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Mobile wallet fundraising to drop 73 percent this year: report

Even though it’s not clear who will “win” mobile payments or which players are here to stay, new data shows latecomers and nonessential players are floating into the periphery while the dominant players prepare for the future.

Fundraising for mobile wallet startups is on track to fall 73 percent in 2017 on a year-over-year basis, according to research released Monday from PwC’s financial technology strategy consulting platform, DeNovo. That figure should be taken as a sign of industry consolidation as well as preparation for a post-app world, said Michael Landau, fintech payments lead at PwC.

“Apps are the way to reach consumers in a mobile environment today, but how long will it be until apps aren’t the best way to reach them?” he said. “How many years will it take for the U.S. to adapt to the WeChat strategy like they have in China?”

The consulting and auditing giant shared the statistic as a single data point, one born of a wealth of data it has collected and analyzed in its proprietary intelligence platform. DeNovo does not cover public entities and the mobile wallets assessed aren’t particularly well-funded or well established.

Landau noted that the number of apps that people download has been falling, while pointing at a 2015 survey which taught the world that although people use an average of 24 apps each month, they spend 80 percent of their time in the same five.

“Consumers are really only really using a few apps at any given time so you have to make any app extremely valuable,” he said. “What is critically important regardless of context is authentication.”

Banks and startups alike are responding to that need to differentiate by investing in biometric authentication, which allows users to verify their identity when confirming a payments transaction or logging into their mobile banking apps, for example, by using their unique physical traits instead of a password from memory. Today, fingerprint authentication is most common, but many financial firms are closely studying eye, face, palm and voice recognition as well.

“It feels futuristic but the idea is any mobile wallet strategy needs to prepare for rapidly changing contexts in how they reach consumers,” Landau said.

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With Go store, Amazon understood what mobile wallets missed

Mobile wallet adoption at retail stores is all but non-existent. Mobile wallets at the register saw ZERO growth in 2016, and accounted for a measly 0.6 percent of Black Friday sales in retail stores.

The problem with mobile wallets is that it is not easier nor more convenient than swiping plastic. It doesn’t save time but actually adds friction and uncertainty whether or not a user’s mobile wallet will be accepted at a random store.

What does seem to work, at least to a certain degree, are branded payments solutions that also act as loyalty programs. Most famous here is the Starbucks app, widely considered the most successful mobile wallet, responsible for approximately a quarter of the chain’s transactions. When there’s some added value, customers are happy to pull out their phone.

And now along comes Amazon and schools everyone about how to get it right. The retail giant’s Amazon Go store went the extra mile and addressed the true point of friction in the purchasing process: checkout.

The Seattle-based store, which is slated to open to the general public next year, uses computer vision technology and other sensors to know which items the customer took of the shelf. You swipe your phone once when you enter the store, choose the items you want and just walk out.

Now that Amazon’s done it, it is not hard to imagine new offerings of checkout-less stores-as-a-service to SMBs connecting brick-and-mortar stores to cloud-based payments solutions. Perhaps Google, Apple, Samsung, and Alibaba will give such sensors for free when a store joins their payment services.

What Amazon understood better than mobile wallet operators is that customers are not looking for a better way to pay — they are looking for a better way to buy. That’s a big difference. Mobile wallets solve a problem customers didn’t care about.

This is good day for commerce and a very bad day for impulse buyers.

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How Samsung Pay plans to compete in mobile payments

Samsung Pay strategy

It’s rare for a company with $268 billion in revenue to be viewed as an underdog.

Less than a year ago, Samsung purchased startup LoopPay, launching itself into the mobile payments market. Now pitted against industry giants Google and Apple, Samsung is harnessing its expertise in technologically advanced hardware to gain market share.

Betting on superior hardware to capture mobile wallets

Samsung has been creating a slew of advanced electronics for the past 70 years, producing superconductors, mobile phones, and other electronics since its inception. For its mobile wallet, Samsung developed new hardware called Magnetic Secure Transmission (MST) and is hoping the new technology will give it a competitive edge over other digital wallets.

Most mobile payments are processed through a QR reading scanner or brushing a device across a NFC reader, forcing retailers to buy new hardware to accommodate mobile payments. With MST, most swiping credit card terminals are tricked into thinking there’s a credit card present, allowing Samsung Pay to work without the need for retailers to upgrade their systems.

Dan Tuckman, Project Manager for Samsung Pay, feels that Samsung’s hardware is the difference maker in the battle for marketshare. “The key difference is that Samsung’s own proprietary MST technology was designed to be compatible with the majority of existing and new payment terminals so it currently works at more places than any other mobile payment service,” said Tuckman through email correspondence.

By investing time and resources in hardware, Samsung hopes to see reap rewards over time. Tuckman explained, “We believe Samsung Pay, including the MST technology, is the start of what we hope will provide more strategic business options for Samsung down the road that will benefit as many consumers as possible.”

According to Samsung, their technology works with 90% of the top 250 retailers in the world, allowing Samsung to focus on perfecting its digital wallet instead of convincing retailers to upgrade their hardware.

Looking at the results

Data to evaluate Samsung Pay’s success is limited – the mobile wallet was launched in South Korea and the US in August and September of 2015, respectively. Results are promising, but not out of this world; in February of 2016, Samsung reported 5 million registered users and over $500M dollars processed. Samsung recently launched in Spain, Singapore, and Australia, and is looking to open in Brazil, Canada, and the U.K. by the end of ’16.

Other signs point to future success for Samsun Pay. The first step to getting users to use Samsung’s mobile wallet is getting a Samsung phone in their hands. Over the past year, Samsung has led the smartphone industry in sales, accounting for 22.5% of total smartphone sales. If Samsung can maintain or grow a high market share of smartphone sales and introduce customers to its digital wallet, the company has a chance at becoming a mobile payments leader.

Three faces of competition

Samsung Pay seems to have a solid game plan, but still has an uphill climb to reach the top of the mobile payments mountain.

There’s no doubt that Samsung has unique hardware, but tech advantages are usually short lived. Samsung’s MST technology allows users to purchase via an install base of credit card machines. But with new chip and pin units rolling out across the U.S. and already in Europe, that advantage will soon close.

In addition to competing with other digital wallets, Samsung Pay has to contend with retailers, too. Many top retailers are developing their own mobile payment apps, hoping to retain customers through exclusive benefits, rewards, and other personalized experiences. As retailers develop better mobile payment apps, digital wallets like Samsung Pay could have a tougher time gaining market share.

The two above problems pale in comparison to the biggest problem facing Samsung Pay: the credit card itself. Although a credit card isn’t a digital wallet, you could argue it’s the largest mobile payment device. According to the Nilson Report, U.S. credit card transaction volume was $4.7 trillion in 2015, dwarfing the $620 billion global mobile payments market. Until customers become more accustomed to taking out their phones instead of their wallets, mobile payments will continue to be the little brother to credit cards.

Early trends make the difference

Samsung Pay is positioned well, but it’s still unclear if and how fast mobile payments become the go-to form of payment. Regardless, the battle for digital wallet superiority may be determined soon, during the infancy of mobile payments. As the market grows, the dominant digital wallet may see itself growing exponentially. By developing customer loyalty, continuing market share dominance, and providing vendors with easy solutions to accept its mobile wallet, Samsung Pay has its eyes on the mobile payments prize.

Photo credit: hellosputnik via VisualHunt.com / CC BY