Enabling Technologies

Digital Wallets 3.0 Era Begins

A digital wallet refers to a utility that stores consumer information and enables payments. While there are many variations of wallets in the market, they all attempt to address the same general group of consumer needs: safely storing personal and financial credentials to enable purchases, enabling a the mobile device to make purchases at the POS, and simplifying the m-commerce shopping experience.

Digital Wallets 1.0 introduced the ability to store credentials and enable payments with a single e-commerce or m-commerce retailer. These generally were successful in safely storing credentials and simplifying the m-commerce shopping experience. They also added to the core value proposition by introducing incentives and other offers for consumers. However, they were never able to make the jump to enabiling mobile payments at the POS and created a challenging environment for consumers to manage, especially when their cards were reissued.

Digital Wallets 2.0 attempted to address these shortcomings by creating universal wallets that promised to work everywhere. They were built to deliver a standard shopping experience across e-commerce and m-commerce sites as well as provide the ability to support physical world payments. Their promise was a consistent, easy to manage wallet experience for consumers regardless of where they shopped. However, despite backing from some of the biggest players in the payments industry, these never took off – presumably because neither consumers nor retailers wanted to have the same experience at every location.

android pay

Now, with Android Pay joining Apple Pay, the industry has started down the path to Digital Wallets 3.0 – an era that will be characterized by a migration from smartphones housing digital wallets to smartphones becoming digtial wallets. Through advancements in handset security (TouchID) and enabling payments at the POS via tokenized payments and NFC, smartphones themselves can now do a lot of the heavy lifting of the original wallets. Additionally, as Android Pay and Apple Pay capabilities get extended to application developers, consumers will be provided with new retailer apps that offer both a simple way to manage their payments and personalized, one-on-one retailer specific shopping experiences that transcend physical, e-commerce, and m-commerce storefronts.

In summary, the Digital Wallets 3.0 era promises a future where smartphones will become the preferred way consumers pay for goods and services. It won’t be surprising if in a year or two, the industry looks back at Apple Pay and Android Pay with the realization that these were not just new ways to make payments but rather transformational tipping points that ushered in the Digital Wallets 3.0 era and completely changed the way consumers shop.

Dean Nolan

Dean is an experienced fintech professional and has worked with financial services firms including global payments networks, financial services processors, global banks, community banks and credit unions. He is also an advisor to a start-up in the biometric authentication market. He likes sharing his thoughts with the MEDICI community in the form of articles.

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