Around the world the transition from physical wallets to digital wallets is well underway. An Accenture
That’s big money in anyone’s language, so it is not surprising that wallet wars are around the corner and that the US banks are moving their tanks on to Big Tech’s lawn with the announcement that Wells Fargo
The banks are on trend, for sure. New research from Mastercard
(You might want to short leather, because 41% of Gen Z say they don’t expect to ever buy a physical wallet or purse again!)
This new bank wallet will be managed by Zelle operator Early Warning Services LLC (EWS
(If you’ve not heard of SRC, don’t worry about it. Consumers will see the SRC standard as “Click to Pay”, just as they see the EMV standard as “Chip and PIN”.)
SRC is a well-designed and thought-through system, but as Adrian Hope-Bailie observed, it is not perfect. In particular, it is optimised for the payment card experience and is not “well-suited to non-card payment methods”. That point is important, because EWS has said that it will explore adding other payment options in the future, including enabling payments directly from bank accounts (my emphasis). I think that is a crucial, and initially overlooked, aspect of the announcement because as the widely-respected payments industry observer Tom Noyes reported in his blog, the big US merchants are lukewarm on implementing yet another means of accepting cards whereas one of the top merchants told him “I wanted to accept Zelle, consumers know what that is”. Indeed they do, and as I have previously pointed out in my comments about Europe’s “third scheme”, there are lots of reasons why account-to-account makes sense to consumers and merchants alike.
(Incidentally there is at least one place where Zelle is accepted by retailers and that is Caracas, where the homemade signs in shop windows reading “Aceptamos Zelle” are common. Pictures of the Zelle logo are taped to cash registers in supermarkets, some of which have dedicated lines for customers paying with the app!)
Identity and Ownership
Direct to account or not, there is something else going on with digital wallets that should shape bank strategies, and that is digital identity. The Mobey Forum (which was established back in 2000) is a global, not for profit industry association of banks and other financial institutions who want to shape the future of digital financial services. Their Digital Identity Expert Group has just published a report called “The Rise of Digital Identity Wallets: Will Banks Be Left Behind?”, which suggests that a combination of consumers demand, regulatory mandates (such as eIDAS in Europe) and the trend toward digital identity wallet issuance by global governments means that financial institutions must start thinking about the role they wish to stake out in the emerging digital identity ecosystem.
In particular, Expert Group identity unique opportunities for banks to leverage their position as custodians of personal data to offer value-added digital identity services and become brokers of trust in the digital economy. The report suggests that for digital identity systems to succeed, banks must bridge the divide between the private and public sectors and drive adoption of so-called digital identity wallets.
This is not a difficult position to justify. There is no cash in my wallet and there has not been for some time. It turns out that I am hardly alone in this respect. A recent poll in the UK found that half the people surveyed said they only carried a wallet to store non-payment cards such as driving licences and loyalty cards (and that it without taking into account the fact that payment cards themselves are an identity product and not money in any sense of the word). In fact, a third of 18-24 year olds say that the digital wallet on their phone is already their preferred way to pay and more than half would rather just carry their phone in place of a wallet or purse.
I can provide two data points to confirm this. First, I can’t remember the last time that I took a wallet anywhere, except to watch Woking FC (because my wallet has my season ticket in it) and second, my son recently lost his wallet in a nightclub (because it had his driving licence it, and he needs his driving licence to get into nightclubs). In other words, in both cases we had our wallets with us because we needed them for identity (or, more accurately, credentials), not for payments, which is why the control of wallets will be a fundamental battle of the coming era in commerce and talk of “wallet wars” is far from hyperbole.
The picture is the same across Europe, where a Thales survey of EU citizens in the seven countries found that two-thirds would use a wallet to store their digital identity (rising to three quarters amongst those who already have some other form of digital ID) although what is probably different from the US here is that two-thirds of Europeans think that a government digital wallet is best, with a third thinking that it should be banks taking the lead. I strongly suspect that in the US the idea of a government wallet is further from the mainstream and private providers—not only banks but also retailers, Big Tech, telcos, brands and other organisations—might be preferred.
(Frankly, my view that “Apple
From my distant and tangential perspective, then, it seems to me that the way for banks to make their wallet indispensable is not to compete with Big Tech on payments, but to focus on identity to expand the ecosystem around their wallet. This is already the strategy of Apple and Google
To choose just one example of how such an ecosystem might grow, the Swiss payment app TWINT (formed from the merger of the bank and Postfinance apps back in 2016) has partnered with the Swiss supermarket chain Migros to develop self-service mini-supermarkets where it will be used initially for access to the shops and in the next phase for “purchasing goods that are age-restricted” (credentials, again).
The important point is that a hundred billion dollars here or there notwithstanding, digital wallets—that is, identity wallets—are the big deal. Doc Searls calls them “the biggest instrument of personal agency since the browser” and with characteristic accuracy notes a crucial difference between the leather wallet in my desk drawer (which is where it stays most of them time) and the digital wallet(s) on my smartphone: the physical wallet belongs to me, but the digital wallet does not, which reinforces the point about control of the wallet.
But Doc also highlights another difference between physical and digital wallets that has long interested me and is, I think, under-appreciated in strategic terms. He says that physical wallets are containers of cash, credentials, receipts, and other bits of paper but notes that they do not “engage or operate with other parties” (or, I might add, with each other).
In other words, my physical wallet is deaf and dumb. But my digital wallet can communicate locally with the software agents that will actually be making most payments (because payments are either too boring or too complicated for people to want to get involved) and remotely with other wallets. Why would my wallet want to communicate with another wallet? Well, to transfer central bank digital currency (CBDC) offline is a future use case, but even before then think about how payments, identity and credentials will need to work in practice: back again to that point of what the “ceremony” is that consumers will accept and expect?
Here is a simple example. I run a store, and you come in to buy beer. How can I check that you are over 18 or 21 or 37 or whatever the limit is in our jurisdiction? Well, one way would be for your digital wallet to ask my digital wallet! Instead of having some special service, custom equipment or expensive device to check my age, your digital wallet could simply ask my digital wallet (via Bluetooth, or NFC or even QR code) for the relevant credential. When I am asked if I am over 18, or have a drivers licence, or am a British citizen then I could see the digital wallet on my phone pop up with a list of credentials that a) will satisfy the criteria demanded and b) are acceptable to whoever is asking. I would expect my wallet to present the credentials to me in privacy-maximising order, so that for almost all such interactions my “John Doe” IS-OVER-21 credential will be the default to present not only to the clerk in the liquor store but actually the overwhelming majority of transactions.
My point is that if you think that digital wallets are only about selecting payment cards to make online payments, I think you are seriously missing the big picture.