Banks battle for digital wallet supremacy
Banks have a lot on the line when it comes to the unfolding race for digital wallet supremacy.
Over the past few years, people have been talking about what approach they ought to take. Initially, I suggested that banks get in the game aggressively as leaders, pioneering new approaches to transactions via mobile phones. But it soon became clear that they were hopelessly outmatched by so many others, especially given their dire financial straits in the aftermath of the financial crisis.
Lately, I've taken the view that they don't necessarily need to be technology leaders as all this unfolds, but that they need to have skin in the game with various vendors so as to not run the risk of losing out. The goal should be to preserve their revenue from card operations.
At a recent conference, industry executives voiced similar sentiments, suggesting that they "place multiple bets by partnering with or investing in several emerging players in the market," according to Bank Systems & Technology, "Experts expressed that no one single player will become the dominant mobile payments app or mobile wallet so by placing multiple bets banks should be able to find a way to engage with one of the several providers who will emerge with a successful mobile payments option."
It would be hard to argue with this right now, given the diversity of competitors that has emerged. But it would be a mistake to ink deals and partnerships without some thought. Willy-nilly partnering is rarely a good idea, and banks need to be cognizant that not every digital wallet system will treat card issuers the same. Some will preserve their role in the current interchange fee food change. But there could be additional costs.
For example, some might impose a rent-like fee for storing information in the secure element of phones. Other systems will push banks deeper into the background, farther way from the really value-add technology, which makes them less and less relevant going forward. And some systems include an actual card--not a bank-issued card, but one issued by a technology company that in a sense competes with the bank-issued card.
There's plenty of reason for banks to be discriminating. At some point, they will have to dovetail all this with their mobile offerings.
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