Commentary
7.5 Million Of Us Are Using Mobile Wallets, But Mainly To Buy Starbucks Coffee
- by Steve Smith , Staff Writer @popeyesm, June 6, 2013
In an interview at ITProPortal, Berg Insight CEO Johan Fagerberg says that at least right now, the actual number of people using mobile wallets outside of Starbucks is much smaller than the hype the digital press seems to be focusing on the phenomenon. “Mobile wallets that can be used at multiple merchants only had a few hundred thousand users in the region at the end of 2012,” he says.
I presume that Berg Insight is not counting loyalty cardholders like the iOS Passbook, which in most cases is helping to surface electronic tickets and loyalty cards rather than make payments. I would argue that this is a case where a mobile wallet is actually solving a problem in helping to aggregate electronic content, and virtual and real loyalty cards that are inconveniently scattered around our person or phone. And I am sure that there are companies in the mobile payments ecosystem that could take issue with some of Berg Insight numbers on this. The definition of mobile wallet is murky enough to argue this in a lot of ways. But I think that there is an essential truth here, that the mobile wallet phenomenon is something that is covered much more than it is actually used for now.
That is not to say that mobile wallets and mobile payments are not ultimately going to be a game changer. As Fagerberg points out, contenders like Google, Isis, MCX, PayPal, Square and LevelUp are all doing interesting things, but it won’t be until next year that we will start to see some impact from all of this. He sees the number of active mobile wallet users in the U.S. going up to 29 million in 2017 with in-store payments up to $44 billion. He does foresee a time when most of the operations of credit and debit cards will be transferred to mobile phones and ultimately be responsible for about 20% of the world's GDP. So that’s a pretty big prospect.
But here is the rub. The expansion of the mobile wallet model depends entirely on two questionable prospects. First you need all of the many moving and complicated pieces of the payment infrastructure to work together and give consumers the same kind of compatibility that they get already from their credit and debit cards. And in the U.S. especially, that has proven to be a very heavy lift. We're still waiting for this long-promised Isis project to get out of a regional beta. And all of these wonderful little startups that make great headlines in the tech press and that the mobile cheerleaders gush over are absolutely totally meaningless to the overwhelming majority of people with smartphones.
But the second piece is the most interesting and may be even more daunting. It’s the creative piece. Most mobile wallets are at best only incrementally adding value. All of these cute little mobile payment gadgets and apps have been fun to play with, but have they really made a compelling case yet that I have a problem they solve? Starbucks does address something that is less of a problem than an obvious convenience -- the ritual coffee run. But to my mind, and I have used this app to pay for coffee more than a dozen times, it is still more fun to use than it is actually very useful. So, I don’t need to fish around in my wallet -- the real leather one -- to find the Starbucks card. Okay, but that is about it.
I am happy to buy into the conventional wisdom that ultimately our phones will replace our credit cards, but this is more a leap of faith than conviction. There is that air of inevitability about all of this. But let’s remember that that air of inevitability started about seven years ago. And after all that time the main result for consumers -- or at least 7 million of them -- is a slightly faster coffee. Even with an infrastructure in place, and even with the highly fetishized NFC chip in more phones, those admittedly necessary elements to a mobile payment system still are not the main impediments. It is only when all of these technical pieces are in place that companies really have the opportunity to start making a compelling case to a mass-market that they have something better than a credit card for them.
The most revealing part to me about all of the public discussion of mobile payments is that almost all of it is placed within the context of how much this will change the payments industry. Business disruption is the narrative driving the story, not consumer benefit. The emphasis is on the credit card companies -- who will make the most money off of this -- the infrastructure, the uppity startups, and just the general fetish that surrounds mobile that seems to say it all has to go to our phones because we say so.
Just follow the rhetoric and you see where the big disconnect is. There is not enough serious discussion and exploration about how this will change consumers' lives for the better. When that conversation starts happening in a substantial way, then we will know that the mobile payments industry has really found the solution to its own problem -- communicating and creating a value proposition for consumers.
Steve Smith is Editorial Director of Events for MediaPost
"Guilty as charged," he said, sipping his Starbucks coffee contentedly. Starbucks has it right. You put money into the app so they have it in advance of your purchase. It costs you nothing extra, and you get rewarded with free coffee or food when you've used it enough to earn them. Simple benefit, plus ease of use. Win win. I've been surprised at how long it's taken for anyone else to do the same sort of thing.
Great to bring this up, Steve. However, your comments sound to me a lot like the ones before Apple came out with the iphone -- that no one needs this, no one will use it, there's already a solution (in this case it's to carry your credit and debit cards,...).
Just like then, I think the smartphone wallet is a consolidation of things we carry around that we'd prefer not to -- before it was a phone, a pda, a to do list, etc. Now its all those cards, money, checks, and reward cards.
I'm anxious for the retailers to move forward -- I find it incredibly convenient to pay at Starbucks with my phone because I'm often out and don't want to take my purse/wallet/money with me, but I take my phone.
And there's a whole generation that doesn't even carry a wallet...!
Retailers are just dragging their feet this time -- just like they always do because their margins are so small.
But the demand is definitely there...
Hi Kathryn. I am pretty sure that the mobile wallet will happen, but I don't see the same natural path there from here you do. My point is that it doesn't make the case all by itself. I really don't think the convenience factor is that pronounced without something more. As I said, I think that the Passbook does solve a problem of clutter, but that is not a payment solution in most cases.
Great piece, Steve. Very valid point that a mobile wallet has to do a lot more than be 'fun' or 'cute' or provide 'incremental value’. To be a game-changer, the mobile wallet has to add REAL value. Why else will consumers change their current behavior? Credit cards are ubiquitous. Everyone has them. Everyone accepts them. They’re safe, fast and we’re accustomed to them. Steve is completely correct in questioning the mobile wallet’s value proposition to consumers in it’s current form.
I’m a huge believer that the mobile wallet will only become adopted once consumers are receiving some large level of rewards, discounts, coupons or personalized offers, all tied to the mobile wallet, that can only be earned through it’s usage. The one thing consumers will be motivated by is the actual REAL benefit of receiving rewards, cash-back, points or whatever else the desired currency may be. The execution of a rich, rewarding loyalty program will be what makes or breaks the mobile wallet and will play a tremendous role in determining who end up as winners in the mobile wallet ecosystem.
@Peter - or how about if the value is not discounts and offers but greater control over spending and savings by giving consumers very handy tools that track their own patterns for them? Maybe the wallets should be thinking more like the fitness apps - which add value by massaging the data users create into insights about themselves they can use to improve performance. Mint is a great way for people to take control of their spending but it requires effort. Most of those operations are automated by a mobile app and phone. How about if you told your wallet you needed to save this much in a given month and it could identify where the hot spots are of your spending geographically so you could avoid temptation?
Of course none of this kind of functionality satisfies the purpose of the infrastructure - to get you to spend more money. But those are the functions that serve consumers and show how mobilizing payment empowers them in new ways.
It would be nice to have more insight as to how these numbers from Berg Insight were attained because the numbers don't add up...
If there are only 7.5 million mobile wallet users and 7 million are using the Starbucks mobile wallet how do all thew others claim to have the users they claim to have?
For example, of the 500K users who are using a mobile wallet other than the Starbucks wallet, how can LevelUp have 1 million users, Google Wallet have 300-400K users and then Square, Isis, Paypal and the others be claiming the number of users they are claiming.
The only possible explanation is that of the 7.5 million mobile wallet users - a majority of them are using more than one mobile wallet in addition to the Starbucks mobile application (which really is not a wallet, its just an app).
I'd love to hear more from Berg Insight about how they make the numbers add up?
Paaul. Right. That is why I mentioned it is easy to take issue with their provocative numbers, and I have a question in to the company. I will post any details I get. But I suspect there is a considerable overlap if you presume that the whole concept appeals first to mobile folks like us. I know I have more than the Starbucks app on my phone for wallet duties.
+100 Very good article that analyses numbers factually. Kudos! What is it about mobile that causes so many other marketers to lie through their teeth about useage? @Other commentators who diispute the figures: the issue is that people are claimed as "users" when they have actually used a mobile wallet *once* at a business, not when they use it *regularly*, thus grossly inflating the figures.
This is funny to me, because Starbucks is the ONLY place where I can't use my cell phone to pay for things. I work in the city and often go out with only my cell phone. But I own a Windows Phone and Starbucks hasn't made an app for it so they've lost my business hundreds of times. How hard can it be, Starbucks? LevelUp did it!