The Mobile Wallet Hierarchy of Needs

© Can Stock Photo Inc. / nerthuzAt the BAI Beacon conference earlier this month, I had the opportunity to hear Ron Shevlin talk about Maslow’s Hierarchy of Needs. He was talking about it in the context of “platformification,” but it got me to thinking about how we might leverage a similar analogy in discussing mobile wallets.

In Maslow’s original treatise, the hierarchy goes from basic survival needs (air, food, water) all the way to self-actualization. For mobile wallets, we can think about four levels in our hierarchy.

  1. Wallet Availability
  2. Merchant Acceptance
  3. Security
  4. Value

Wallet Availability. It’s safe to say that this first and most fundamental need has been met to a practical degree. Almost anyone who has a smart phone manufactured in the past five years has a number of wallet options. Admittedly, not all wallets are available on all phones, but most have several options. While older phones (looking at you, Blackberry users) are still lagging, they will presumably upgrade at some point. In the past 12 months, at least 20 new wallets have launched between merchants, banks and technology providers and there seems to be no slowdown in sight.

Merchant Acceptance. EMV adoption has been both a blessing and curse to mobile wallet adoption. Blessing in the sense that merchants in the U.S. had to upgrade their terminals to comply with the EMV rollout and most of these terminals have the ability to accept mobile wallets as well. The curse is two-fold. First, the rollout of EMV has been much slower and more confusing than anyone expected. Merchants were a bit late in getting the new terminals, and there has been a backlog in certifying them. Most customers have chip cards, but are unsure when to use them. Who hasn’t walked up to a checkout and had to ask whether to “swipe” or “dip?” This delay in EMV is taking the merchant focus away from the acceptance of both contactless plastic and mobile wallets. Second, EMV is intensifying the debate between merchants and banks over interchange. We have already seen multiple lawsuits and counter suits over interchange this year and we should expect those battles to continue until both sides come to a fair understanding of the investment return and the real risk of these transactions.

Security. With nearly 75% of consumers worried about the security of mobile transactions, this issue remains a real barrier to adoption. A recent study by Oxford Economics — commissioned by NTT DATA and Ingenico — revealed that consumers like mobile wallets and mobile payments, but are concerned about their security. They are not just concerned about the loss from an individual transaction, but perhaps more importantly, they are concerned about the loss and disruption from identify theft and fraud. The study showed that almost 75% of consumers say guarantees against monetary fraud would encourage them to use mobile payments, but only 44% of businesses currently offer or plan to offer such guarantees. While transactions backed by credit and debit cards already have similar types of guarantees, there is still more education and action on the part of merchants and financial institutions required to quell consumers’ fears about security.

Value. The first three levels of this hierarchy are really about removing “negatives.” Finally, we get to the reason consumers should actually use a mobile wallet. But first, it’s important to consider the different types of wallets. There are two types of credit cards that continue to be used: bank-branded cards and private label/co-branded cards. Most consumers have a mix of both. For the stores that they frequent, they will get and use the private label/co-brand cards. These cards provide the best rewards to loyal customers. For the retailers they visit less frequently, consumers will leverage one or more general purpose cards. Mobile wallets will follow a similar path, with consumers getting the mobile wallet for their favorite stores (e.g., Starbucks) and using a general purpose wallet for everything else (e.g., Apple Pay, Android Pay, Chase Pay).

These two wallet types will take differing paths to provide value to the consumer.

  • Merchant mobile wallets will focus on the shopping experience. We are already starting to see merchants who offer advanced ordering, free delivery and first access to sales. Merchants want customers to focus on the end product and make the payment transaction as “frictionless” as possible.
  • General purpose mobile wallets have to provide a different kind of value. For these transactions, it is all about leveraging data to the benefit of the consumer. For example, a bank provider can leverage information about the consumer’s accounts, balances and transaction history to make a recommendation that optimizes which account the consumer should use for the particular transaction (e.g., debit, low APR credit, reward credit, home equity).

While climbing up the four steps of the mobile wallet pyramid of needs may not bring us to self-actualization, it will help us finally realize the long-predicted growth in mobile wallet adoption. And that is something that has the power to make everyone’s life a little better and easier — at least while we are shopping.

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