Mobile wallets: The hidden commerce model

mobilepaymentstoday.com

Most of the conversation around commerce and mobile wallets has been centered on the distribution of coupons and offers.  

Undoubtedly, coupons and offers will play a key role in the future development of mobile wallets.  Distributing coupons and offers can be quite lucrative; Groupon, for example, boasts over $3 billion in revenues. Coupons and offers are also important elements in driving consumer usage; our experience at Softcard was that our most active users – by far – were those who used merchant offers. But this focus on coupons and offers neglects another hidden, and perhaps more lucrative, commerce model: Attribution.

Attribution is defined as the practice of determining the role that each marketing channel plays in informing and influencing the customer journey. There is an old saying in marketing – “I know half of my advertising budget is wasted, I just don’t know which half!”  In the online world, attribution is relatively straight forward, usually measured based on ad exposures and click-through rates on campaigns.  

In the offline world - where mobile lives - it is often unclear which marketing vehicles drive traffic and ultimately purchase. Models based on statistical regression (known as Return on Marketing Investment (ROMI) models) are often used to assess the relationship between marketing spend and overall lift, though these models have their own flaws. Some marketing vehicles, particularly newer digital ad units, are difficult to track. Moreover, the models often do not accurately reflect the interaction among different marketing vehicles.

Mobile wallets have the potential to change attribution given their unique advantages including:

• Very broad distribution: Over the next five years, mobile wallets will likely become ubiquitous, particularly as EMV regulation drives higher acceptance of mobile payments at retailer points of sale.
• Location capabilities: Mobile wallets are much more likely to be open when the consumer is in the retailer and therefore can be used to more effectively track location.
• Unique identifiers: Mobile wallets have access to information that can be effectively leveraged to track a consumer across devices, both for mobile and online, enabling them to understand the impact of multiple marketing vehicles on a given consumer at a very granular level.
• Privacy controls: For those consumers concerned with maintaining their privacy, mobile wallets are going to be much more effective vehicles in providing consumer privacy controls. 

The greatest challenge for wallets is that they usually cannot see the transaction itself. There is also an ongoing tension around who “owns” the data. Is it the retailer? Is it the financial institution? Is it the consumer? As a result of these limitations, most mobile wallets do not even have a framework to effectively collect this information. It is unfortunate as this is potentially a multi-billion dollar opportunity that has been left on the table.  

However, even given these limitations, there are several ways that mobile wallets could collect this information if they wanted:

• Enable collection at the point of sale: At Softcard, we developed a technology called SmartTap which was embedded at the retailer POS and enabled the mobile wallet to communicate directly with the POS. The wallet could detect the retailer and would send a unique wallet ID, along with coupons and relevant loyalty cards, which could be used to track purchases. Several retailers including Subway and Kroger had already been trialing the technology when the venture was sold to Google. However, the key challenge with this approach is getting retail acceptance at the point of sale, particularly given the reluctance of the POS manufacturers to cooperate.
• Capture location at purchase: GPS and Wi-Fi location data (latitude and longitude) can be captured during the payment process and overlaid with third party mapping information to estimate where a purchase was made. The challenge is with retailer locations that are in close proximity, such as in a mall, where these location techniques are not sufficiently accurate. However, the proliferation of micro-location technologies such as beacons could help overcome this challenge in the future.
• Acquire data from the financial institutions: Most banks are eager to develop revenue streams leveraging their financial data. A few very large banks, such as Bank America, have already begun to develop attribution services. However, most banks lack the distribution and capabilities to provide this service themselves. Mobile wallet providers could act as a central repository to collect, analyze and distribute this information (in an anonymized format).

However, collecting the purchase and location information is only half the battle. Mobile wallet providers will also need to make several additional investments including:

• Privacy policy and controls: Mobile wallets need to enable consumers to easily opt out of tracking. Most likely this will not have a material impact on the mobile wallet’s ability to provide accurate information.
• Anonymized data exchange: Mobile wallets need to link users to their broader mobile and online presence. A third party would likely be required to hold sensitive personally identifiable information (PII), match user identifications across devices and aggregate information in a way that is both actionable and legally permissible.
• Analytic capabilities: While the data itself is interesting, the analytics that one could do with the data is where the value truly lies. Perhaps most intriguing is the ability for mobile wallets to use these insights to develop predictive models to improve their own effectiveness as marketing vehicles. 
• Link to ad buying: One of the biggest frustrations with ad attribution is that it is not actionable. Imagine if marketers could use the data generated by this superior data to target the right consumer, with the right vehicle, with the right creative, at the right time?   

What is all this investment potentially worth? Well the IAB estimates that Internet advertising (including mobile) is a $50 billion business in the U.S. Given the inefficiencies in ad attribution, it would not be unreasonable to think that the data could be used to capture 10 percent of spend, or $5 billion, in the U.S. alone!