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Why is mobile wallet & NFC capturing so much attention?

Technology giants, payment networks and theUSmobile carriers are all vying for a piece of the yet uncooked mobile wallet pie. I believe what makes mobile wallet so promising is a marketing concept referred to as ‘segment of one’ marketing or frictionless marketing. In layman’s terms, segment of one marketing or frictionless marketing refers to a way of marketing that so narrowly targets marketing & promotions that they reach only the customer who is most certain to act upon the message. It’s a situation where a marketing segment can be narrowed down to one individual. This ensures a very high return on marketing dollars and can lower marketing expenditure significantly. Retailers such as Best Buy, Walmart, Macy’s and others spend hundreds of millions of dollars on marketing every year but as studies show, the returns are only marginal. According to a DMA 2010 report, conversion rates from some of the direct marketing channels were as follows:

  • Email: 1.73%
  • Direct Mail: 3.42%
  • Outbound telemarketing: 6.16%
  • Paid search: 3.81%
  • Internet display ads: 4.43%

It should be noted that direct marketing is more targeted than broadcast advertising channels such as TV, radio and banners. Hence the response rates for broadcast advertising are even lower. According to some reports the response rate on TV ads was less than 3%. Now you can imagine how desirable a ‘segment of one’ or frictionless marketing is. No wonder such big companies as Google, Paypal, AT&T, T-mobile, Verizon, First Data, Visa, Mastercard and others have jumped into the mobile wallet fray.

E-commerce giants such as Amazon and eBay have already attempted a highly targeted advertising and promotions approach by recommending items which the consumer might like right at the checkout step. In my view, some of the financial success of these companies can be attributed to their highly targeted marketing methodology. But the good old brick and mortar channel of sales, where 92% of commerce happens, has not been able to  benefit from this highly targeted and timely promotions method as there was no way to utilize the knowledge of customer segmentation at the time of physical checkout. The rewards program on your credit and store cards attempts to do the same but in a very non-targeted fashion since the reward programs are fixed in advance for a particular segment of customers. And this market segment is intentionally broad to have enough takers to recoup the cost of the program. How targeted can a travel card be if it is targeted towards all travellers. Groupon like businesses have tried to turn the targeted marketing concept on its head. Rather than the business choosing which customers to receive promotions, the customer chooses which promotion to pick. This is, in effect, highly targeted but the costs are so high that they are threatening the very success of the leading firms in this arena.

In my opinion, mobile wallet is garnering so much attention not because it will make the checkout process convenient, secure, reduce the costs or generate additional revenue for the players. No doubt it will do these things; but the biggest reason is that mobile wallet has the potential to bring highly targeted & timely promotional marketing to the customer right at the physical point of sale. It’s a marketer’s dream come true!

Mobile wallet will make it happen by combining the customer’s location, transaction history, demography, social behavior and preference information (which he/she  might have set) to generate a targeted promotion in real time and allowing him/her to redeem the offer at the physical point of sale. Of course, the customer can also make use of stored coupons, gift cards, reward cards or a plain old credit card for making the purchase conveniently.

Most of us do not have access to a mobile wallet with NFC capabilities yet. But several large companies with a lot of traction are going full blast at developing such programs. Maybe not next year, but in 3-5 years mobile wallet will be the prominent mode of payments in theU.S.

Please check back this space to see my take on who will emerge as the most prominent mobile wallet provider: Google, Visa, ISIS or somebody else.

PS: If you were wondering about NFC, it refers to Near Field Communication technology that enables us to transmit payment information by waving payment cards or phone over the PoS terminal.

Manish Gupta

Card Management Solutions: CoreCard

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