At the turn of the year, 02, which is a UK mobile network operator (MNO) owned by Spain’s Telefonica group, shut down its much trumpeted 18-month old mobile wallet service. In this bobsguide blogger (aka contributing editor) update from Sirpa Nordlund, Mobey Forum’s executive director, she considers the reasons why the O2 mobile wallet failed and what lessons can be learnt for the future of mobile financial services.
January saw the curtailment of the first big mobile wallet programme to hit the marketplace, after O2 said that it was withdrawing its service. With a lifespan of just 18 months, the O2 wallet was the first MNO wallet to make a noise in the European marketplace and to actively promote its services to consumers, but it is no more.
So why did it fail? I’d like to examine this question in my latest blog below and consider what lessons can be learnt.
MNO Wallets Are Gaining Traction
The reasons given by O2 for the closure of its mobile wallet are numerous, but principally it comes down to market conditions and changing consumer preferences. But this may not be the full story. Firstly, consumers simply do not naturally equate money management with mobile network operators (MNO) - this was one of the key difficulties it failed to overcome.
Looking into consumer behaviour: when did you last call your MNO? The only contact I have with my mobile network operator is to upgrade, make a complaint or question a bill; the interaction is just not there on a regular enough basis to reassure consumers that MNOs have the credentials to handle their finances effectively and securely - there is a trust gap.
This also extends to MNOs’ ability to drive widespread consumer uptake. Complaint resolution calls are the wrong environment in which to sell anything at all; let alone a new product that depends on customer trust for success. For banks, the process is much easier. An upgrade can either be made to the customer’s existing mobile banking app or an advert can be placed within the app promoting the wallet and the trust factor should already be there.
The interactions between supplier and consumer do not follow a pattern that lends itself well to developing the levels of trust required for MNO customers to give up their hard-earned cash. Understanding this, O2’s parent company Telefonica, entered into an agreement with Santander and CaixaBank to develop a joint mobile wallet with the banks, instead of going it alone and this perhaps spelt the end for it as a standalone offering. The 02 mobile wallet undoubtedly taught the firm valuable lessons but it couldn’t obtain the necessary scale to be a success.
I believe that MNO wallets should be simple, single purpose platforms; used for parking or loyalty end users, for example. Multipurpose wallets, like O2's, demand more features and the only way to offer this is to have payment functionality and bank cooperation at its heart. Additionally, banks are able to leverage their close contacts with merchants. The positioning is then very clear for the consumer and is usually reflected in the marketing blurb: "your wallet's payment functionality is enabled by [insert financial institution here] and is currently accepted by these merchants for point-of-sale (PoS) payments, loyalty and gifting" [see Weve’s recent UK link-up with MasterCard for an example of this scenario in action, although this is only for one aspect of the mobile financial services universe].
Bank Wallets Fail Too
To be fair, it’s not only the MNO wallets that are failing; some bank ones that perhaps lack sufficient reach, partnerships and functionality are struggling too. Swedbank, for instance, closed its QR-code based Bart mobile payment system only last week, due to a lack of consumer demand.
The use of QR codes is still in its infancy. Bart did not offer any additional incentive for payments and was simply overlooked for being too complex. Banks can fail too, therefore, if they don’t get the proposition right.
Trust: Banks and MNOs Must Cooperate
Trust plays a huge role in financial services (FS) and in my opinion MNOs currently lack the reassuring credentials with consumers that could encourage mass adoption.
Banks, on the other hand, have been handling consumers’ money safely and securely for many years and have this in-built trust - they’ve been doing it for generations don’t forget. I therefore see collaboration between banks and MNOs as the best and most mutually beneficial business model for the industry.
Mobile wallets will not bring instant return on investment (RoI), so it important that the key players in each market come together, spread risk and reach, and develop solutions that not only benefit those involved but offer genuinely valuable services to consumers.
Mobile Wallet Strategy: Sit in the Middle
The optimum mobile wallet strategy should sit at the centre of the organisational structure; whether it’s a bank or an MNO. It seems that mobile payments are often set apart in a separate unit (often seen by others as a ‘cost centre’ or intermediate exercise) within a large corporation, which has difficulties in collaborating with existing business units (the ones who consider themselves established ‘profit centres'). This organisational structure inevitably shortens lifespans and should be avoided.
When a mobile payments division is not integrated across the whole of the business, it is very very easy to not commit to it fully and sweep it under the carpet if it does not perform as expected immediately. Making it a cross-organisational exercise will increase the chances of success significantly as numerous departments will have a stake in the project. This would be my key recommendation for future success. You need boardroom backing and cross-departmental support to make mobile wallets work, as well as external partnerships, so make sure you have this before embarking on a project.
Conclusion: Build a Value Proposition With Loyalty Offers
In conclusion, it is an uphill battle to build a value proposition for a mobile wallet, but I believe that it is a battle that is well worth it in the end. More and more consumer and merchant financial transactions and ‘eyes’ are on the mobile channel - it cannot be ignored. Consumers, however, are not going to change their habits and start paying by mobile overnight unless they have an added benefit in doing so; you need to persuade them.
Current payment systems, such as cash and cards, work well enough for most people - except perhaps youngsters at the moment - and there isn’t an urgent need for an additional means of payment unless you incentivise consumers. The added benefit for customers to start using mobile payments will most likely come from loyalty, coupon bonus offers, and other such value-added services. This should be a key part of any rollout.
Building a multi-purpose value proposition with the loyalty features outlined above is not easy, however, and requires cross-industry collaboration. The use of a mobile wallet has to reward both the merchant and the consumer for using new technology. Wallet providers all over the world are still searching for an incentive that is sustainable from both the business model perspective and that provides well-defined rewards for users. Lessons are still being learnt in this evolving technology and finance area. The primacy of loyalty requirements may well lead to an era of closed-loop wallets, such as the famous Starbucks Wallet, which only serves the merchant and its customers. But ultimately this model should eventually branch out and link up with other such schemes to gain wider traction. I hope to see this happen in future years.
• For further stimulating technology discussions, viewpoints and blogs please visit our new bobsguide blogger (aka contributing editor) landing page, where you can view a selection of blogs about mobile financial services (MFS), such as this one, and other sectional content on information security, capital markets from, respectively, ISACA and the FIX Trading Community. You’ll also find the thoughts of Barclays’ CIO Andrew Witney and BT’s Futurologist, Dr Nicola Millard on the landing page. Other BG Bloggers on transactional banking, cards, and a range of other topics can be viewed here.