According to Liminal, the global mobile payment market will be valued at $553 billion in 2023 and is projected to reach $1.2 trillion by 2027, growing at a CAGR of 20.7% from 2021 to 2026. As the popularity of mobile payments continues to rise, Apple Pay has emerged as one of the dominant players in the space. Its user-friendly interface and strong security features have become popular for consumers looking for a convenient way to pay for goods and services. This has put pressure on traditional banking services, which are now challenged to develop a mobile wallet strategy that can compete with Apple. Let’s explore Apple Pay’s rise, its threat to traditional banking services, and how banks can build a mobile wallet strategy to defend against it.
The Rise of Apple Pay
Apple Pay has become one of the world’s most popular mobile payment options, with millions of users making daily transactions through the platform. As of January 2022, Apple Pay was available in 90% of stores in the US and 85% of stores in the UK. Additionally, Apple Pay saw double-digit growth in transaction volume and users in the fiscal year 2021. While providing consumers with a quick and easy way to make contactless payments, the adoption of Apple Pay has driven significant benefits to businesses, from increased sales and greater customer loyalty to reducing the risk of fraudulent transactions. Advanced security features such as tokenization and biometrics authentication have reduced the likelihood of chargebacks caused by various fraud schemes such as card-not-present fraud, “friendly fraud,” and card skimming, which can be costly and time-consuming to a bank.
The Threat to Banks
The rise of mobile payment options poses a significant threat to traditional banking services, and banks must respond to remain competitive and retain their customer base. According to Accenture, banks could lose up to $280 billion in revenue to fintech firms and digital challengers, including mobile payment apps, by 2025. Banks that fail to respond to this changing landscape and offer their own mobile payment options risk losing their customers and revenue to competitors who do. Additionally, mobile payment options like Apple Pay are often seen as more secure than traditional banking services, which can further erode trust in banks and their ability to protect their customers’ assets.
Building a Mobile Wallet Strategy
There’s a new playing field for financial institutions, and traditional banks face tough competition from other banks and fintech startups that are entering the market with innovative payment solutions. To compete effectively, banks need to invest in new technology and build a mobile wallet strategy that meets the needs of their customers. This includes offering a user-friendly interface, integration with other services and tools, and strong security features. Banks can learn from the strategies of other successful banks, such as Chase and Bank of America, which have built mobile wallet solutions resonating with customers and lead in J.D.Power rankings. However, banks face other digital challengers from digital banks, mobile operators, and fintech startups such as Sofi, SamsungPay, and Venmo, who invest significantly in new technology and solutions that address the demand for high levels of data protection and privacy.
Building a mobile wallet strategy is a complex and ongoing process that requires careful planning, investment, and execution. However, with the right approach, banks can be a serious contenders in the race for the customer. While the strategy needs to be tailored to each bank’s specific needs to deliver real value, there are a few questions banks should ask before getting started:
- What’s the purpose of this wallet? This isn’t just an idea scribbled on a napkin. What do you need to achieve? Do you need to boost customer loyalty, generate new revenue, serve a new customer base, or something else?
- Will your existing customers use this wallet? We’ve learned over the past decade+ that wallets require active relationships on relying parties to take off. Relying parties have been reluctant to sign up for “yet another wallet” without a strong user/customer base.
- Go it alone or partner up? Going solo has advantages—speed, control over the product roadmap, etc.—but will likely come with a heavy burden to attract and retain users and relying parties to build and maintain momentum.
As the popularity of mobile payments continues to rise, banks need to take action to defend against Apple Pay and other mobile payment options. Building a mobile wallet strategy that meets customers’ needs is essential for retaining their loyalty and remaining competitive in the marketplace. By prioritizing user experience, security, and integration with other services, banks can build mobile wallet solutions that meet the needs of their customers and provide a strong defense against the rise of Apple Pay.
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