Digital wallets are billed in most tech circles as the future of real-world payment technologies.
With major players like Google, Apple, Paypal and others jumping on the bandwagon and developing their own mobile-first payment technologies, it seems to be a safe bet a shift in consumer payment technologies is on the horizon.
The problem is, adoption has been rather slow, and until retailers start embracing the technology to process the payments, we’re left in a veritable no man’s land while we try to figure it all out. To further confuse matters, with multiple competitors trying to gain stable footing, the market is starting to get rather murky as we try to determine which of these companies is going to lead the pack and what technology they’re going to use to get us there.
We don’t know everything, but the future is beginning to look like one that will feature the digital wallet in some capacity. Here’s what we know:
NFC Isn’t the Only Technology Out There
The first phone with NFC technology was released in 2006 (a Nokia) and it was billed as a game changer for mobile devices. Since that time, we’ve seen rather slow adoption of the technology and some analysts think that – while promising – it’s being overtaken by other technologies.
The problem with NFC, aside from only a (relative) handful of popular phones coming equipped with it, is the fact that retailers have to change their existing POS (point of sale) systems in order to accommodate the newer payment technology. If you think phone manufacturers are slow with adoption; retailers are worse.
Luckily, NFC isn’t the only technology in town. In fact, it might not even be the best technology in town.
While the so-called digital wallet revolution started with NFC, it may not be where the story ends. The “big three” (Google, Apple, Paypal) in the digital wallet space, as well as a host of newer companies are all exploring digital wallets that utilize technologies outside of – or as an additional option to – NFC. Wi-Fi, Bluetooth, or even QR codes are all being explored as possible options to replace NFC, which is beginning to look like a total bust.
The most exciting of these technologies, and the one that may speed up adoption revolve around Bluetooth, and its latest iteration, version 4.0. Bluetooth 4.0 features a low-power variant that allows two devices to connect when they’re in range. Rather than re-outfitting retailers with new point of sale systems or NFC-ready credit card terminals, Bluetooth 4.0 allows them to use a “beacon” – or scannable sensor – in order to utilize the technology. The main benefit to this is more efficient use of phone battery compared to NFC, longer range, and a higher bitrate for data delivery. Currently, Apple, Paypal, and Square are all riding the beacon-based bandwagon.
There Are a Lot of Questions Regarding Security
All digital wallets make heavy use of encryption technology, but that doesn’t mean using current digital wallets is worry-free. Any time you’re broadcasting data across a mobile network, you’re accepting the possibility that this data is intercepted by a third party. While this becomes less problematic when the intercepted data is encrypted, it still makes a viable point for possible security risks related to mobile wallet adoption. Educating the consumer on encryption, and why it’s safe to use their digital wallet is going to take time, but security experts have continually come out in favor of digital versus physical payment technology. The process of processing a digital transaction through modern encryption technology is safer and far more efficient than using an ATM machine or swiping your card at the local big box retailer.
The biggest risk isn’t that of data interception by a third-party, but instead physical loss of the device containing your mobile wallet. While “turning off” the device after reporting the cards stolen should remain relatively simple, we’re not at all aware of how – or if – security protocols exist in order to protect the consumer should a thief attempt to use the card. Of course, this is all easily preventable with a strong password or using biometric security devices available on some current smartphones.
Another risk involved in digital wallet adoption is one that has yet to be answered; who accepts the burden of personal liability in the unlikely event of fraud? Most credit card companies currently shoulder this risk, but this fraud insurance doesn’t exist – at present – when the card is tied to a mobile wallet.
You Might Not Need Your Smartphone
Coin, a smart wallet that utilizes a physical card instead of storing the data on your mobile phone could be a real contender in this market.
While Coin is certainly the most well-known, it’s not alone in this space. Plastc, Google Wallet Card, Stratos, Wocket, and Dynamics (from MasterCard) are all similar product offerings allowing users to swipe their cards into a mobile card reader (or use a Bluetooth-enabled scanner) in order to store multiple credit, debit and rewards card on a single piece of plastic.
Personally, I think it’s more of a bridge technology that will open up the doors for more feature-packed mobile wallets, but it’s a good segue into going fully digital by providing consumers with something they are used to. Providing a digital wallet they can touch, feel, and hold in their hand all while feeling familiar due to the credit card look and feel might speed adoption of more advanced technologies.
Three Companies are Leading the Pack – But They Aren’t Alone, and There Isn’t a Clear-cut Favorite
Digital wallets are still in their infancy, and while major players like Apple, Google and Paypal do their best to disrupt the market with their wallets, there are outliers like Square, LifeLock Wallet (formerly Lemon Wallet) and others that are firmly in the mix.
The truth is, digital wallets are too new to know who is going to come out ahead, or even which technology is going to be leading the way two years from now. Right now there is a lot of fragmentation in the industry, and until credit card companies, digital wallet technologies, and consumers get their goals aligned, it could be a long path to widespread consumer and retailer adoption. This is why I believe bridge technology like Coin could be a solid step one on the path to a completely digital payment ecosystem.
The IoT Could Drive Adoption
As interconnected consumer devices become increasingly common, it’s only a matter of time before commerce follows. While entertainment typically moves the market, monetization is often quick to follow. This has held true in every internet-based movement so far, and there’s no reason to suggest that the trend is going to end now.
When mobile Internet was in its infancy, companies like Google, Facebook and Apple were the driving forces behind a push to speed up connection speeds and connect more devices worldwide. Revenue is a powerful motivator for change, and without it, the status quo would remain indefinitely. The IoT (Internet of Things) is no different. As profit motive increases, adoption and roll-out will as well. In a future dominated by mobile technologies, interconnected devices, and the need for on-the-go payment solutions, the IoT could be the movement that nudges everything in the right direction.
The Only Guaranteed Winners are Credit Card Companies
While a few of the players in the digital wallet space would like nothing better than to dethrone credit card companies in an attempt to build their own payment networks, odds are consumers are far more likely to rely on the major credit card networks they know and trust.
Visa, MasterCard and a handful of others have all begun the process of creating their own payment solutions in an attempt to gain a foothold in the competitive digital wallet space. MasterCard’s MasterPass and Visa’s Checkout have been the most successful of these, but it’s looking more and more like there won’t be any one dominant winner as consumer trends suggest shoppers prefer combination technologies that feature multiple payment options as opposed to any one card, or company.
Credit card companies, however, are hedging their bets against their own in-house development drive through smart investments in key players in the digital wallet space.Visa, for example, owns a stake in Square.
MasterCard, on the other hand, has gone the acquisition route in acquiring digital wallet maker C-SAM which was a key piece in Softcard (formerly ISIS). Softcard, was a joint venture between AT&T, T-Mobile and Verizon to lower the barrier to entry in their own push for using NFC technology for mobile payments. C-SAM provided the back-end payment processing for Softcard and acted as an intermediary for other technologies to process payments in Japan, Mexico, Singapore, and United States. Softcard was acquired by Google on February 23, 2015 and the company was ultimately dissolved with the key corporate partners backing Google Wallet instead.
So, with confusing inroads to partnerships with third-party wallets, their own digital wallet technologies, and key acquisition of wallet startups, credit card companies have their hands in a lot of cookie jars, and stand to profit handsomely no matter what technology starts to pull ahead in the market.
Remember, an estimated 85-percent of all purchases are still cash-based (globally), so any solution that leads to more credit card transactions is an attractive one for companies like Visa, MasterCard and American Express.
Alternative Currencies Could (Finally) Become Viable Options
A lot has been said about alternative currencies such as BitCoin. Through all the talk, the one thing that remains a key roadblock to consumer adoption is accessibility of technology. Altcoins have real value in the consumer marketplace if you can lower the barriers to entry by ensuring safety, ease of use, and retailer adoption. The problem currently is strictly technological, but as wallet makers begin the slow process of integration, digital wallets could be the key to unlocking the potential held by alternative currencies.
Digital wallets for altcoins isn’t a new idea. In fact, several of them already exist. Bitcoin Wallet, Mycelium, and Hive are just a few of these technologies that allow you to store altcoins on a mobile device. The problem is, outside of a payment network that allows you to use them, they are essentially worthless. While the technology exists, it’s a hard sell to get consumers to move to a single technology in order to store alternative currencies that they aren’t using in the first place. This is why digital wallets made by trusted companies such as Google, Apple and others could spur real innovation as well as viability in the altcoin space.
Linking alternative currencies to well-known wallet makers not only lends trust to alternative currencies, but gives retailers the option to process all of these different methods (credit, debit, loyalty cards, alternative currency, and others) through one piece of point of sale technology. This is how we bring altcoins to the mainstream.
We’ve Got Some Kinks to Work Out
A major problem with adoption of digital wallet technology is that many of the companies involved are balking at the idea of supporting a payment solution other than their own. With fragmentation like this in an already new market and dozens of options currently existing, with many more on the horizon, it’s clear to see that something’s gotta give.
What do you think the biggest hurdle is in moving to all digital spending? Is one of these wallets the answer? Which technology is most likely to lead to mass adoption? Sound off in the comments below.
Photo credit: Smartphone Purchase via Shutterstock, NFC – Near field communication via Shutterstock, Phone security by Ervins Strauhmanis via Flickr, Credit Cards by Sean MacEntee via Flickr, Bitcoin Wallpaper by Jason Benjamin via Flickr