What's in Your (Customer's) Wallet?

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Now, we're somewhere along that same spectrum with electronic wallets. The idea that a customer will begin using information stored on a smartphone as a payment instrument, rather than whipping out a credit card, flashing cash, or (heaven forbid) writing a check. The question for most CIOs in the industry has to be, not whether they can be ready for their institution to allow customers to use an electronic wallet, but how their systems will respond when it becomes a virtual requirement.

This is a classic CIO issue, combining elements of business and customer relations with obvious technology questions. Right now, the largest set of questions is on the business and customer relations side of things, especially as it relates to security and privacy. Recent events haven't encouraged the general public to think of anything computer-related as particularly secure (StratFor, anyone?), and the economy of the last few years hasn't encouraged them to have a cavalier attitude about money. What, then, is a CIO to do?

The first thing to do is look to the east. You might not find the bright morning star, but you will find examples of smartphone payment systems used in Asia that are generations ahead of anything deployed in North America. It's not that residents of the region care less about security and privacy. It's just that they have more realistic views of current threats. They also have a much smaller legacy payment footprint than banks in North America.

Ultimately, finessing the legacy will be the most challenging aspect of the move to electronic wallets in North America. There are still millions of customers who grew up writing personal checks (and, in many areas, still do), millions more who have become accustomed to the ritual of swiping a card of some sort to make a transaction, and a smaller number who, for reasons of background, circumstance, or privacy, continue to conduct their business in cash. There's really nothing much to do to convince those in the third group that an e-wallet is the answer, though a tie-in with paycheck-cashing companies and cash-transfer organizations could move value directly from a paycheck into an electronic wallet tied to a smartphone.

The real battle, though, is going to be over those who have moved into the plastic world. Convincing them that a smartphone is as secure as the Visa card in their leather wallet will be the front line of the battle, and economic incentives will almost certainly be required to lure many into the e-wallet fold. How much incentivizing can your payment infrastructure bear? How many different incentives can you easily track and apply? Those will be the sort of questions that the CIO's office should be prepared to answer -- and sooner, rather than later.