By Ralph Dangelmaier
BlueSnap
Actor Alec Baldwin asks, "What's in your wallet?" when he urges you to buy something with his favorite credit card. The TV networks will probably be retiring that popular commercial soon, sending Baldwin off to live with Speedy Alka-Seltzer. Why? Leather billfolds and plastic credit cards are on the way to obsolescence.
This revolution started back in the early 1980s when banks began to offer telephone access to balance information. Now we have the mobile wallet – almost. But remember: mobile banking is not mobile payments. Mobile payments are not mobile wallets.
In fact, "mobile wallet" is a little misleading. What's coming is the "digital wallet," with the user's payment credentials stored in the cloud and accessed by a mobile number or password. The device may or may not use near field communication technology to make payments, because the physical presence of a piece of hardware – at a checkout counter – will no longer be necessary.
The POS will be anywhere that the seller and buyer communicate and exchange payment for goods or services. That POS could be in the aisle of a traditional retail store – where shoppers still like to go and see what they're buying – or it might be a web connection to a seller on the other side of the world.
There's been much convergence and blurring of lines between brick-and-mortar commerce and virtual business. New players are on the field; new channels are open. The players in the game of retail e-commerce – those who have big stakes in digital wallets – are banks, mobile network operators, hardware manufacturers, payment card networks, merchants and consumers.
Consumers and merchants will determine how far and how fast mobile e-commerce evolves. All signs point to their growing embrace of all things mobile. According to researchers at the Federal Reserve, 87 percent of Americans have mobile phones; 44 percent of them are smartphones. Twelve percent of consumers have used a phone with a barcode scanner to comparison-shop, and 65 percent of them admit to changing their minds after comparing prices. Those percentages are only going to increase, placing enormous competitive pressure on merchants and sellers. All of this data indicates that mobile banking and mobile payments – the precursors of mobile wallets – are slogging along and gradually gaining acceptance. Meanwhile, on the e-commerce front, things are moving fast. According to comScore Inc., mobile wallets and the businesses in their ecosystem will probably outpace the mobile banking and mobile payment systems, with innovations and market-based answers to questions that the banks don't address.
Useful old rails Innovators will still depend on the payment and settlement rails that we already have, however. After all, those rails are mature and trusted, and setting up a whole new system would be prohibitive. But the market will probably introduce new ways to ride those rails. Consumers will reinforce this aspect. Even as their shopping experience evolves – as their mobile devices arm them with instantly available information on pricing, product reviews, special offers, available coupons and reward points – consumers will keep demanding a consistent and familiar payment experience.
Think of how, in some African and Asian countries, mobile payments and phone-based e-commerce are the only games in town because there's not enough reliable banking infrastructure and few land-based telephone systems. Something will always emerge to meet a growing demand.
And even here in America, that demand is showing itself and driving the players whose businesses are circling around the phenomenon of the mobile wallet. We're not there yet, but we're getting there. And merchants and their customers will lead the way. Remember that the desired end game is a digital wallet that is open, accepted everywhere, and that enjoys the confidence and acceptance of consumers. It can't be based on card platforms with a smattering of loyalty programs. It can't have a bunch of sequestered segments that frustrate people and merchants who want to take part.
It is going to require a statesmanlike approach by all players to make the digital wallet work for the good of everyone. That is, they've got to be able to separate the things they do "for the good of the game" from the things they do to outperform their competitors in that game.
As the Fed's working group noted, there should be collaboration and sharing of relevant data that will allow for the discovery and cure of gaps in security. There also has to be an agreement on who's responsible for administering those cures.
The system has to foster trust among consumers. They'll need to feel that their personal data is safe. Not all consumers are enamored of location-based services, and they are right to be wary. They may opt out of allowing an application to use their location information, but it's not yet clear what happens to all data gathered on people's whereabouts, whether or not it is made public in real time – such as the "Just checked in" feature on Facebook.
Collaboration and sharing of relevant data that is fully open, interoperable and secure with agreed-upon standards, and has full acceptance by merchants and consumers is significant. The digital wallets using that system must be accepted everywhere and capable of making payments and funds transfers for any product or service. Secondly, and especially for the merchants, innovators must keep listening to customers. For instance, it is still difficult and inconvenient to make a purchase, from start to finish, on a mobile device. The process, from registration to the final "Buy Now" click and payment, should be as quick and convenient as possible.
To recap: a mobile wallet – the one envisioned in the "what's in your wallet" question – would simply store payment credentials and a few other features in a smartphone. A digital wallet would be that and more, with the capability of tapping into cloud computing and wireless networks without the need to embed confidential financials in that smartphone. A digital-wallet user can buy something without necessarily having a phone present; the user would enter a phone number and a password or PIN at the POS. None of the current mobile or digital wallets now in action go all the way to the goal of being open and ubiquitous, accepted everywhere, and capable of making payments and funds transfers for any product or service.
I feel that we'll get there soon. The pace of innovation will accelerate in 2014. Connected devices will get better and better in making payments through the cloud. Software providers and platforms will consolidate, triaged by competition in the marketplace. Plastic cards will still be around, just as checks are now, but they will continue to diminish in importance over the next five to seven years.
However, if there's not broad cooperation in addressing the big issues of security, interoperability and privacy, then that pace of change will be slower than it could be. That will make our wait unnecessarily long and needlessly costly.
Ralph Dangelmaier is Chief Executive Officer of BlueSnap. Ralph has more than 25 years of experience in the payments industry. Most recently, he served as the President of Global Markets and Services for ACI Worldwide, and prior to ACI, he was the CEO of P&H Solutions, leading the business from its early stages to more than $40 million of revenue before its acquisition by ACI in 2006. Contact him at ralph.dangelmaier@bluesnap.com
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