The intersection of prepaid debit and mobile payment applications is inevitable. After all, reloadable card use is growing at a steady clip. Meanwhile mobile wallet and mobile ecommerce apps are also proliferating. So why not bring the two together?
The first step in the process for prepaid providers is about determining which mobile payment platforms and applications to take seriously.
When it comes to mobile payment apps there are two things most analysts agree on – growth will come steadily, but there is no clear vision yet of which technology or application will dominate.
For now, the options are plentiful. Mobile payment platforms can enable a range of applications, from mobile wallet and peer-to-peer money transfer to mobile ecommerce tools and even in-store self-checkout. Behind these applications lies an intricate ecosystem of technology that can vary widely.
How will this all be resolved? Right now it appears there are enough scrappy start-ups rolling out differentiated payment platforms. As that race heats up, the technologies that work best, or those that are best understood by consumers, will be the ones that stick. Prepaid providers will have to closely monitor these applications as they emerge since most of them can be linked to prepaid debit programs.
Two Markets Growing and Set to Collide
While just a few years ago, analysts questioned the long-term role of prepaid debit and reloadable cards, now they offer solid growth predictions on the market. Meanwhile, analysts have the same rosy outlook on growth in mobile payment platforms and applications.
Nearly one in five underbanked and Gen Y consumers currently use prepaid debit cards, while about one in 10 of the general population are users, according to study results released last year by Javelin Strategy & Research. Mercator Advisory Group predicts that more than $200 billion will be loaded onto prepaid debit cards by 2014.
On the mobile payments front, Gartner Research predicts that the global mobile transaction market will see 42 percent annual growth between 2011 and 2016, making the overall market worth $617 billion with 448 million users by 2016. Likewise, Forrester Research predicts the US mobile payments market will see a 48 percent compounded annual growth rate, reaching $90 billion spent by 2017.
Bridging prepaid and mobile apps, Javelin reports that the growth of ecommerce and mobile markets is only adding value to the prepaid segment. Javelin researchers point to the fact that prepaid cards are sometimes the only method for the underbanked to buy online and with mobile tools. Many of these same consumers now have smartphones that will make mobile ecommerce, for example, more of a reality. While initially online prepaid account management and mobile ecommerce will drive mobile payments, next up will be a rise in mobile wallets and the use of smart phones for person-to-person money transfer, research indicates.
“Mobile alerts, mobile rewards delivered via geolocation services, and mobile account management are some of the many features now incorporated into prepaid products, said Javelin CEO Jim Van Dyke in a press statement. “Providers offering integrated mobile tools are well positioned to deliver high value to young and underbanked prepaid card owners.”
The Mobile Wallet Has Many Different Faces
Mobile wallet applications, which offer the ability to make retail purchases using mobile devices, are seen as central to mobile payment apps. While analysts have long predicted that Near Field Communication (NFC) technology would drive the mobile wallet, a number of start-ups are coming to market with alternate technical approaches that can already be linked to prepaid debit accounts.
NFC mobile wallets require phones to have a readable chip either built in or attached on a hardware dongle. At the same time, point of sale (POS) terminals must be equipped with NFC chip readers. A simple tap or wave of the phone would allow the POS to read the mobile device chip and draw value from a linked account – whether that be credit or prepaid debit.
The best known names in mobile wallet, including Google Wallet and the Isis Mobile Wallet (a partnership of the major mobile service providers), have built their apps around NFC technology. Many analysts believe that NFC will reach mainstream in North America, but they predict adoption will be slower than once expected.
“NFC payment involves a change in user behavior and requires collaboration among stakeholders that includes banks, mobile carriers, card networks and merchants,” said Gartner analyst Sandy Shen. “It takes time for both to happen, so we don’t expect NFC payments to come into the mass market before 2015.”
For now, alternate technologies, such as QR codes and SMS for mobile payments are taking off slowly, but surely. Companies like LevelUp have enabled consumers to link their debit, credit or prepaid cards to an application that presents a QR barcode on smartphone screens. Retailers can scan the barcode and debit the value of a sale directly from one of the linked accounts. LevelUp has signed thousands of participating merchants nationwide and provides them with scanners. LevelUp users receive discounts and other incentives when they use their mobile wallets at participating retailers.
Using an alternate strategy, payments company Square offers a mobile wallet application that allows consumers to load an app on their phones and then use geolocation technology to search for participating retailers in their area. They then walk into a retailer, sign into their accounts online via smartphone, choose an item and then click on their device to pay. Their picture and their account information appear on the retailer’s computer screen. Once the retailer completes the transaction, a receipt is sent to the user’s phone. No physical swiping, tapping or PIN entering ever enter the picture. Meanwhile companies like Square and LevelUp are both preparing to also take on QR codes or NFC in the future.
Mobile Wallets Issued by a Surprising Face
Many prepaid companies and mobile payment start-ups have marketed themselves as the alternative to banks – cooler, less stagnant, not-so-strict - the tool for people who can’t get credit cards or bank debit cards. Yet this may not be the road into the consumer’s wallet. After all, not everybody is comfortable with Google Wallet or a third party payments company accessing their personal finance accounts.
But recently a number of payment platform companies have worked with banks to create mobile wallets and other related money transfer tools that also loop in prepaid. Experts believe that these financial institutions could bring more credibility and wider uptake to mobile payments technology.
As one example, Boston’s First Trade Union Bank recently launched a mobile wallet using LevelUp’s platform. The small community bank, which has two branches in Boston and two in New York, will enable its customers to use their iPhones or Androids for payment at LevelUp’s network of 4,000 merchants nationwide.
Another player, Dwolla, has gone beyond a simple mobile platform and created an entire payments network that functions similarly to Visa or MasterCard, but never uses legacy technology. Using internet connections, cloud computing and a relationship with a series of participating banks, Dwolla’s network allows for money transfer between banks; between consumers and retailers or banks; and even consumer-to-consumer. Swipe fees are significantly cheaper than on a typical payments network. In fact, they’re free for transactions under $10 and 25 cents for those over.
“That strategic partnership with financial institutions allowed us to go national with a new alternative to traditional payment solutions,” said Jordan Lampe, Dwolla’s communications director. More importantly, he says, this new network is more secure than traditional payment networks because it doesn’t transfer full account numbers that are linked to a boat load of other personal information.
On the IDC Insights blog, Aaron McPherson, analyst and head of the firm’s financial services practice wrote, “In the past, most payment start-ups actually spurned banks, seeing them as irrelevant at best, or an obstacle at worst… this year, that sentiment has begun to change; Dwolla, most notably, relies on banks as partners for its mobile funds transfer service...”
Dwolla has built open APIs into its payment platform and network so that third parties can create their own payment applications using the underlying technology. Through Dwolla’s FiSync program that links financial institutions, a number of banks have launched their own mobile wallet apps.
But Dwolla also works with third party developers. Koala Pay is using the Dwolla network to launch its own mobile wallet that will link checking accounts, as well as prepaid and gift cards to the payments tools. Like Square and LevelUp, Koala is signing on retailers, who consumers can then find through a search in the Koala application, and using geolocation technology. Then they can use their smartphones to pay at these retailers and they receive loyalty and incentive offers along the way. In another spin on prepaid, they can also pre-purchase specials from participating Koala Pay merchants and then debit against that value as they go.
“We have a handful of mobile wallets targeting more regional rather than national markets,” said Dwolla’s Lampe, adding that many of these smaller companies are making swifter inroads than the large mobile wallet names we generally hear about.
Prepaid program providers also see the importance of aligning with banks to increase their consumer reach. TransCard, a reloadable prepaid provider, has created a community bank program that focuses on helping financial institutions create and sell their own prepaid products.
For consumers, “community banks are the most respected and trusted partner,” explained TransCard CEO Craig Fuller. Because smaller banks have capital constraints, they can’t always afford to implement premises-based infrastructure to enable prepaid. So TransCard has created a cloud-based system that stores all of the necessary prepaid network information in the cloud. Then the banks need only secured Internet connection to the data center cloud.
As part of the process, TransCard has guided its banking customers to launch related NFC-based mobile wallets that link to consumers’ bank accounts and prepaid accounts. Consumers only need to download the mobile wallet tool from the app store. If their devices are not chip-enabled, they can order a chip to link to their phones.
In the long run, Fuller expects that mobile wallets will be only one feature in a family of equally important mobile payments apps offered by banks. These integrated apps will include mobile account management, consumer-to-consumer money transfer, money transfer between consumers and banking institutions, mobile and social gifting, and even mobile loyalty or incentive programs.
Already, 70 percent of TransCard’s prepaid card activity is mobile related, though for now much of it is driven by mobile account management, Fuller said.
Mobile Payment Platforms Are More Than Mobile Wallets
Like TransCard, many companies are realizing that the mobile wallet is only one feature in a family of mobile payment opportunities. Eventually each of these applications will end up bolstering each other.
As an example of this, payments company TapPay has a whole ecosystem of mobile payment applications that include a mobile wallet, an in-store self-checkout app, and a mobile ecommerce “micro-cart.”
TapPay’s mobile wallet application, TapWallet, works similarly to Square’s, enabling the consumer to send a message to the retailer using their smart phone, which sends an image of their face and payment information to retailer’s screen. This wallet can be linked to a prepaid or credit card.
The company’s micro shopping cart lets mobile users set up an account through TapPay that can interact with ecommerce sites. Then consumers can fill one shopping cart across any site, and simply pay from one source – the TapPay account.
Meanwhile, TapPay’s self-checkout application will allow consumers to use their iPhones to scan products in a participating store and then pay for them using the same TapPay application that works with the shopping cart.
Instead of pushing one tool on consumers, TapPay is aiming to offer a diverse set of mobile payment features so that consumers can find what they’re comfortable with.
It seems sometimes that the people in the industry want [mobile wallet] more than consumers,” said TapPay CEO Robert Mallett. “But when people realize the functionality and the convenience, they will start using it more frequently.” •