Banks, financial institutions and now internet service providers such as Google are falling over each other to gain a share of your wallet – your digital wallet to be precise.
Of course, not all of us have a digital wallet, whether in the form of a smartphone app or a bit of plastic with an embedded smart chip.
But with the lure of lowering the cost of processing purchasing transactions while ostensibly making it easier for us to part with our money, will we, as consumers, all eventually be forced into that reality? The marketplace is filling fast, with players such as MasterCard PayPass and Visa’s V.me.
The digital wallet – as the name suggests – essentially replaces the physical wallet. You just “tap and go” – as the MasterCard motto puts it – at the terminal, and for small value transactions, probably in the order of $100 or less, you don’t even need to enter a PIN.
No prize for guessing why this idea is so feted at industry level. For merchants, heads of banks, heads of retail chains, and anyone else needing to take a slice of your money, digital wallets are a potential win-win-win-win-win … How so? Well, let’s see.
Win one – no barrier to payment. Compare the digital wallet’s convenience factor to the conventional approach of having to fiddle with your wallet, get out the folding stuff (if you have any) or insert/ swipe a credit card, enter a pin and wait for a receipt.
Win two – faster checkout times. Queues at the checkout should (theoretically) be reduced as the time taken to pay is reduced to a few seconds. Also, that impulse purchase may be far easier without those checkout queues. No queuing time = more sales = more money through the digital wallet system.
Win three – lowers merchants' costs. Increasing the opportunity for “self-service” checkouts when combined with faster queues means fewer humans need to be employed at the checkout.
After all, humans are an unnecessary cost and are, well, hard and costly to manage. Even better – in situations where you are essentially manning the checkout, you can’t complain about the service!
Win four – less cash = more money. In the shift to digital money, retailers and merchants need to handle less cash. Cash is expensive. It needs to be shipped by security couriers, insured, counted, reconciled and stored. No cash = more money for the retailer and/or merchant.
Win five – we know where you live. Your transaction is worth more to others than it is to you! Cash guarantees anonymity, meaning retailers, among others, are unable to feast on the information contained in your spending patterns.
With a digital wallet, your transactions are available for forensic, marketing and other purposes.
Will all these benefits reduce the cost of the goods and services to the consumer? One can only hope.
The biggest potential downside for you and I is a fairly obvious one: fraud and security. Most financial institutions offer the guarantee to consumers that they will not be liable for loss or theft (provided there was no contributing negligence), and assuming the amount is not too large.
Will this watertight, zero-liability assurance make consumers feel any better about the digital wallet?
It might. But if it’s a small amount of cash, it may go unnoticed, as a percentage of consumers do not meticulously check their bank account transaction history. Consumers would also need to take the time to fill in online or paper forms to make a payment dispute, and wait to see if their money’s going to be returned. For small amounts, they may not bother.
For the individual with one disputed transaction, the zero-liability guarantee may appear comforting. But the reality is that the overall, system-wide cost of fraud is ultimately paid by the consumer.
These costs will be recouped through the whole conga-line of financial and non-financial institutions that handle your transactions by additional fees, levies and other instruments. The balance is between convenience, cost and risk.
Finally, most all the regulators are acutely aware of the speed of emergence and adoption of instruments such as the digital wallet, NFC and other innovations. From the US Federal Reserve to the Reserve Bank of Australia, all such institutions have position papers, working parties and other vehicles for coming to grips with this new innovation.
The real question is: will they all be able to get ahead of the game?
Payment processing ecosystems are evolving rapidly on a range of fronts: technical and security complexity, market competition for a slice of the digital money train, and the expectations of consumers for increased convenience and immediacy.
But this is where we’re heading – you can bet your wallet on it.