Why Mobile Wallets Are The Fastest-Growing Payment Method

About the authors: Alexandra Wells and Emily Wilson are Business Development Representatives for Passport. Headquartered in Charlotte, North Carolina, Passport is an industry-leading mobile payments company specializing in integrated urban mobility solutions. Alexandra and Emily have led their team in expanding the Passport footprint. They have also helped establish and maintain client relationships across the country as well as internationally, continuously showcasing the technology that is revolutionizing parking and transportation. 

mobile payment parking
Over the past five years, mobile transactions have increased 118%. By 2017, cash will account for just 23% of all transactions. It is predicted that by the year 2020, mobile commerce will account for more than 75% of the world’s online transactions, and more than 50% of spend.

If you are not accepting mobile wallet payments, you are missing out on a huge opportunity for added revenue. The first step in integrating with a mobile wallet is to be informed. In this article, we will explain how mobile wallets work, how they benefit customers and how they can lower your costs while increasing customer loyalty.


What Is a Mobile Wallet?

A mobile wallet is a pre-funded account onto which a balance is uploaded. When you make a payment using a mobile wallet, the owed amount is deducted from your wallet balance. Money can be added to your wallet anytime, either through a few taps in the application on your smartphone, or through a few clicks on the wallet provider’s website.

The consumer convenience is unbeatable. No more worrying about picking change out of your pocket or swiping your credit card for every transaction. The mobile wallet has simplified the payment process by offering a one-touch payment option linked to a credit or debit card, bank account or gift card.


Mobile Wallets Can Lower Costs and Increase Customer Loyalty

Lower Merchant Processing Fees Lead To Lower Costs

Accepting credit cards, either using mobile payments or actual credit cards, increases your potential revenue streams. Many people don’t even carry cash anymore.

However, accepting credit cards also means merchant processing fees. Traditional credit card processing fees are generally between $0.15 and $0.20 per transaction.

Enter the mobile wallet. There are two ways that mobile wallets can reduce your merchant processing fees. In some cases, the wallet providers pay the fees themselves and will then discount the rate they charge you per transaction.

Another way that mobile wallets can reduce processing fees is that certain wallet providers only charge you when users add funds to the wallet, not when transactions are made. This method reduces overall processing costs because they occur much less frequently.

 Mobile Wallet Promotions Increase Customer Loyalty

MW-BX129_starbu_MG_20140320121802Mobile wallets offer an ideal channel for promoting customer loyalty. Mobile discounts and promotions reward and maintain existing customers while incentivizing new users through cost savings.

A very successful mobile-wallet promotion we are all familiar with is the Starbucks Loyalty Program, which is both easy to use and incentivized. For every 12 purchases a consumer makes with their wallet, they get a free cup of coffee. In early 2013 Starbucks reported that 11% of their sales volume came from their own mobile wallet, which came to over 4 million mobile wallet payments per week.

Similar promotions already exist in parking and are easy to implement in your own operations through pay-by-phone providers. You can provide monetary discounts and promotions to the end-user for utilizing the wallet. For example, offering $23 in wallet funds for every $20 a parker uploads to their balance, or discounting them with an hour of free parking. Discounts like these will drive usage of this program, which will ultimately increase revenue.

Mobile wallets provide benefits to both operators and end-users. In order to take full advantage, it is important to determine what type of mobile wallet works best for your operation. There are two broad categories of mobile wallets we will explain. Read on to see what makes the most sense for you.


Provider’s Wallet vs. Operator’s Wallet: Which Works Best For You?

Open-Loop Wallet

The open-loop wallet, better known as the provider’s wallet, is best thought of as a credit card. For example, when you swipe a Mastercard, you’re able to do so whether it is at Walmart, Home Depot or Target.

The same idea goes for parkers using an open-loop wallet in your lot. A parker can deduct funds from their pre-funded wallet at your facility as well as at parking facilities across the country offering the same program.

When a parker makes a payment through their wallet the funds would go into the hands of the wallet provider (pay-by-phone provider, PayPal etc). The provider would then hold these funds and remit what is owed back to you after processing fees.

Closed-Loop Wallet

The closed-loop wallet, better known as the operator’s wallet, is best thought of as a gift card. You can’t use your Lowe’s gift card to buy a hammer at Home Depot or your Starbucks gift card to buy a coffee at Dunkin Donuts.

The same idea is true of closed-loop wallets in parking. Funds uploaded onto a closed-loop wallet in the City of Pleasantville can only be utilized in the City of Pleasantville.

This type of wallet is a less universal option for the parker, but creates significant savings for you.

When someone uses a closed-loop wallet at your lot the first step would be the same as with an open-loop wallet. A parker makes a payment through their wallet, but the funds would go into the hands of the operator (you). You would then hold these funds and remit what is owed back to the wallet provider.

Closed-loop wallets reduce operating costs by lowering merchant processing fees. With open-loop wallets or traditional credit card transactions, you pay processing fees every time a transaction is made. Alternatively, with a closed-loop wallet you are only charged a merchant processing fee when funds are added to the wallet, which is much less frequently than transactions are made.


Understanding the Pros and Cons of Both Wallets

A customer parks 10 times and pays $1.00 for parking each time. Let’s use typical card not present processing fees at 3% + .30.

Open-Loop Wallet

How It Works: A parker can upload funds to this wallet and use the pre-funded account in multiple areas wherever the wallet is accepted (includes multiple clients). The wallet provider holds the funds which are uploaded to the wallet by the parker.

Benefits: Parkers can use the wallet for transactions across multiple municipalities, universities, private operators, etc. Benefits the wallet provider and the parker. No benefit to the operator.

Number of charges: 10

Merchant processing fees per charge: [$1.00 (cost of parking per hour) x 0.03] + 0.30 = $0.33 per transaction

Number of charges x merchant processing fees per charge: 10 x $0.33 = $3.30

Total fees: $3.30


Closed-Loop Wallet

How It Works: A parker can upload funds to this wallet and use the pre-funded account only in areas specific to one client. The parking operator holds the funds which are uploaded to the wallet by the parker. —- – – ————

Benefits: Can only be used for transactions within a specific municipality, university, private operator, etc. Benefits the parker and the operator. No benefit to the wallet provider. ————————-n———

Number of charges: 1

Merchant processing fees per charge: [$10.00 (cost of parking for ten hours) x 0.03]+ 0.30 = $0.60a

Number of charges x merchant processing fees per charge: 1 x $0.60 = $0.60

Total fees: $0.60

Mobile Wallets Are Here To Stay

As technological advancements continue within the parking industry and mobile options for parking expand, we’ll only see increased adoption of this payment method. In other words, mobile wallets are here to stay. Mobile wallets provide many benefits to you: increased revenue, increased usage, and lower costs. By offering a mobile wallet, you create a competitive advantage for your business and avoid falling behind the technological curve. The mobile wallet is bringing payment beyond paper and plastic – will you?


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