Five Challenges for Card Issuers Entering the Mobile Wallet Space

This October, JPMorgan Chase introduced Chase Pay, its proprietary mobile wallet solution. While the decision to spurn the attention-grabbing Apple Pay and Android Pay solutions is a bold move, it is a very understandable one given the recent raid of the mobile wallet space by tech/non-bank businesses. This represents the first real and significant response to the disruption from a card-issuing competitor. With 94 million card carrying customers and a wholly owned merchant-acquiring business, Chase is significantly threatened by the recent mobile wallet introductions. However, they are well positioned to respond.  

It is very difficult to craft a mobile wallet solution that overcomes five key challenges and satisfies all of the stakeholders. If you’re considering a move into this space, these five factors will be a challenge when establishing mobile wallet adoption:

1. Merchant acceptance.

Many merchants, especially the biggest, have been reluctant to accept mobile wallet solutions. They have had their own alternative payment solution in development for some time. Unfortunately, a merchant-approved solution will compromise the user experience.

2. POS technology.

Most well-known mobile wallet solutions (Apple Pay/Android Pay) rely on NFC technology to complete the transaction. With a small percentage of US merchants being NFC-enabled, POS upgrades were started this October to accept EMV chip cards and the capability to process NFC transactions. While merchants are focusing on making these technology updates, they have not embraced either Apple Pay or Android Pay. However, it is likely that this acceptance will change dramatically after the October EMV chip upgrade.

3. Integration with loyalty programs.

With very few exceptions, the popular mobile wallets do not integrate with customer loyalty programs. Oftentimes these programs are the reason a customer chooses a particular form of payment, which puts new wallets at risk. Loyalty integration may be problematic for merchants, as most will proceed with caution when it comes to information sharing with the likes of Google. 

4. Customer adoption.

Apart from the novelty of the transaction and some early adoption impacts, customers are not forsaking their plastic for their smartphone in large numbers. Both Apple Pay and Android Pay do a nice job with their user experiences, but the marketplace was not demanding a solution to its monumental plastic card extraction problem. The most common reason given for the low adoption is “their credit card worked just fine” (source: New ComTech). In other words, there is no compelling reason to change a long-entrenched behavior.

5. Device/technology dependence. 

Apple Pay is only available on the most current iPhone/iPad models; this obstacle will disappear as new models replace old. While both Apple Pay and Android Pay offer very slick technology-driven solutions, early results for customer adoption/usage of Apple Pay are disappointing with close to 17% of potential users having ever tried the service (according to a recent study from PYMNTS.com).

The mobile wallet market seems to change on a daily basis. For card-issuers with a powerful marketing position and so much at risk, it is wise to develop their own solution that resolves important merchant and customer issues alike.

This blog post is an excerpt of Chris’s article in TheFinancialBrand, which provides a full review of Chase’s new mobile wallet solution. Visit TheFinancialBrand to read the full article.

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