Digital Wallets: Crossing the Chasm Between Online and Offline Payments

by Zilvinas Bareisis, November 26, 2012
Industry Trends
Global

Abstract

Despite an increasing online-offline convergence in retailing, there is still a chasm between online and offline payments which today’s digital wallets are struggling to cross. It remains a challenge to use secure element-based payment credentials online and cloud-based credentials at the physical POS, although various solutions to bridge the divide are emerging.

In the report, Digital Wallets: Crossing the Chasm Between Online and Offline Payments, Celent reviews a number of digital wallets available today with a particular focus on the US and UK markets. Celent also proposes an analytical framework for digital wallets and demonstrates how the framework can help banks understand the impact of wallets on their economics as well as on customer and merchant relationships, availability of data, risk management, and other key areas.

The report seeks to address the following key questions:

  • Given the proliferation of solutions, how can one differentiate between various digital wallets in the market today? What are the solutions, economics, and implications for various players?
  • Is there any consensus in the market on what is important in order to succeed? What are some of the big unknowns that could influence the market? What are some of the key challenges that the industry as a whole needs to address?
  • How should financial institutions respond to these market developments?

“Banks should think twice before going down the path of launching their own branded independent wallets,” says Zilvinas Bareisis, Senior Analyst with Celent’s Banking Group and author of the report. “For some, it might make sense, but many others will likely be better off focusing on making their payment credentials available and ‘top of wallet’ in the wallets already out in the market, as well as enhancing and extending their mobile banking platforms with value-added services, including payments.”

This 37-page report contains 18 figures and one table.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America (Boston)
Tylor Tourville
ttourville@celent.com
Tel.: +1 617 424 3284

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)208 870 7875

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81.3.3500.3023

Table of Contents

Executive Summary

1

Introduction

3

Brief Background to Selected Digital Wallets

5

 

Google Wallet

5

 

Isis

5

 

LevelUp

6

 

O2 Wallet

7

 

PayPal

7

 

PayPass Wallet Services

8

 

Quick Tap Wallet

8

 

Serve

9

 

Square Wallet (Pay With Square)

10

 

V.me by Visa

10

Analysing Digital Wallets

11

 

Digital Wallets: Analytical Framework

11

 

Why the Framework Matters

13

Crossing the Online-Offline Payments Chasm

16

 

Does the Chasm Matter?

16

 

Other Initiatives Likely to Have Significant Impact on the Future of Payments

17

 

Bridging the Online and Offline Divide

21

 

Introducing a New Transaction Category?

25

Implications for Financial Institutions

26

 

Participation in Secure Element-Based Wallets

26

 

Participation in Cloud-Based Wallets

26

 

Launching Own Wallets

28

 

Making Best Use of Mobile Assets

29

Conclusions

31

Leveraging Celent’s Expertise

92

 

Support for Financial Institutions

32

 

Support for Vendors

32

Related Celent Research

93

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