Thin Is In: The Future of Digital Wallets by SapientNitro

POINT OF view

Thin Is In: The Future of Digital Wallets By Christina White, Manager Experience Design, SapientNitro

What’s in your wallet? At the very least, most of us carry some sort of payment method, whether it’s a credit card, debit card, or cash. But you probably have a bit more — loyalty cards, business cards, receipts, insurance cards, IDs, subway tickets, event tickets, and the list goes on. When we talk about what a digital wallet is, it’s not just a way to pay with a device. It’s taking that actual wallet in your back pocket, with all of its contents and associated behaviors and integrating it into some type of digital device. Most often, that device is a mobile phone, though it doesn’t necessarily need to be. And the phone has already started to replace the wallet. From digital family pictures to an online banking app, the phone — and consumer behavior — is adopting the new digital wallet. Let’s talk about digital wallets through the eyes of the consumer, how they fit into the consumers’ everyday lives, and what we can expect to see in the near future.

DIGITAL WALLET 101

Payment Method

Financial Management

Coupons

Comparison Shopping

Tickets/ Passes

Much of how we define the digital wallet is a way to pay with our phones. But it goes beyond that. Just like with a physical wallet, it’s an ecosystem of applications and experiences. Let’s look inside the digital wallet and break down the individual aspects within it, including secondary functionalities that help us spend our money. Payment Method The payment piece is at the core of the wallet. But in order for digital wallets to be readily adopted by the consumer market, marketers and developers will need to figure out exactly how to process the payment and in many cases provide a worthy incentive to change from the superfluous, but simple plastic swipe we often do today. All other aspects of the wallet enhance the experience, but Payment Method is compulsory. Take these two examples of how: 1. PayPal. PayPal has made its mark by serving as the middleman for online payments, and has now taken that model to real-world payments. Through a partnership with Bling Nation, PayPal is making strides in digital payment through the use of NFC-enabled stickers (we’ll discuss this more later), which allow contact-less payment on any type of mobile phone. They give consumers the ability to make quick, simple purchases on shopping sites with their existing PayPal accounts. Those accounts can be tied to credit cards or debit — where the real profit is.

POINT OF view 2. Starbucks. Starbucks is a retailer that has embraced the mobile retail space. Their app lets consumers load Starbucks gift cards onto their phones and reload from their debit cards, credit cards, or PayPal accounts. In essence this comes off as mobile payment to the consumer when it is actually making debits off of a loyalty/gift card program. Once loaded, customers can scan their phone using a POS system at a Starbucks counter and easily “pay” in a contact-less way. Extending the experience beyond payments, this program also allows its users to build loyalty points that can be redeemed for free coffee or coupons, thus retaining customers and increasing return visits. Financial Management Financial management (e.g., Mint.com) is a way to easily manage finances on a mobile device, not necessarily purchasing or paying. It’s one of many tools to help users better manage and spend their money based on their payments and transactions. Mint’s model is to push relevant advertising from 3rd parties that are best relevant to a customer’s financial situation. Coupons Coupons (e.g., Groupon, ScoutMob) and check-in incentives (e.g., shopkick) tap into the social, communal idea of group discounts and shopping incentives. Many of these services allow a consumer to activate a coupon (often through a store WI-FI or phone GPS) that exists within their digital wallet, or check in at a store to receive promotions or discounts. By providing this incentive, retailers hope to draw more consumers into their stores. Comparison Shopping Another tool to help assist users to spend their money better is comparison shopping. Now, the digital wallet can scan UPC or 2D barcodes in a store to find the cheapest price, customer reviews, or other options such as product demos, related content, or additional inventory. Red Laser has been the leader in this space and was quickly acquired by eBay. The carriers are becoming emerging players in their ability to pre-load their mobile app scanners on devices prior to customer purchase. Tickets and Passes It has been interesting to watch the digital wallet transform ticketing and transit functions (e.g., public transit passes) and check-in (e.g., airline check-in, sporting events) standpoint by using “wave and pay” instead of traditional methods. However, North America has been slower to adopt these methods based on more fragmented infrastructure (carrier and networks) and less dense urban areas that require transit for daily commutes. Ultimately, it may be these applications that offer the most benefit of convenience at the POS, which is why it will be critical for NFC to be tied to other value-added experiences to drive consumer adoption.

Devices that will be replaced* by mobile phone users according to mobile phone users worldwide, June 2010

TV Personal ID card eReader Car Keys

18% 22% 24%

Video Recorder

27%

Personal Computer

27%

Credit Card

Note: Ages 18+, *within 5 years Source: Oracle, “Opportunity CallingThe Future of Mobile Communications”, Sept 22, 2010

% of respondents

Digital Camera

31% 52%

iPod or MP3 Player

54%

GPS

54%

These examples prove that the technology to make digital wallets happen is here, but are consumers ready? Oracle reports (as shown above) that the credit card is one of the top items that will be replaced by mobile phones. If you look at the top three — digital cameras, music, and GPS — those are already on our phones. How do we figure out how to make it real, useful, and easy?

POINT OF view THE NEAR FIELD COMMUNICATIONS (NFC) CHIP What is it? Current efforts like the pay pass or the wave and pay (introduced by credit card companies) were the first introduction a contactless payment through Radio-Frequency Identification (RFID) tags. NFC chips are a new standard of RFID tags that offer a security layer that allows secure transactions through any device. In many instances, NFC and mobile payments are seen as synonymous, but they are not. The NFC chip is really a technology means with which to communicate and store data. And if we think about communicating, we often forget that there are other ways to apply what’s already out there in regards to passing info from one point to another — like scanning bar codes with your phone or presenting QR codes from the phone to be scanned by a retail POS. Companies are also looking to use the NFC chip technology outside of the phone. For instance, BMW is thinking of using it within the key itself to allow remote starting, payments, and more. And, recent buzz about the digital wallet space is being heightened by Google and Apple’s announcements that NFC chips will become a standard feature in our phones. What is its value? With credit cards and one-click online shopping sites, customers don’t really want or need another way to spend money faster. And when we look at the difference between swiping a card and tapping a phone, there’s not much tangible value added. But what the consumer does want is a new way to spend money wiser. The digital wallet has the opportunity to provide that — a contextual, intelligent, relevant way to spend money. The benefit of NFC chips isn’t the ability to substitute a phone for a plastic card. The potential is in having intelligent computer chips, phones, and POS devices that provide a better, smarter experience for the consumer before, during, and after the shopping experience. These experiences can draw in the consumer before they enter the store through incentives (couponing) or support tools (list making) and continue the conversation after they leave the store by offering relevant, contextual incentives based on their purchase, more personal customer support catered to the products they just purchased, or relevant content to help them take advantage of the products’ full potential. This ongoing conversation between the retailer and consumer builds a cycle of brand loyalty. THE PLAYERS Financial institutions, carriers, and retailers are all looking to own a piece of the digital wallet pie, and all three are critical in making the digital wallet a useful, seamless, everyday part of life for the consumer. Let’s discuss what each one brings to the table, and what they still need to learn. Financial institutions. Financial institutions are a must-have for a truly integrated digital wallet. Without them, there is no digital wallet, because they are the players that have the actual ability to process your payment and offer credit card and banking services. Their motivation is simply to make money off of your money. But they are still offering non-memorable services for the most part. Their challenge is the plan of attack against the competitive set of other institutions which most often are held back by the lowest common denominator standards that all institutions abide by, and their dependent connections with retailers who accept that form of payment and house the equipment (POS) that the solution must be compatible with. Credit card companies, however, are now starting to make their direct play as American Express announced desktop and mobile app service “Serve” in Spring of this year, and Visa announced their digital wallet to arrive this fall. Carriers. The digital wallet movement currently lives here for North America, and it’s the carriers that bring the networks and the actual devices into the consumer’s hands via our current post-paid culture. They’re motivated to get the consumer’s recurring monthly payments because the more things your phone does, the more you rely on that network. The North American conundrum is that we have big carrier services (think: AT&T, T-Mobile, Verizon, and Sprint) that all offer varying numbers of devices and operating systems. These carriers are here to stay, so they’ll need to adopt some sort of standard together.

POINT OF view Currently, AT&T, Verizon, and T-Mobile (in process of being acquired) are creating a joint venture together called ISIS, a planned mobile payment network that will create a standard solution for both retailers and consumers. This system will use smartphones with embedded NFC chips for contactless payments. Outside of payments, they’re also working to introduce retailer-friendly value added services. Retailers. Retailers are the key influencers when it comes to driving consumers to use the digital wallet, because they have the most direct contact with the consumer through day-to-day transactions. Retailers own the shopping experience and their challenge remains the same as it’s always been — to differentiate themselves from other retailers and drive sales. To do so in the digital space, they need to embrace the idea of “everywhere shopping,” the multi-channel experience. However, their often razor thin margins make it difficult to make larger technology-based investments, whereby the store multiplier effect greatly increases costs and keeps operating budgets small. Startups and digital players. Startups and digital players are a new breed of player that is gaining fast on mobile and the digital wallet, such as Google and Amazon that thrive on technology. The growth of cloud services, increase in dotcom spending, and bridging between dotcom and brick and mortar is opening up a new opportunity space that is not tied to antiquated store hardware. They also wisely leverage the Y generation and early adoptors that is ready to change shopping habits. CONSIDERATIONS As the digital wallet becomes a reality, there are two things to keep in mind: It must be adoptable. Similar to the digitization of the telephone, digital wallets may start simply by using an easily adoptable “pay now” button. Value-added services will likely be critical in getting the user connected with benefits beyond an already convenient “swipe ‘n pay” routine. However, avoiding the clutter will be key for eliminating frustration and paving the way. Our digital lives are becoming increasingly cluttered between emailing, chatting, social networking, blogging, using apps, and more. It’s important to avoid a bloated phone. At the end of the day, the wallet is something that is a day-today necessity so it must stay “slim” while becoming ever more convenient, intelligent, and relevant. THE DIGITAL WALLET CHALLENGE There are complex questions that still need to be solved. Financial institutions, carriers, and retailers need to figure out how to work together. They need to figure out how to get enough consumers to use the digital wallet and enough merchants willing to accept mobile payments. It is dog-eat-dog, while co-operation is probably the best approach as this space is thwart with 800 lb gorillas that have to either work together to move things forward or be left behind. All the while, never forgetting that the user experience must remain easy to use and intuitive. This is where Apple may have enough edge in a mature, best-in-class, mobile ecosystem (devices, apps, and app store) and brand equity to get a jumpstart on a bigger carrier conglomerate, or perhaps they will be the spark that ignites ISIS adoption … all too exciting to watch unfold. At the start of this paper, we asked, “What’s in your wallet?” But it seems that the question is really, “What IS your wallet?” The technology is here. Now we need to decide what the wallet will be — whether a phone, a key, intelligent credit card, or more — and figure out how to make that digital wallet work — not just for the consumer, but with the financial institutions, the carriers, and the retailers as well.

ABOUT THE AUTHOR With a background in Industrial Design, Christina specializes in the design & strategy of smart and usable experiences for mobile and digital display interfaces. Recent work includes award-winning AutoTrader iPhone application and The Home Depot’s inventory mobile handheld, which recently rolled out to stores nationwide. Other clients include Coca-Cola, DirecTV, GE Energy, and Michelin. Christina is part of SapientNitro’s Mobile & Digital Display Center of Excellence.