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"The customer turns to wallets for the added value that cash does not offer"

09/30/2015 10:54
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Álvaro Martín, a partner responsible for the innovation area of Analistas Financieros Internacionales (Afi), looks into the present and future of the wallet market, how technological giants like Google and Apple are set to enter this business, and the role that banks committed to new payment channels will play.


How is the payments market evolving?

The trend is to replace the wallet with the smartphone. We all now have a cell phone, a device with an awesome capacity, and the market is showing that those of us who thought that physical wallets for carrying money are going to disappear were right. Wallets are the apps that will fulfill this task. This is still at a preliminary stage, but that's the way forward.

What kind of customers are they aimed at?

At this stage it is usually the most sophisticated customers, with a more curious profile, who want to try new things and are not afraid of change. Some banks are getting people to download the app to use it, although the terminals have some limitations for making payments, since not all of them have the ability to make payments directly from smartphones that use NFC technology.

Should banks fear Apple and Google in the wallets sector?

Rather than a threat I think it's an unchartered territory. It's not just banks who think that this market can be led by Google or Apple, there are other players already developing wallets. It is not yet clear who will make the difference, so to speak. Banks are usually committing themselves to closed solutions for their own customers. The difference with what Apple or Google offer is that these are usually open and enable payment channels from different banks to be used. Other players offering solutions to customers could also emerge.

The user experience, what is being offered to the end customers when they use this electronic wallet, is what will determine to a great extent which solution will prevail. It is not clear who will win: the banks, the large technology companies or third parties. BBVA, for example, is a pioneer in Spain. It has driven this concept and continues committed to it both here and in other countries, and many more banks are working in this area.

What do virtual wallets offer?

The initial value proposition will be linked to the virtualization of payment channels. Instead of using the physical card, I have my smartphone and I don't have to carry cards, and what I'll have is many more cards, because they don't take up space. But that's not enough to justify a technological deployment or achieve a change in consumer habits.

These wallets need to offer more features. Offering the customers customized solutions, analyzing how they behave, what their interests are... with the information that financial institutions have, offering them discounts, promotions, making daily activity easier by linking it to the payment channel. This is the next stage, and some banks are already doing so: building loyalty and providing added value to this payment model. Customers have to be offered something useful, interesting and simple when it comes to thinking about the apps they have to open or how to find their card. If the experience is simple and offers added value beyond mere transactional banking, the more attractive will this world be for customers.

Do Google or Apple have more leverage compared with banks for leading this market?

The particular advantage that Google and Apple have is the special relationship they maintain with their customers, they have been offering them products and services for some time; they are already internalized in their daily lives, and that's one battle they've already won. The trouble is that money matters are a bit more complicated than pure communications or searches, which are extremely useful, but do not entail the critical factor of handling money.

What one sees when new services that connect bank accounts to cards emerge is that people are cautious and keep an eye on how their information will be used and how they are going to access their money. In this regard, banks still have a trust that Apple and Google lack. In fact, the payment initiatives launched by these companies are supported by bank cards.

Will cash disappear?

This is the million-dollar question. It's hard to imagine a future with no cash because of the practical problems, but I can't rule it out. It is increasingly senseless. Because of all the advantages of electronic money, not only for individuals but for society as a whole, I think that cash should disappear. Although it won't happen in the short term.

More information on wallets

- The conquering of the new wallet market

- The end of cash?

By BBVA Innovation Center