Digital Wallets

Digital wallets as explained above are solutions that provide a common interface for conducting payments online or through a mobile device. The wallets in turn store the credit card details, identity details, shipping and invoicing information and even could store loyalty-related information. The wallets that store this infor-mation on a server are called server-side wallets. Then there are wallets that store the information on client devices and therefore do not store an individual-specific information on the server. The client side wallets are more popular than server side wallets. There are about 1,000+ FinTechs worldwide in this business. The wallet function, though, works the same across providers, but their popularity and adop-tion can be correlated to the type of providers. Wallet services from the below-mentioned categories of providers have been relatively popular and have been more widely accepted than the other types of providers:

  • Stand-alone digital wallet providers
  • Wallets introduced by banks/credit card companies
  • Wallets introduced by device manufacturers, software product firms and integrators
  • Wallets introduced by retailers
  • Wallets introduced by telecom providers
  • Wallets for cyptocurrency/Bitcoin

A detailed elaboration of different wallet providers in each of the above-mentioned categories is as follows:

a. Stand-alone digital wallet providers—The wallet concept was pioneered by some of the stand-alone start-ups not affiliated to any bank, device manufac-turer, retailers, etc.

  • Some of the prominent wallets started with being an Internet banking solution that transformed themselves into a money-transfer service, and with the popularity of e-commerce, it became one of the key mechanisms of payment for most of the e-commerce transactions. Some of these wal-lets subsequently built in P2P money-transfer services as well as money transfer through debit and credit cards.
  • China enabling its telecom infrastructure has resulted in the introduction of wallets by some of the leading e-commerce companies in China that has become one of the mainstays for most of the e-commerce transactions.
  • In India, the government pushed to adopt digital transactions, and with one of the world’s largest mobile penetrations in terms of volumes, have seen the introduction of multiple digital wallets enabling payments through mobile phones. One could also buy tickets for movies, hotels, flights, etc. using these wallets through mobile phones.
  • There are other mobile wallet services that enable customers to store their credit/debit cards and bank information into a digital wallet. Some of these wallets convert the mobile device into a wallet, enabling the direct purchase from the device.

b. Wallets introduced by banks/credit card companies—Taking a cue from the success of stand-alone wallet solutions and the increased share of digital busi-ness, has pushed most of the banks and credit card companies to provide digital wallet solutions. The digital wallet solution from banks and credit card companies is usually an extension of their banking/card apps. Banks and credit card companies have issued wallets as a separate app in order to separate payment and banking functions. In some cases, the banks and credit card companies are even using different names for their wallets to promote it as a next generation brand image for themselves. Stand-alone wallet com-panies, taking away a major share of the overall digital payment pie has also been a reason for banks to push their wallet solutions. Some of the bank and card companies in order to launch a faster go-to-market payment offering have partnered with stand-alone wallet solutions to provide a cobranded wal-let service. Some of the examples below illustrate how the established players are entering into the wallet business:

  • A well-known card company has built solutions that would help banks embed wallets as part of their applications.
  • A similar example is wherein one of the large global bank has partnered with leading payment wallet provider in India to provide the wallet solu-tion in India.
  • American Express, Bank of America in North America, and SBI, HDFC Bank and ICICI Bank in India are some of the banks that are providing home-grown wallet services.

The wallet services from banks globally also are accepted across major POS systems. Almost all of these wallets also have location-based offers (LBO) and also facilitate loyalty-point accumulation. One of the things that have driven these wallet services is the ease of transferring money between the wallet and bank or credit card account. Additionally, offers like cash-back schemes have made them popular.

c. Wallets introduced by device manufacturers, software product firms and integrators.

Apple Pay, Android Pay, Microsoft Pay, FIS, Finacle, etc. are some of the examples of these types of wallet services. These wallet service providers have an inherent advantage by providing wallet applications as part of their defacto hardware/software. This is also convenient for the consumers and merchants since they do not have to worry about infrastructure, security and performance. The key feature that will drive adoption for these wallet services is their capability to integrate across multiple devices, operating devices, ease of branding customization and merchants/customers commission arrange-ments. Some of these wallet service providers have restricted the usage of their wallets only to the devices manufactured by them.

d. Wallets introduced by retailers—A large number of the above-mentioned digital wallet solutions are being used for conducting payments for a purchase at an e-commerce site. The e-commerce site could be an online retailer like Amazon or a travel booking site like Cleartrip or for buying movies on Netflix, etc. The retailers with a large brick and mortar presence

realized that they will have to introduce their own wallets in order to provide a one-stop shop experience from purchase to payment, ensuring customer stickiness and provide loyalty benefits directly. Additionally, the retailer would be able to negotiate a better pricing from different card com-panies based on the wallet usage. The retailers would also be able to drive better order processing, promotions and offers through their own wallets. A more indirect benefit was they could utilize the large float of money, subject to regulatory conditions, from the time a customer pays the money at a retail counter to the time the merchant actually pays its downstream providers. Some of the retailers have set up full -fledged IT departments to rollout wallet services across the board that are not restricted to only their stores. Also, reports by leading analysts suggest that the in- store payment volumes would rise about 8-fold in next 5 years. Some of the examples of wallets launched by successful retailers are Walmart Pay by Walmart and wallets introduced by Starbucks, Kohl’s, Macy’s, Dunkin’ Donuts and CVS. Some of the differentiating features of these wallets are listed as below:

  • Some of these digital wallets have a cool feature, wherein a consumer can directly pay for all the scanned items using a quick response (QR) code and a mobile device at POS terminals. The app from some of the retail chains enables a customer to do online purchasing and then announce his/her arrival at the store to pickup, so that his/her materials are already packaged and ready.
  • They also enable a customer to pay by shaking the mobile device and have an option to pay a tip as well.
  • The wallets integrated into pharmacy apps offer prescription pickup and their integration to the loyalty program.
  • These wallets additionally offer special schemes and offers for purchases and payments at retail supermarkets.

There has been a mixed success for wallet services from these retail-ers. There has been a visible shift of wallet strategy by retailers to provide an in-app solution instead of collaborating with pure-play digital wallet providers­. A majority of retailers are also enabling payments at POS using wallets provided­ by device manufacturers like Apple Pay, etc. or telecom vendors.

e. Wallets introduced by telecom vendors—Since most of the wallet transac-tions were being done using mobile devices and over a telecom network, telecom vendors similar to retailers realized that they could build brand loyalty, drive offers, promotions and capitalize on an available float (a pool of money that has not yet been claimed) by introducing their own wallets. In early 2011, different telecom vendors globally came up with a wallet that uses SIM cards as a technology to embed debit/credit card information. The event marked the beginning of telecom companies offering wallet services.

Soon the wallet applications and services were developed by telecom pro-viders to harness the opportunity. As part of offering wallets, telecom pro-viders are also providing prepaid cards and mobile money as alternative currencies for conducting transactions. This has catalyzed success and pro-liferation of such services in the overall ecosystem. Some of the examples below illustrate the ups and downs in the wallet services introduced by telecom providers:

  • In and around 2010, multiple North American telecom companies were embarking on an initiative to have a common wallet and a mobile pay-ment network.
  • In 2011, multiple European telecom providers had come together to build a universal wallet.
  • There are a large number of telecom companies in Canada that offer wal-let services. In fact, there are so many players, that some of these compa-nies had to shut down owing to increased competition.
  • New Zealanders use digital wallets provided by telecom companies to make payments and use the same on a public transport.
  • Telecom companies in Africa have introduced their own digital wal-lets, and some of these wallets use their own digital currency to conduct e-commerce and in-store transactions.
  • Telecom providers in India have launched their own wallets that enables customers to credit or debit cash directly from and through the wallet service.

An additional outcome of telecom companies offering wallets is they can now mine huge amounts of data using different tools to understand the pur-chasing and behavior patterns of a customer. This in turn would help them to do targeted promotion and advertising, resulting in better conversion and better advertisement revenue receipts.

f. Wallets for cryptocurrencies/Bitcoin—Around 2009, blockchain, an algo-rithm to generate cryptocurrencies, started generating Bitcoin. Bitcoin soon became popular as an acceptable currency for payments in the online world. There are over 100,000 merchants and vendors accepting Bitcoin as payment. Since Bitcoin was becoming accepted as a mechanism for payment, there were wallets that enabled an individual to carry out purchases using it. There are around 30+ Bitcoin wallets. Some of the companies that offer Bitcoin wallets are Coinapult, Coinomi Wallets (they offer wallets for altcoins as well), Electrum and many more. There are wallets that allow an individual to store multiple digital or cryptocurrencies including Bitcoin, Etherium and Litecoin. These wallets also provide for using fiat currency, i.e., currency issued by the central governments.

Digital wallets can also be categorized based on the reach and membership type they encourage. The three types of a typical digital wallet are:

  1. Closed wallets—These are wallets that can be used only by the issuing brand, with some of the wallets issued by retailers being a typical example. They are primarily used in a business to consumer (B2C) scenario and are restricted to the issuing merchant.
  • Semi-closed wallets—These are the wallets where the issuer (banks/businesses)­ have arrangements with select establishments and merchants for the use of their digital wallets. They have a wider reach and membership as multiple entities are involved. Wallets introduced by telecom vendors working only with certain merchants are examples of semi-closed wallets.
  • Open wallets—Issued only by banks, card companies or payment platforms that have universal recognition. These wallets can be used at any merchant establishment. The wallet introduced by credit card processing companies and credit card companies is an example of the same.

Post Author: newfintech

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