Electronic containers for credit, debit and prepaid payment products, otherwise known as digital wallets, are designed to enhance consumer convenience while conducting transactions at online and physical retail locations. With the ultimate goal of streamlining the payment process and reducing friction at the point of sale, digital wallets have received tremendous attention from most companies seeking to create value in the consumer payments space.
In the current competitive landscape of companies with offerings in the consumer payments arena, one might observe that banks, mobile service providers, retailers, payment brands like Visa and Mastercard, and tech companies such as Apple, Amazon, Paypal, Square, and Google have at least one thing in common amongst them – they’re all competing to be your digital wallet of choice!
So… the proverbial game is on! The flow of money is gravitating towards the mobile channel and this has triggered a race to the finish for the control of payment transactions across a billion mobile devices and millions of online and physical retail locations. Gartner reported $235 billion in worldwide mobile payment transactions in 2013, up from $200 million in 2012. Furthermore, they’re forecasting 35% annual growth between 2012 and 2017 leading to a market worth $720 billion by 2017. This growth trend in mobile payments implies an enormous up side for companies able to establish leadership in this new mobile-driven digital payments era. To the victor(s) will go the spoils, which in this case include massive amounts of consumer data for highly effective marketing, not to forget billions of dollars to be amassed in transaction fees. This is the stuff entrepreneurial dreams are made of!
With that said, let’s take a quick look at some of the key players and their current digital wallet offerings:
- Banks – Most digital wallets offered by banks have the ability to carry the bank’s credit, debit, and prepaid products which can then be used for mobile and online purchases without having to enter details such as billing and shipping address.
- Payment Brands – Checkout from Visa and MasterPass from Mastercard allow consumers to store Visa, MasterCard, American Express and Discover card information. Shoppers using either digital wallet with participating retailers can make purchases quickly after supplying personal identification information.
- Mobile Service Providers – A good example here is Isis from AT&T Mobility, T-Mobile, and Verizon Wireless. This digital wallet lets you carry qualified payment cards and can host offers and loyalty programs from participating retail stores.
- Retailers and Merchants – Walmart, Target, Best Buy, CVS, Exxon, and numerous other retailers have collaborated to form MCX (Merchant Customer Exchange) offering wallet services, payment processing, routing and settlement for digital commerce transactions.
- Technology Companies – In general, wallet offerings from Paypal, Amazon, Apple, and Google enable the digital carrying of the company’s proprietary payment product(s) and/or a variety of credit, debit and prepaid payment instruments carried by the consumer. Some of these wallets can also hold offers and loyalty programs from retailers.
At the current pace of change, I’m certain that some of the information above will be obsolete by the time you read it, but a key question will likely linger on… What will drive consumer adoption of digital wallets?
I think consumer adoption will be driven by two key elements – value to the consumer, and the trust that consumers place in the service provider. Value can be boiled down to relevance and convenience. Simply stated, is the digital wallet in question relevant to ever-evolving consumer needs and ubiquitous within the context of their shopping experiences? If so, is the overall user experience convenient enough for frequent use? Trust in most cases will be tied to consumers’ existing financial relationship with the digital wallet provider and/or their faith in the service provider’s ability to secure their sensitive personal and financial information.
With the above as our backdrop, let’s see how various groups of wallet providers stack up in terms of value and trust:
- Banks, as issuers of payment products, compete fiercely with one another and naturally prefer not to carry offerings from other banks in their digital wallets. So, consideration for value and trust aside, banks will continue to limit their opportunity for mass adoption with wallets geared to serve only their own customer base – a relatively small portion of the overall addressable market.
- As globally recognized payment brands, Visa and MasterCard score high on both value and trust and are positioned well to establish leadership in the digital wallet space. However, wallets from both companies have evolved significantly in the recent past with their latest offerings still relatively new in the market and yet to achieve significant traction.
- Mobile service providers may be struggling from a value perspective but will tell you that they’ve been in the prepaid business for a long time, implying the trust consumers are already placing in them.
- Retailers continue to be challenged on value because regardless of how big they are, it is highly unlikely that anyone’s entire shopping experience encompasses only one or even a handful of retailers. So, while consumers may pay a retailer using one or more payment instruments, they don’t necessarily want a particular retailer to store sensitive information about all of the payment instruments at their disposal.
- Finally, Apple, Paypal, Amazon, and Google are gaining ground on value while starting to accumulate the trust of a growing number of consumers. Paypal definitely has a headstart here with all players introducing rapid innovation to stay competitive in this high stakes game. Even amidst the buzz around the impending launch of the next generation iPhone, there is excitement around a digital wallet and mobile payments patent filed by Apple earlier this year. Apple aficionados can’t wait to see what the immediate future holds for them!
So, while the battle for digital wallet domination rages on leaving a trail of wallets mushrooming everywhere, the question still remains – Which wallet would you rather carry? And, do tell why…