Wallet wars aren’t about money, they’re about identity

All over the world, the transition from physical wallets to digital wallets is well underway. Accenture
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A survey of 16,000 customers in 13 countries found that 56% of them used a digital wallet more than five times a month (compared to only 48% using cards that often), and they interpreted these results to mean that a hundred billion dollars is on the way annually. banks’ payment income is “under threat”.

That’s big money in anyone’s language, so it’s no surprise that the wallet wars are around the corner and that US banks are moving their tanks onto Big Tech’s turf with the announcement that Wells Fargo
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Bank of America
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JPMorgan Chase
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and others are developing a digital wallet to help consumers pay online merchants.

Banks are certainly on trend. New research from Mastercard
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shows that around half of Brits think physical wallets will become less relevant, with a fifth of them (and two fifths of millennials) saying they don’t expect to carry a wallet or purse within five years. These sentiments correlate with the continued decline in the amount of cash. Ten years ago around 60 per cent of payments were made in cash, and UK Finance predicts this will drop to 6 per cent by 2031.

(You might want to cut back on the leather, as 41% of Gen Z say they don’t expect to ever buy a physical wallet or purse again!)

This new bank wallet is managed by Zelle operator Early Warning Services LLC (EWS
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) and implements the Secure Remote Commerce (SRC) standard, which facilitates the payment journey for Visa and Mastercard users at the checkout. According to EWS, the wallet contains approximately 150 million Visa and Mastercard credit and debit cards linked at launch, with plans to add other card networks in the future.

(If you haven’t heard of SRC, don’t worry. Consumers see the SRC standard as “Click to Pay,” just as they see the EMV standard as “chip and PIN.”)

The SRC is a well designed and thought out system, but as Adrian Hope-Bailie pointed out, it is not perfect. In particular, it is optimized for the payment card experience and is not “is well suited for non-card payment methods“. This point is important because EWS has said it will explore adding other payment options in the future, including enabling payments directly from bank accounts (my emphasis). I think this is an essential and initially overlooked aspect of the announcement because, as widely respected payments industry watcher Tom Noyes reported on his blog, major US merchants are lukewarm about introducing yet another way to accept cards, even though one of the top merchants told him, “I wanted to accept Zelle, consumers know, what it is.” Indeed they do, and as I’ve previously pointed out in my comments about Europe’s “Third System”, there are many reasons why account-to-account makes sense for consumers and merchants alike.

(Incidentally, there is at least one place where retailers accept Zelle, and that’s Caracas, where homemade signs in storefronts that say “Aceptamos Zelle” are common. Images of the Zelle logo are taped to supermarket cash registers, some of which have their own lines with an app for paying customers!)

Identity and Ownership

Direct to account or not, something else is happening with digital wallets that should shape banks’ strategies, and that’s digital identity. The Mobey Forum (founded in 2000) is a global non-profit organization of banks and other financial institutions that wants to shape the future of digital financial services. Their Digital Identity Expert Group has just released a report titled “The rise of digital identity wallets: are banks falling behind?”, suggesting that a combination of consumer demands, regulatory mandates (such as eIDAS in Europe) and the trend towards the issuance of digital identity wallets by global governments means that financial institutions need to start thinking about the role they want to play in the emerging digital world. identity ecosystem.

In particular, the Expert Group identity offers banks unique opportunities to utilize their position as custodians of personal data to offer value-added digital identity services and become intermediaries of trust in the digital economy. The report suggests that for digital identity systems to succeed, banks must bridge the gap between the private and public sectors and promote the adoption of so-called digital identity wallets.

This position is not difficult to justify. I don’t have any cash in my wallet and haven’t for a while. It turns out I’m hardly alone in this regard. A a recent opinion poll in the United Kingdom found that half of those surveyed said they carry a wallet only to store payment cards such as driver’s licenses and loyalty cards (and that’s without considering the fact that payment cards themselves are an identity product, not money in any sense). In fact, a third of 18-24-year-olds say that a digital wallet on their phone is already their preferred way to pay, and more than half prefer to carry their phone instead of a wallet or purse.

I can provide two data points to confirm this. Firstly, I can’t remember the last time I took my wallet anywhere except to watch Woking FC (because I have my season ticket in my wallet) and secondly, my son recently lost his wallet in a nightclub (because it had his driver’s license in it, and he needs his license to enter nightclubs). In other words, in both cases we had wallets with us because we needed them for identity (or, more accurately, credentialing), not for payment, which is why wallet control will be a fundamental battle for the coming era of commerce. and talk of “wallet wars” is far from condescending.

The situation is the same across Europe, where according to a Thales survey of EU citizens in seven countries, two-thirds would use a wallet to store their digital identity (three-quarters of those who already have another digital ID). although what probably differs from the US is that two-thirds of Europeans think a government digital wallet is best, and a third think banks should take the lead. I strongly suspect that in the US the idea of ​​a government wallet is further from the mainstream, and private providers – not just banks but also retailers, Big Tech, telcos, brands and other organizations – might be preferable.

(Frankly, my view on it “Apple
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ID” will be much more disruptive than Apple Pay seems less radical, as a consumer trend study by Fiserv last year revealed that more than two-thirds of consumers had already used a digital wallet and FIS global research.
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found that digital wallets already account for almost half of the value of e-commerce. That means around $2.5 trillion is already flowing from consumers’ digital wallets to merchants around the world.)

So, from my distant and tangential perspective, it seems that the way for banks to make their wallet indispensable is not to compete with Big Tech in payments, but to focus on identity to expand the ecosystem around the wallet. This is already the strategy of Apple and Google
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(with mobile driving licences), but certainly banks can make it the core of their offering with the huge sums they spend on getting to know your customers and so on.

To choose just one example of how such an ecosystem could grow, the Swiss payment app TWINT (born from the merger of the bank and Postfinance apps in 2016) has partnered with the Swiss supermarket chain Migros to develop self-service mini-supermarkets, where it will initially be used to access stores and in the next step “buying age-restricted goods” (credentials again).

Money talks

The important thing is that despite a hundred billion dollars here or there, digital wallets – aka identity wallets – are a big deal. Doc Searls calls them “the greatest tool of personal agency since the browser” and points out, with characteristic precision, the crucial difference between the leather wallet in my desk drawer (where it is most of the time) and the digital wallet(s) on my smartphone: the physical wallet belongs to me, but the digital wallet does not, reinforcing the case for wallet control.

But Doc also highlights another difference between physical and digital wallets that has been of interest to me for a long time and that I think is strategically undervalued. He says that physical wallets are cash, credentials, receipts and other pieces of paper, but notes that they “do not interact 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 actually do most of the payments (because payments are either too boring or too complicated for people to want to participate) and remotely with other wallets. Why would my wallet want to communicate with another wallet? Moving central bank digital currency (CBDC) offline is a future use case, but even before that, think about how payments, identity and credentials will work in practice: back to the point of what “ceremony” means. consumers accept and expect?

Here is a simple example. I have a store and you come to buy beer. How can I check that you are over 18, 21, 37 or whatever the limit is in our jurisdiction? Well, one way would be for your digital wallet to ask about my digital wallet! Instead of using a special service, custom equipment or an expensive device to verify my age, your digital wallet could simply request the necessary credentials from my digital wallet (via Bluetooth or NFC or even a QR code). When I’m asked if I’m over 18, have a driver’s license or am a UK citizen, my phone’s digital wallet pops up a list of credentials that a) meet the required criteria and b) are acceptable to the questioner. I expect my wallet to present me credentials in a privacy-maximizing order, so in almost all such interactions, my “John Doe” IS-OVER-21 ID is the default that would be presented except to a liquor store clerk. but in fact the majority of transactions.

My point is that if you think digital wallets are just a choice of payment cards to make online payments, I think you’re seriously missing the whole picture.