In December 2015, when "Star Wars: The Force Awakens" hits movie theatres across the U.S., a very different type of force will ‘awaken’ the mobile wallet. This force will be a mixture of frustration, boredom and exasperation. It will be caused by new payment processing rules laid down by Europay, MasterCard (News - Alert) and Visa—better known as EMV.
Although this turning point in the “Wallet Wars” will appear to be a win for NFC wallets like Apple Pay and Samsung (News - Alert) Pay, their victory will pass quickly. The real victor will be ‘Uber-style’ wallets that make checkout lines a thing of the past.
Currently, consumers don’t have a good reason to use Apple (News - Alert) Pay, Samsung Pay or any other wallet because magnetic stripe (“magstripe”) credit cards are equally convenient. As of March 2015, only 15.1 percent of eligible Apple Pay users had tried the service, according to PYMNTS.com. That number dipped to 13.1 percent in June, and usage among subscribed users fell from 39.3 to 23 percent over the same period.
By October this year, the U.S. is supposed to meet new EMV standards. Banks will only issue EMV credit cards that support “chip-and-PIN” and “chip-and-signature” transactions. Retailers are supposed to implement new EMV point-of-sale systems.
For the Wallet Wars, and for the average merchant or consumer, EMV is significant for two reasons:
A. “Contact” EMV payments (i.e. “dipping” a card in an EMV reader) will take longer than swiping a magstripe card. “Contactless” EMV payment will be fast, but most U.S. credit cards aren’t equipped for it.
B. Merchants who don’t implement EMV readers will be liable for fraudulent transactions.
Most consumers don’t know that contact EMV will be slower, and why would they? Most don’t even know what EMV is, and Visa and MasterCard are touting the security benefits of EMV, not the downsides.
The good news is that Apple Pay, Samsung Pay and other NFC wallets are much faster than contact EMV transactions and just as secure. So, I predict that contact EMV will drive adoption of mobile wallets, but there is twist in this story. Let me give you an overview of the Wallet Wars and how it will change in the near future:
Episode 1: The Phantom Wallet. Once Apple Pay launched in October 2014, the Wallet Wars began.
Episode 2: Attack of the Clone Wallets. This is where we are right now. Tons of mobile wallet solutions are hitting the market, and more will arrive. Adoption is slow because although wallets are ‘cool,’ swiping a card is just as easy as ‘tapping’ an NFC terminal.
Episode 3: Revenge of EMV. By October, most retailers will complete the switch to EMV. Merchants who ignored the new rules will find out that they are liable for fraudulent charges and make the switch. Consumers will notice how much slower it is to “dip” their card (i.e. stick it in an EMV reader for contact payments).
Episode 4: A New Hope for Shoppers. Just as new Star Wars movie hits theatres this winter, the Wallet Wars will heat up. The busy retail season will magnify just how slow contact EMV is. Lines will get backed up as contact EMV adds time to each transaction. However, people who use digital wallets or contactless EMV cards will speed through checkout, and other shoppers will take note. Many shoppers who previously saw no point in mobile wallets will give them a shot, especially if they don’t have a contactless credit card.
Episode 5: Uber Unwittingly Strikes Back. Over the next few years, consumers who adopt mobile wallets will avoid the sluggishness of contact EMV, but they will realize something: Why do we still have to wait in lines when Uber customers just tap once to book and automatically pay for a ride? Why do we have to wait for an NFC terminal? Starbucks’ app, one of the only ‘wallets’ showing impressive growth, enables mobile payments without NFC. They run a one-tap, Card Not Present (CNP) transaction, just like ecommerce websites and Uber. CNP wallets will gain momentum.
Episode 6: Return of the ‘Omnichannel’ Vision: Stores will realize that they have to let people dip (EMV), tap (NFC) and pay Uber-style (CNP). They will try to eliminate checkout lines by pushing Uber-style payments, which don’t require expensive POS terminals. Security enhancements will bring CNP interchange rates down to Card Present levels, which will attract brick-and-mortar merchants. Shoppers will find that CNP payments are their fastest option.
Episode 7: The Force Awakens. The Wallet Wars are a race toward simplicity. Most wallets currently rely on NFC, but they don’t have to. To go true omnichannel—to make the payment process the same online and in-store—mobile wallets must evolve beyond NFC. The “Force” of contact EMV, and all the exasperation it causes, will awaken interest in wallets. To retailers skeptical of spending thousands or millions of dollars on NFC terminals, Uber-style payments will look awfully attractive.
Interested in learning more about mobile wallets and the Force? Click here to read Part 1 of this feature.