The banking and payments industries are in the midst of a two decade-long migration from physical banking to mobile. Just as internet commerce has given way to mobile commerce in the retail world, banking has quickly progressed from in-person branches to internet banking to today's mobile banking surge.
The Federal Reserve reports that 53 percent of smartphone users now engage in mobile banking, with that number spiking to 67 percent for millennials.
The next natural step from mobile banking is the embrace of mobile payment apps and mobile wallets like Apple Pay, Android Pay, Samsung Pay and others. These mobile wallets make payments for consumers faster, more secure and cheaper. And while mobile wallets make it possible to manage several cards in one application, the challenge facing financial institutions is becoming the default card option within mobile wallets and payment applications.
One area card providers have seen tremendous success in increasing card adoption is by providing consumers mobile-based management of their payments. Consumers like the feeling of being able to control, manage, receive notifications and instant digital interaction with their banks. All of these can be done with a smartphone and fingerprint authentication.
For consumers to migrate from using physical cards, the new method of payment must be both convenient to use and secure.
The transition to EMV in 2015 provided the first opening for mobile payments. When EMV was introduced for physical cards, each system had a different way of completing a transaction, which led to an increase of time to complete a transaction compared to a simple swipe. Although the added layer of security was necessary, it was not the most seamless of transitions for the consumer or the sales associate on the other end of the register.
The ease of use of mobile wallets is gaining traction, and consumers are educating themselves on the extra layers of security. According to the Study of Mobile Banking & Payments: Mobile Wallets Report, nearly one-third of Apple Pay customers now use it weekly or even daily. This is no surprise among younger generations that rely on their smartphones for everything from ordering food to movies to social interaction to navigation to gaming.
Security is another factor that determines whether someone embraces mobile payments. Just one poor experience can impact adoption. The 2017 American Express Digital Payments Survey found that 37 percent of consumers abandoned an online purchase because they have concerns about the security of the transaction. Each new day brings a new mention of a cybersecurity threat, and consumers aren't comfortable with giving their card or banking information to any type of website that could easily be compromised.
One step the apps have taken is the use of biometrics with fingerprint authentication through Apple Pay and Android Pay that are used to trigger a payment. This level of security, combined with the ease of use is safer and quicker than a swipe or inserting EMV card chip at a point of sale (POS) system. Yet despite the convenience and security factors, physical cards remain the number one method of in-person payments.
Is it simply a matter of time before mobile overtakes plastic?
Actually, it is matter of what else is introduced in the financial world on smartphones that drives the strong association necessary to ultimately move cards into the phone's e-wallet. By providing an additional level of access, management and control via mobile apps, card controls and transaction alerts form a very strong association between phones and payment cards.
Once a consumer decides to make the jump to mobile payments, one of the most important decisions they will make is which card to make the default channel for payments. It is here that financial institutions can proactively introduce management controls that enable higher levels of adoption.
Financial institutions need to offer real-time visibility, additional controls and security to build consumer confidence and trust in payments. To deliver this, there are card controls available to financial institutions, processors and mobile banking providers. Users of card control and alerts applications learn to interact with their cards using phones as a remote control.
Switching the card on/off, setting location controls, spend controls and transaction alerts in real-time via push notifications every time the card is used ties purchase with information available on the phone. Furthermore, an ability to tag and annotate transactions or even capture a digital image of a receipt helps change user behavior in a very fundamental way.
Everything that is in ladies' purses and men's wallets such as paper receipts, coupons, shopping lists, cards need to be in a mobile application that controls the movement of money as well as when, how and where the money can move. This also means a central location to review and manage all transactions and easily detect fraud. Card management apps also allow consumers the opportunity to decline transactions that are fraudulent and save themselves and their banks the headache and the loss of funds.
Netflix changed the way consumers rent movies and watch shows. In the beginning they served as a rental services that caught attention for the ability to have movies delivered to a person's house, as opposed to finding a video rental store and hoping that particular movie would still be available. After revolutionizing video rental, they now change the way consumers watch TV shows and have created a network of their own.
Card controls are the way to achieve the "Netflix affect", by transforming the way consumers interact with mobile payments and their mobile banking applications. Once consumers have absolute trust in their payment instrument they inherently start using it more.
The highly customized level of control, fraud protection and finance management tools increase the trust in the card, which increases the chances that the card is tied to a mobile wallet. By integrating the card control app into the mobile wallet or mobile banking app, card issuers can provide the highest level of customer self-service and become the card of choice in any mobile wallet.