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The Winning Mobile Wallet Solution

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The Winning Mobile Wallet Solution Account Payments Customers POS ACH Credit Engagement Data Cards Experience NFC Sales Loyalty Debit Flexibility App THE WINNING MOBILE WALLET SOLUTION Achieving Success through Financial Institution and Retailer Interoperability CompanionPaper About “The Winning Mobile Wallet Solution” This white paper is the result of the collaborative and transparent efforts of the members of the Payments Innovation Alliance Mobile Wallet Team. The paper is divided into two parts: the white paper itself and this highly technical companion piece that provides the detailed explanations behind the conclusions in the main white paper. The paper covers the function and value of financial institution and retailer-branded domestic mobile wallets, explores the issues surrounding tender reciprocity between financial institutions and retailers, and discusses how ACH can be leveraged to empower mobile wallets. About the Payments Innovation Alliance Mobile Wallet Team The Mobile Wallet Team is an initiative of the Payments Innovation Alliance, designed to enable stakeholder companies and the broader mobile payments community to leverage an “open” acceptance platform that includes support for retailer- and bank- branded mobile wallets for electronic payments. Mobile Wallet Team members seek to provide historical perspective and thought leadership about the potential for mobile wallets and lead the industry and the marketplace through collaboration to address key topics and concerns related to advancing the security, value, adoption and interoperability of mobile wallets. About the Payments Innovation Alliance The Payments Innovation Alliance, a membership program of NACHA — The Electronic Payments Association®, brings together diverse, global stakeholders to support payments innovation, collaboration, and results through discussion, debate, education, networking, and special projects that support the ACH Network and the payments industry worldwide. The Alliance brings together content and focus across all payment areas, including emerging payment technologies, electronic billing and presentment, mobile, payment security/risk, check conversion and global payments. Membership includes organizations of all sizes and spans the payments industry spectrum. This paper is intended for educational purposes only. It should not be relied upon for legal advice. Readers should consult attorneys for legal advice. 2 © 2016 NACHA – The Electronic Payments Association. All rights reserved. Acknowledgements This paper was developed with the collaboration of many stakeholders. The Payments Innovation Alliance would like to acknowledge its members who provided recommendations and expertise during its creation. Access Softek, Inc. Fiserv Accuity HSBC Bank USA, NA ACI Worldwide IBM ADP, LLC Javelin Alliance Data Systems, Inc. National Credit Union Administration American Bankers Association Navy Federal Credit Union American Family Insurance OmnyPay BIM PayPal Board of Governors of the Federal Reserve System Pillsbury Winthrop Shaw Pittman LLP Boy Scouts of America Prairie Cloudware City National Bank RSA, The Security Division of EMC CGI Technologies and Solutions SHAZAM, Inc. Commerce Bank SunTrust CO-OP Financial Services Target CU Wallet TD Bank, N.A. Desjardins Group The Home Depot Dollar Bank, FSB TSYS Dovetail U.S. Department of Treasury, BFS EastPay, Inc. Upper Midwest ACH Association Elavon WACHA Federal Reserve Bank of Atlanta Webster Bank FIS Western Payments Alliance Additionally, the Payments Innovation Alliance would like to extend a special thanks to the Crone Consulting team, Richard Crone and Heidi Liebenguth, for their significant efforts to develop this white paper. Note: The views presented in this white paper do not necessarily reflect the individual views of each member of the Mobile Wallet Team, the entities or organizations that employ the members of the Mobile Wallet Team, the Payments Innovation Alliance Leadership Team, or the individual Alliance member organizations. © 2016 NACHA – The Electronic Payments Association. 3 All rights reserved. Introduction to Mobile Wallets What is a Mobile Wallet? A mobile wallet is a secure application for initiating payments on a mobile device. It can take many different forms depending on the issuer of the mobile wallet, the account provisioning and access technology deployed, and the purchase venues or market segments being addressed. For example, there are many purchase scenarios, the largest of which include the physical point of sale (POS), traditional desktop electronic and mobile commerce through a browser, mobile in-app purchases, bill payment, and person-to-person (P2P) transfers. This paper will focus on how mobile wallets will enhance the in-store experience. The mobile wallet is a consumer-facing application for managing payment types, typically with the ability to access many different payment types and funding accounts such as open-loop, financial institution-issued debit, general purpose reloadable (GPR) prepaid debit and credit accounts, as well as private label, merchant-issued credit, pre-paid or stored value, and direct debit accounts. Mobile wallet functionality can be rendered as a standalone payments app such as PayPal, Apple Pay, Android Pay, and Samsung Pay. It can also be a plus-one feature integrated into bank-branded mobile banking applications such as Capital One or into retailer-branded mobile shopping apps such as Starbucks. Another rendition of a mobile wallet might be characterized as a pre-authenticated “buy button” or embedded payment option such as PayPal One Touch, Visa Checkout, MasterCard MasterPass, or Android and Apple Pay, residing inside other apps, e- and m-commerce websites, biller direct bill payment sites and the like. Another version merely subsumes the payment into the customer experience, with no interruption or separate payment authorization step such as the Uber ride-sharing app. Because successful shopping results in a sale and accompanying payment, the mobile wallet is a compelling vehicle for enhancing the shopping experience before, during and after a purchase by providing a new online, real time, in-context connection with the user. The mobile wallet possesses the potential to be much more than payment, as it sets the stage for a whole new set of value-added services for the issuer of the app. In this regard, the mobile wallet is really a new customer service, communications and marketing platform for the issuer. As we will explore later in the business case sections of this paper, Crone Consulting LLC estimates the annual gross revenue that could be generated from a mobile wallet can be as much as $300 per user per year. This could be as much as two times the annual gross revenue generated from a typical demand deposit account (DDA) for a financial institution or nearly equal to the gross revenue of the typical credit card account. It could be more than 10 times what the typical search engine-based or enrolled social platform generates in gross revenue per enrolled user per year. The marketing platform potential is game-changing and disruptive to traditional forms of payments, offers, promotions and advertising, and for this reason merchants, financial institutions and new entrants are pursuing the issuance of their own mobile wallets. But as we will see in the next section, there are many interdependencies required to launch a mobile wallet and new payment types. 4 © 2016 NACHA – The Electronic Payments Association. All rights reserved. Issuers of Mobile Wallets and the Dependencies of a Multi-Party Market Payments is a multi-dependent market, which means to initiate a new payment product or service offering, one must also gain the support and integration of many entities beyond the deploying mobile wallet platform. Making a mobile wallet available to consumers is not enough; to drive adoption by consumers the wallet must be convenient and provide some sort of incentive or value add. In addition, there must be merchant acceptance of the mobile wallet and the access technology it is deploying such as Near Field Communications (NFC), bar codes, Bluetooth Low Energy (BLE), presence detection, or ultrasonic. At its very simplest, the two dependent groups in payments are issuers and acquirers. On one side, payment accounts are issued to consumers or businesses. But these accounts are only useful if the locations where the consumers or businesses want to shop (the acquisition side) accept those payment types and processing methods. Issuers of payment accounts are generally characterized not just as financial institutions for debit, prepaid debit and credit accounts, but also retailers, as the issuers of private labeled, closed-loop prepaid debit, direct debit and private labeled credit accounts. In the case of mobile wallets, issuers can be financial institutions, retailers and third party intermediaries such as mobile phone handset manufacturers, wireless carriers, payment networks, technology companies, new entrants and a whole host of others yet to be named or revealed as of this writing. In reality, the two party market between issuers and acquirers is quite complex with many multi-dependent infrastructure providers and supporting processors. Examples of the many possible dependent stakeholders in the mobile payment processing value chain include: Acquiring Stakeholders Issuing Stakeholders Retailers Financial Institutions Enterprise Resource Planning (ERP) Core processors to financial institutions vendors to retailers such as Oracle, such as FIS, Fiserv,
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