Digital Wallets – It could be an all or nothing argument for adoption
Maybe you’ve seen it…if not I have posted it above. It is the image of an iPhone as a Swiss army knife. With seemingly unending utility and potential the mobile platform is being touted as the future of…well just about everything in banking. On March 6, 2012 Apple was granted a new patent for a technology they are calling iWallet. Looking at the proposed functionality Apple has once again done what they do best; enter the market after the innovators (think GoogleWallet) with, in my opinion, a substantially better offering. Better in that it goes beyond simple payments to allow you to take control of your payment cards directly on your iPhone. Meaning you will be able to get statements, balances other information and transactions beyond simple point-of-sale transactions. The release of the iWallet has not been announced but I suspect it will not be long in coming and will complement an NFC-enabled iPhone.
I am a fan of mobile technologies and no one on the planet can argue the ubiquity of smartphones. I also think that Apple entering into the digital wallet space will be great for pushing the concept forward and help it gain wider acceptance and will probably help with the setting of standards in the space. Having said that I think that manufacturers of leather products do not have to stop production on wallets just yet. Even with the world’s most valuable company behind the concept and despite the wishes of mobile zealots there are a significant number of issues to overcome before the smartphone can truly replace the wallet and achieve high level of adoption and use.
It basically comes down to the fact that we all have more in our wallets than payment cards. The ability to win the brewing war in the digital wallet space may boil down to winning hearts and minds related to the continued need to stuff things into a leather receptacle and put it in our back pockets. I would love to operate with only a smartphone however this is not possible. Those who focus as much attention on digitizing the other uses of a wallet beyond payments will more than likely be the winner.
For example. Scotiabank, one of Canada’s leading banks, offers a rewards program tied to offering points to redeem for rewards with a nationwide movie theatre chain. This is an extremely successful partnership for both the bank and the theatre and is one of the more popular rewards programs. They offer a mobile application that allows you to link your movie points card which provides extra functionality to you via their mobile channel. One of the key features is the ability to use your phone to collect points and discounts via the mobile application. The only drawback is that the mobile app cannot be used with the movie theatres’ self-service points of sale. This means to redeem your points or get discounts you still need to carry your rewards card…in your wallet.
Cash will be around for a while. It is hard to covertly slip a twenty to a doorman by bumping phones. The storage of cash, and for that matter attaining cash, will require a wallet and a bank card for the near future. Digital wallets might be able to store your debit/cash card information and may even be able to transmit the details digitally via NFC. The issue is that the retrofitting of thousands of ATMs will be required prior to you retiring your bank card and feel secure about it.
Beyond any of this all of us can open our wallets right now and identify any number of items that digital wallets cannot replace currently. The ubiquity of the smartphone cannot be argued the utility of the smartphone as a complete wallet offering is still in question. Wallets transcend payments and due to that everyone will have to assess how and when they use digital wallets. If any one company is going to own this market they will have to address not only payments but everything else people use wallets for.
The death of the teller was greatly exaggerated during the introduction of ATM and online banking. If anything people just banked more via the new channels, not picking one over the other. I believe the same will be said over digital wallets in the payments space. A large number of people will get it for the cool factor, for the convenience, and maybe because a few of their favorite stores will be bold enough to accept only digital wallet payments but the plastic and cash will be around for a long time to come until the wallet can be 100% replaced and the infrastructure both POS and ATM have been updated to interact with the digital wallet. Apple’s concept does take it a step further than a simple payments platform however there is still room for improving the digital wallet concept and substantial opportunity for new products to support it (NFC house keys, digital gym memberships, NFC car keys, digital government IDs).
Banks looking to capitalize on digital wallet space or mobile payments, in general, should be watching how standards are being defined, assessing the security of the application, and, most importantly, moving beyond the hype of mobile payments and assessing the want or need for another payment method from their customer base. I believe there are better ways for banks to spend their time and energy in the mobile space while they wait for digital wallet functionality and supporting infrastructure to mature.
