As a culture, we've been conditioned to think that paying with cash is always better, whether it's for taxis, gas stations, or shopping on the street. Trips to a local bank branch or an ATM are still normal for largely this reason- because cash is still the universal method of payment accepted at all locations.
The reality, however, is that smart phones are gradually chipping away at the physical dollar's dominance. Mobile wallets have expanded consumers' options, and in the process have begun to heighten our expectations about what we gain with our transaction. As a result, we are nearing a time when cash may no longer be the preferred method of exchange. Banks, then, should seize the unique opportunity to get in on the ground floor of the mobile commerce revolution in order to reach an entirely new generation of customers.
The Case for Mobile Payments
When critics denounce mobile payments, they are often denouncing it as a standalone feature. The standard argument is that mobile payments are a solution looking for a problem, and it’s easy to see where this opinion comes from: After all, today’s mobile commerce ecosystem is highly fragmented, and there is no established traditional user experience.
However, there are several key features to mobile payments that indicate a clear advantage over cash payments. Most important for financial institutions is the increased protection against fraud that mobile wallets afford. The biggest failure for payment cards has been their lack of sophisticated security- something that mobile payment technologies are working aggressively to combat. Mobile payments also afford banks a way to integrate brand-specific, loyalty-based incentives into transactions- a capability that few banks currently take advantage of, but that have the potential to be instrumental in attracting and keeping long-term customers. By standardizing the way they reward customers, financial institutions can help to reinforce the relationship between a customer and their brand, well beyond an individual teller or branch.
Many e-commerce providers have already scoped these advantages out. Moves such as PayPal’s recent acquisition of Braintree demonstrate that the demand for mobile wallets is real, as more and more established names jump into the payments race alongside financial institutions. If banks develop their own mobile wallet, they can go on the offensive against the likes of PayPal and Google Wallet and carve out their own slice of the market, reaching out to a new generation of tech-savvy potential customers while also becoming the mobile commerce providers for the loyal customers they already have. After all, banks have a weapon that independent mobile wallet vendors do not- a customer relationship that’s already in place.
Cash is Expensive
Mobile loyalty options may be the item that momentarily lures customers away from cash, but the inefficiency of utilizing cash will be what keeps them there. According to a study by Tufts University, the average American household loses $1,739 per year due to cash. This includes the fees required to cash checks, to withdraw cash from a non-ATM network, or to access wages loaded by an employer onto a payroll card. In the days of brick-and-mortar transactions, many of these fees were acceptable or even inevitable, but as time goes on, cash becomes costly in more and more situations.
Looking at projections for the mobile wallet industry, it’s clear to see that the transition away from cash inefficiency and towards mobile commerce is underway. A recent study by eMarketer found that mobile payments are expected to top $1 billion in the United States this year, and will clear $58 billion by the end of 2017. It’s hard to see a future where cash will ever go away completely- it’s too important, even as merely a symbol, for that to happen. However, as the drawbacks of cash begin to make less sense and become an inconvenience to customers, people will start to move to an option that makes more sense. That option is increasingly looking like it might be mobile wallets, and banks- as the de facto source of cash and commerce for many years- are in the unique position to shape the future of mobile wallets.
Jeremie Leroyer is CEO of mobile shopping solutions providerAirtag