Many of the ingredients are there, but as every chef knows, the proof is in the pudding
Last week, we have been discussing with clients the news that the largest banks and the owners of the Zelle network in the US decided to launch a new digital wallet, which will be operated by Early Warning Systems. First, the Wall Street Journal broke the news in an exclusive report, which was later confirmed by EWS in a blog post.
Here is our take on what we know about the wallet so far:
- According to WSJ, the wallet is looking to compete with third-party wallet operators, especially Apple Pay and PayPal, and will first focus on e-commerce/ shopping online.
- Celent take: It's understandable that the banks might be concerned about the growing influence of Apple, Google, and others in payments, and that they might want to have a competitive alternative. Having said that, consumers are getting increasingly comfortable with using Apple Pay and Google Pay in store or PayPal online – those habits might be difficult to shift.
- While Apple Pay appears to be the main stated target, in reality, the new wallet will at the start compete more with PayPal. In the developed markets so far, it’s proven really difficult to bridge the chasm between online and offline (POS) worlds: the dichotomy persists between cloud-based digital wallets used predominantly online, such as PayPal, and device-based wallets, like Apple Pay, that have been very successful at the POS, and to some extent on mobile apps, but not via browser.
- Perhaps the focus on online/ e-commerce rather than in-store transactions is a pre-emptive measure: Apple Pay and Google Pay are not yet as widely accepted online as they are in the stores and perhaps the banks see the opportunity there?
- The WSJ article talks about 150 million cards that would be readily available for enrollment.
- Celent take: there is no question that the largest banks can deliver “on the issuing side”. However, a successful wallet also needs to be accepted by merchants as a payment method and enabled by their service providers. Also, ideally, there would be other reasons for customers to use the wallet beyond just payment convenience, such as rewards, integrated receipts, and so on. That has proven to be a notoriously difficult nut to crack for most wallets.
- According to the blog post, the wallet will be led by James Anderson as the Managing Director.
- Celent take: this is an inspired appointment – James Anderson has been instrumental in launching the network tokens and led the development of the Mastercard Digital Enablement Service (MDES); there is no doubt that his knowledge, expertise, and relationships will be crucial if the new wallet is to be a success.
There is also a lot that we still don’t know:
- Is this initiative related to Secure Remote Commerce (SRC), and if so, how? SRC, the new specs for using tokenised card credentials online, has been launched by the networks with much fanfare in October 2019, only to go relatively quiet again. Perhaps this is the way forward for the new standards?
- What will the payment experience be like for the users? Will the merchants need to have a checkout button on their site which the customers have to actively select to pay – a typical implementation for most digital wallets operating online? The large payment service providers, such as Adyen, CyberSource, Global Payments, and Stripe were among the early adopters of SRC and their help will be needed again to deliver this.
- Is there a plan to support in-app and in-store transactions eventually? Success at the POS requires piggy-backing on the most widespread payment initiation technologies, which is NFC, which is why device-based wallets have been winning. With access to NFC controllers restricted, even PayPal has struggled to go to POS and has had to rely on the QR codes. Of course, this could change if Apple were forced to open up NFC access to third parties.
Just a couple of weeks ago I published a report called What's in a Name? Unpacking Digital Wallets, Superapps, and Embedded Finance. In that report, I noted that individual banks have not had a strong track record at launching digital wallets under their own brand; for example, some of the early efforts to leverage Host Card Emulation (HCE) technology have largely faded away. To the extent that banks managed to have a success in this area, it’s usually been a consortium: Swish and Vipps Mobile Pay in the Nordics, Bizum in Spain, and yes, Zelle in the US. We wish the new venture a success and look forward to seeing progress!