U.S. financial institutions face a serious competitive threat from the rise of mobile wallet payments apps, according to a consumer study released Monday by Carlisle and Gallagher, a consulting firm that specializes in financial services.
A mobile wallet is a smartphone app that supports multiple payment options, including credit cards, and potentially coupon offers and purchasing wish lists as well. Google Wallet is the best known mobile wallet, but PayPal has demoed its forthcoming offering and Apple is widely expected to launch its own wallet app soon.
An April survey by the Pew Internet and American Life Project suggested mobile payments will overtake credit card payments by 2020.
Nearly half of the 605 consumers Carlisle and Gallagher polled expressed interest in adopting a mobile wallet. Of those, eight of 10 would consider using PayPal, Google or Apple as a primary provider of financial services including banking and credit cards, with PayPal as the strongest candidate. About 45 percent of those interested in mobile wallets said they would replace their bank with PayPal, and about a quarter would choose Google as their main financial institution.
The results are a powerful call to action for brick-and-mortar financial institutions given that most respondents expressed high levels of satisfaction with their current banks, said Peter Olynick, Carlisle and Gallagher's card and payments practice lead.
Consumers may not simply walk away from their banks as they adopt mobile wallets, Olynick noted. The apps however will likely erode the banks' relationship with their customers as the customers come to associate banking with the app rather than their bank, he said.
Peter Wannemacher, an analyst at Forrester Research, agreed.
"Financial institutions risk ending up as back-end funding sources for mobile wallets and payment products owned by other brands, who operate the front-end, consumer-facing aspects of the interaction and transactions," Wannemacher said in an email.
Consumers who were younger and those who were more affluent were more interested in shifting to mobile wallets, the study found. Both are key demographics for financial institutions, according to Olynick. Consumers most interested in mobile wallet apps broke down into two groups: those who think it will make shopping easier and those who think it will make shopping more fun.
There's no one-size-fits-all solution that will make all consumers happy, Olynick explained. "The shopping experience has to be richer and has to be customizable by customer," he said.
In order to remain competitive, the study found, financial services providers need to ensure that their basic software systems are up-to-date to reduce lag time when they need to make changes to their systems. They also need to offer a wide range of financial features, including, for example, wish lists, deal management tools and location-based offers.
Traditional financial institutions will need to focus on convenience by "offering services to consumers where the benefits outweigh the barriers to use," Wannemacher suggested.
Banks may now have the advantage because they have proven security measures and solid reputations, but as mobile payment offerings continue to proliferate, that could change quickly with challengers as powerful as eBay, Google and Apple.
While "the mobile wallet space is financial institutions' to lose," according to Wannemacher, "the stakes are high, so banks would be foolish to cede ground to other brands."
And Olynick emphasized that the tech companies offering financial products are formidable challengers.
"Some of these players are awfully big and they have deep pockets and they have the ability to solve the security problem as well," he said.
Cameron Scott covers search, web services and privacy for The IDG News Service. Follow Cameron on Twitter at CScott_IDG.