October 10, 2016
In the world of Web/online payments, the concept of ‘digital wallet’ was initially introduced by PayPal and over the last decade, it became the prevalent method for users to store and manage their payment credentials to be used in card-not-present/online payments transactions. In order to compete with PayPal, in the last several years, main payment networks (and many third-party providers) introduced their own digital wallets. Mastercard currently provides MasterPass, Visa offers VisaCheckout and Amex has Express Checkout.
Every existing digital wallet provides consumers with set of key common features:
Despite all of the added security and checkout efficiency improvements that digital wallets enable, significant friction still exists from both consumers’ and merchant’s perspective. Every digital wallet implementation requires consumers to initially sign up, create a new profile (including yet another set of authentication credentials to remember) and load their payment credentials together with applicable address information. This creates significant sign-up friction.
Digital wallet providers also impose proprietary and often fairly complex API interfaces, meaning multiple integration efforts for online merchants that are considering to offer a variety of online payment options. Complex integration requirements reduce the appetite for merchants and their processors for enabling and integrating with new digital wallets, unless they believe that there is a significant number of consumers using the wallet, to justify integration costs.
The consumer side sign-up/switching friction combined with merchant side complexity of integrating with new wallets may be the main reason why PayPal still continues to be the most popular online payment wallet today and why most of the alternative digital wallets still struggle to catch up and take off.
However, things are about to change for the better soon, with the introduction of the W3C Payment Request API standard.
The upcoming W3C Payment Architecture standard and the compliant Web browsers will provide fully standardized online payment flow. Online merchants will be able to use simple standard ‘in-browser API’ to initiate payments from their checkout pages, regardless of what payment method consumers may prefer to use from their side. The fact that the merchant side integration needs to be done only once, is a great improvement in itself.
Consumers from their side will also greatly benefit since they will now be able to easily download and install compliant payment app browser extensions, which will be offered by their trusted FIs or favorite third-party providers. In such architecture, the compliant web browsers will fully decouple and isolate the merchant side integration from the consumer side functionality and become the main mediators of the online payment flow.
This exciting browser innovation clearly simplifies merchant-side integration requirements, but at the same time, it completely changes the dynamics on the consumer side as well, by widely opening up the opportunities for established FIs to launch their own W3C-compliant payment app implementations.
For example, the bank’s own payment app implementations will give existing banking customers ability to quickly install their bank’s payment app inside W3C Payment Request API-compliant browser. The banks should be able to fully tailor those payment apps to the needs of their existing customers and seamlessly integrate them into the existing and familiar online banking infrastructures (without impacting the merchant side integration at all).
This sudden flexibility to modify payment apps inside the browser without impacting online merchants at all, gives FIs great chance to significantly reduce (even completely eliminate) the existing switching/sign-up friction, which exists in the digital wallet space since consumers will now be able to painlessly move from their current wallet provider to their bank’s payment app and start using their existing and familiar online banking interface for online payments. This is a huge chance for the banks to regain leadership in the online payments space and get full control of their customer’s online purchasing needs.
In other words, for the first time since the launch of PayPal, the established FIs will have a great opportunity to play a significant role as the main providers of online payments (in addition to already owning in-store/proximity payment space). The fact that millions of consumers have their payment cards currently stored in PayPal, Amazon or iTunes wallets, should not put FIs at any disadvantage compared to current online payment incumbents anymore. Why? The FIs already have all of those same payment credentials for their existing customers, and can, therefore, offer them completely seamless and painless switching process, without imposing any unnecessary enrollment friction. How each of the FIs approaches this unique and exciting innovation opportunity will only be limited by their own imagination and ability to innovate.