Mobile wallets: will value actually drive adoption? (mobilepaymentstoday.com)

"If you build it [and it provides enough value], they will come."

That theory has been the guiding principle behind the development of mobile wallet applications—from start-ups and established firms alike—for the last five years. The thought process goes something like this:

1. Credit cards are a suboptimal way to pay for things.
2. Consumers are reluctant to move from physical wallets to digital ones because most mobile wallets don't provide enough incremental value to convince consumers to switch.
3. Therefore, the way to drive adoption is to build a mobile wallet application that provides a radically better payment experience.  

And that is precisely what companies like PayPal, Google, and AT&T have been trying to do—create a frictionless, next-generation payment experience. To listen to them tell it, their efforts have already been wildly successful:

"Today [at the launch of Google Wallet], we've joined with leaders in the industry to build the next generation of mobile commerce,"

-Stephanie Tilenius, VP, commerce and payments, Google.

"Today's nationwide launch of the Isis Mobile Wallet is a milestone for consumers, merchants and banks. It's the start of a smarter way to pay…we've built a seamless mobile commerce experience. We're pleased to bring the magic and simplicity of the Isis Mobile Wallet to consumers across the U.S."

             -Michael Abbott, CEO, Isis.

Setting aside the argument about whether NFC-enabled mobile wallets really provide any differentiated value, it is clear from the rhetoric that these companies believe that their products really are better than plastic cards.

But if that is true, where is the consumer adoption?

Despite the collective efforts of some of the largest companies in the world promoting their supposedly superior products, just 16% of mobile device owners have used their phone to make an in-store payment. That's not exactly a ringing endorsement.

Perhaps the most damning evidence against the "value drives adoption" theory is the recent shuttering of Square's mobile payment product—Square Wallet.

The failure of Square Wallet

While industry observers were quick to conclude that Square Wallet failed because it lacked a compelling value proposition for consumers, anyone who actually used the app would, I think, disagree. Having used Square Wallet a handful of times myself, I can confidently say that the experience was spectacular. It was vastly more convenient than using my credit card—no need to take anything out of my pocket, no need to swipe, no need to sign a receipt. All I had to do to make a payment was give the cashier my name. Talk about frictionless. And I'm not alone in this opinion. Following its launch, Square Wallet received a ton of positive press including Farhad Manjoo, a technology columnist for Slate and now the New York Times, writing,

"The experience was magical—almost creepily so. It happened so quickly, and lacked so many of the hassles of a normal transaction, that when I left the store with the cupcake it was hard not to feel like I'd just pulled off a heist."

And yet Square ultimately decided to abandon the product. Despite the immense amount of value it added to the experience, Square Wallet never saw significant consumer adoption.

The reason for this failure was simple—a lack of merchant acceptance. In my hometown of about 40,000 people, there were 3 merchants that accepted Square Wallet. Even in larger metropolitan areas like downtown San Francisco (Square’s hometown), the number of cooperating merchants was far from ubiquitous. In this environment, even in the hands of Square Wallet’s most passionate users, the product could never be more than a novelty.

It is these environmental factors—legacy POS systems, competing payment standards and mobile communication protocols—that will continue to constrain the adoption of even the most revolutionary payments product.

The future of mobile wallets

At some point, this will all change. A standard for mobile payments will eventually emerge. Merchants will upgrade their systems. A big player will put all of the pieces together and capture a significant share of the market (Apple is a popular prediction).

However, we need to stop assuming that the success of mobile wallets will be easy or soon. It's tempting to think that we can change consumers' payment behavior by providing them with a better payment experience, but as Square Wallet proved, it's not going to be that simple.