanding their customers and preferences,” he said

That’s why when dozens of U.S. retailers, including Walmart, Target and Kohl’s, joined forces to form the Merchant Customer Exchange (MCX) and create a retailer-controlled digital wallet, it was paramount to have promotion and loyalty at its core. In fact, Forrester found that 57 percent of adult smartphone users in the U.S. are most interested in having access to loyalty programs and rewards within a mobile wallet.

Plus: “Retailers can eliminate frustrating checkout lines and counters and potentially open up more floor space because a store associate can just walk to the customer to help with the checkout process,” Chawla said, noting that by improving the user-experience, people might shop more often.

But for all the perks digital wallets reportedly provide, mobile devices now make up 21 percent of the $6 billion that fraud costs merchants and credit card issuers in the U.S. each year, according to a recent survey published by LexisNexis Risk Solutions.

Apple Pay, in particular, has been hit by a wave of fraudulent transactions since its launch last fall. While it uses a fingerprint reader to ensure that the phone’s owner is making the purchase, cyber thieves have been using credit card information stolen in retailer breaches, entering it into iPhones and making purchases without ever producing an actual credit card or signature.

Chawla said that a lack of customer trust and security are two significant hurdles that need to be overcome before consumers will widely adopt mobile wallets—and that’s why, ultimately, the tipping point will come down to the overall experience, including such value-added features as personalized promotions and rewards, and that’s how mobile wallets will reinforce loyalty and boost sales.