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The Future Is Here

April 2015

Mobile Wallet is gaining traction the world over. Manickam Ravindran analyses what potential it holds for the overall e-commerce sector in the UAE

There is a growing recognition among the retail community across the world that mobile wallets are going to be central to future e-tailing. Mobile wallet is a system that allows consumers to pay by phone from any location, anytime.

Mobile Wallet is a service that enables payment transactions of customers and help customers to manage digitized valuables of shopping viz offers, coupons, loyalty rewards, tickets, gift cards, IDs, electronic receipts or product information. Mobile wallet can be used for conducting banking transactions, making payments at point of sales (POS) terminals, maintaining and monitoring budgets and personal finance, linking multiple credit and debit cards, among others. Mobile wallet supports multiple channels for access such as interactive voice response, SMS, Smart App, and near-field communication (NFC). Key players in the global mobile wallet market include American Express Inc., Apple Inc., BlackBerry, First Data, Google, MasterCard, PayPal Inc., Samsung and Visa Inc.

Where To From Here

According to a study by Grandview Research, rising smartphone penetration, advancement of 3G and 4G networks and exponential growth of mobile internet applications are expected to drive mobile wallet market in future. The advent of NFC (Near Field Communication) technology and its integration across mobile devices as well as in POS terminals is also expected to fuel mobile wallet market growth over the next few years.

Application Insights

Mobile wallet applications cover retail, vending machines, public transportation, grocery stores and restaurants. These applications help a consumer evaluate products and check prices with integrated comparison shopping capabilities, thus simplifying the process of determining which merchant offers the best deal on a service or a product.

Mobile wallet market for retail applications is expected to witness significant gains owing to several initiatives undertaken to equip retail stores with POS devices and easy payment options using smartphones. It also organizes and stores customer receipts for any transactions at a retailer.

MasterCard and Visa have taken initiatives to encourage retailers in installing NFC POS payment terminal readers that accept NFC, standard magnetic stripe swipes and new chip-based cards, which is expected to spur mobile wallet market demand. Mobile wallets are also used extensively across public transportation. It enables consumers to buy and store a ticket for ferry, rail, bus, air and other forms of public transportation.

Initiatives in UAE

Last year, the United Arab Emirates Banks Federation announced the launch of a Mobile Wallet project. The project is part of the UAE’s Smart Government initiative, which has identified over 90 services provided by government departments requiring payments. The Mobile Wallet project also incorporates the facility for smart phones to be used for cashless payments at merchants and retailers in the UAE. The Mobile Wallet services is expected to be offered through mobile applications by this year. Apart from the UAE, mobile wallet initiatives have gained momentum all over the world, with varying levels of success.

The UAE enjoys the distinction of having one of the highest mobile phone densities in the world at nearly 193%, while smartphone penetration is around 78%. However, cash transactions are the preferred choice of most shoppers and retailers. According to a MasterCard study, an estimated 8% of consumer payment transactions are done using non-cash methods in the UAE. Cashless payments are expected to gain traction largely due to governmental initiatives such as the Smart Government initiative.

Adoption Issues

Many mobile wallet initiatives have failed due to low adaption rates and usage, as it turns out that the convenience of replacing a physical wallet with a mobile payment service might not add enough value to achieve high adoption rates. If consumers don’t see significant advantages in using the mobile wallet over cash or a credit card, or if they have any security concerns, they might be reluctant to change their existing habits.

One of the problems currently faced by consumers is power and battery backup. When the battery of the mobile is down, the mobile wallet cannot be used. This is one of the key restraints for the growth of the market. Smartphone users normally have multiple applications on their phones which consume power and the chances of battery outages are high. This limits the usability of the mobile wallet application.

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