Digital wallets had a relatively slow start in Europe, but, their continuous growth, as well as the added-value services tested, are now showing a true opportunity for several players who are looking to improve their consumer conversion and retention. Additionally, there have been developments on the merchants’ side.
Apple Pay, Google Pay, and Samsung Pay, the ‘X-Pays’, were launched back in 2014 and their adoption has varied depending on several factors.
First, the initial countries' usage of NFC: in countries such as the UK, the massive use of ‘Open Payment’ in most transit networks has been a great promoter of mobile wallets. Similarly, countries like Spain where NFC transactions can be done for any amount, with the user entering a PIN for payments above EUR 50, already had customers confident to pay by NFC anywhere. On the other side, countries like Germany with a low rate of card payments, or France with card NFC transactions limited to EUR 50 have struggled at first.
A second factor is the population targeted by the wallet, and this is the ‘early adopter’ effect. The more expensive your smartphone is, the more likely you are to have your card enrolled in a wallet. That is one of the reasons why Apple Pay is the most used wallet today, while also benefitting from a good customer journey and integration within the iOS ecosystem.
The biggest remaining obstacles to the general adoption of wallets are:
According to their roles, actors are either expecting more retention or conversion thanks to the expanded use of digital wallets. For schemes and issuers, the goal is mostly to boost the transactions ratio over cash, while still remaining accessible to consumers. Digital wallets are seen as daily used apps, which provide a high perceived value for users, and are integrated within an ecosystem. User retention remains the main focus, with a great UX to ensure the customer will remain loyal to the brand for future purchases. This can even go further with the ‘X Pay Card’ initiatives, such as Apple Pay Card in the US or Samsung Pay Card in the UK and Germany, where users enjoy premium offers.
Merchants are not yet fully embracing digital wallets on their ecommerce platforms (or apps), despite evidence that they represent a great way to improve users' conversions. X-Pays are among the few payment methods offering an easy, frictionless customer journey, while being SCA-compliant thanks to the delegated authentication from issuers.
Digital wallets, while being initially focused on payments, will expand beyond the added services to propose a full wallet digitalisation:
loyalty card programmes are fully embedded in the wallet's proposition. Today, a retailer can prompt a customer to join its loyalty programme directly at the POS thanks to the NFC technology, which will automatically trigger a message in Apple Pay, asking the user if they would like to subscribe to wallet’s programme?’ and add a payment card;
digital IDs (driving licenses, university cards, etc.) are a reality in countries such as the US or South Korea. The EU is currently working with member states to agree on a technical framework to design an EU scheme for those use cases;
Samsung Wallet was just launched and already announced it will support crypto assets, leading the path to new Gen Z habits.
Despite the great potential for digital wallets, the most impactful innovations might surge in the merchants’ area.
New mobile payment methods under merchants’ control
Many different initiatives are underway to provide a more seamless mobile experience led by merchants.
Tap to Mobile1 allows merchants to directly accept card payments via their NFC handsets (or ‘COTS’). The 'ultimate version' of mobile payments on COTS will be ready in a few months after the PCI published its first standards on Software-based PIN Entry on COTS, and Contactless Payments on COTS. This version will accept any NFC card payment on a standard NFC device, with the PIN entered by the consumer on the merchant's device. Large-scale pilots are in progress and Mastercard and Visa expect this technology to increase even more the number of card payments including at small and individual merchants.
Retailers will also be able to improve their personal shopper’s customer journeys and even simply rationalise the equipment of their sellers. They will use one ‘super’ device instead of carrying two or more dedicated function devices. For instance, you could imagine a transit use case where the controller can both check the traveller’s ticket validity, and enable ticket purchase through the same device.
Another initiative regards a mix of QR / online payment propositions, especially seen in hospitality. With solutions such as Sunday , the restaurant can place QR codes on each table, allowing consumers to both make their orders, and pay/split the bill before leaving the restaurant, without waiting to be cashed in. This improves both consumer UX and waiters’ precious time, without affecting the overall dining experience.
Mobile payments are now present in the hands of consumers and merchants alike, and it will most likely highly promote consumers’ conversion and retention for the actors involved in the value chain.
1. EMVCo terminology (Mastercard: “Tap on Phone”, Visa: “Tap to Phone”). Tap to Pay by Apple is one example.
This article was first published in Payment Methods Report 2022, the most updated overview of trends and developments in the payment methods space and the innovative technologies that these methods work upon, emerging consumers habits, and strategies on how to win at conversion and retention.
Senior Manager at Oaklen Consulting, François Cortés has developed an expertise on digital wallets with projects such as Apple Pay for Carrefour in Spain and France, or Samsung Pay for Samsung Electronics France. He also actively worked on Mobile Ticketing technologies such as Calypso used in Paris transit network.
Oaklen Consulting (formerly PW Consultants) is an independent consulting firm specialising in payments that helps today’s and tomorrow’s players to achieve all their ambitions. Just like that. With 55 consultants, we have been working for more than 20 years with all the players in the ecosystem (banks, merchants, schemes, fintechs, manufacturers, etc.) in Europe and around the world to ensure that payment matches the worlds at the crossroads of societal, technical, and regulatory issues.
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