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The Digital Wallet Value Proposition

By Jim Bruene on November 13, 2012 5:33 PM | Comments

image There has been more e-ink spilled this year on the subject of mobile/digital wallets than any other financial technology. For good reason. The upcoming shift impacts every major retailer, bank, and card issuer, along with their various supporting technology vendors. 

But there are still those who wonder what all the fuss is about. Doesn't plastic serve the consumer just fine? It's fast, ubiquitous, and oh-so much better than the checks and cash it replaced. 

The problem with that reasoning is it only focuses on the "last mile" of payments, the swipe. The swipe is easy. That's why contactless was slow to catch on. It only converted the physical action from swipe to tap; a tiny benefit hardly worth the trouble. 

imageBut the changes being ushered in now have little to do with hand motions. It's about simplifying the messy process consumers go through when deciding which card to swipe/tap/insert. Consumers, at least those with the luxury of having multiple payment options, are faced with a fairly complex decision process (albeit repetitive):

  • Do I have my wallet with me?
  • What cards are in it?
  • Debit or credit?
  • Signature debit vs. PIN?
  • What card types are accepted (e.g., Visa/Mastercard vs. Discover or Amex)?
  • What is my balance or available credit?
  • Personal card or company card?
  • Will the card be accepted?
  • Am I in revolving status? If so, what impact will this purchase have on my rate or monthly payment?
  • What are the penalty fees if I go overlimit or am late with my payment?
  • Are they any reward bonuses available on this merchant category with a certain card?
  • Are there any card-linked offers at this particular merchant?
  • Are there any other loyalty perks at the merchant for using their card?
  • What are my rewards balances on various payment options?
  • Do I have any coupons or offers to redeem here?
  • If it's a joint account, is my spouse making purchases on the card I didn't know about?
  • Do I trust this merchant, or might I end up with a fraud problem on this card?
  • Do I want the merchant to know anything about me?
  • What is this costing the merchant (if I don't want to drive up their costs)?
  • Will the merchant give me grief over using this option (e.g., surly cabbies)?
  • Does the merchant have any minimum purchase amounts or surcharges for various purchase methods?
  • For non-revolving credit, when will my grace period be over and I'll actually have to come up with the money?
  • How easy is it to track the payment for later reimbursement or tax deduction?
  • How hard is it to dispute a charge?
  • Which card did I use here before?
  • Is there more prestige in using one payment card over another?
  • Do I need to curry favor with one issuer vs. another (e.g., to get a better rate or higher line of credit)?
  • What is the foreign exchange rate and are there foreign exchange surcharges?
  • Do I have brand preferences for reasons unrelated to the actual transaction? 

Mobile wallets can use their computing power to instantly resolve these questions and present the user with optimal choice(s). Or the wallet could step in and make the choice automatically which is the key value proposition of the upcoming offering from Wallaby (see notes 1, 2).   

Then there's the whole issue of receipt management and expense tracking that can be integrated into wallets (see previous post; note 3).

Bottom line: I could go on, but the point is that the digital wallet era is upon us, and consumers are going to love it (eventually). How long it takes to catch on is uncertain, but it should be fun to watch.

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Notes:
1. I was briefed on the Wallaby card, currently in closed beta testing, by its founder Matthew Goldman at Money2020 three weeks ago. Like Google's rumored wallet 2.0 offering, Wallaby hopes to replace all the plastic in your wallet with a mobile app and decoupled debit card (plastic) for use at the POS. Then after the transaction is made on the Wallaby card, its proprietary algorithm will route transactions to the user's optimal card based on which offers the highest reward amount for each transaction.
2. For a more thorough analysis, see David Birch's vision of the "decoupled wallet" future here and Tom Noyes Battle of the Cloud, both published this week. And Glenbrook's Carol Coye Benson published this opus on Sep 24.
3. Aite's Ron Shevlin expanded on that in his blog post last week.

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