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

Curtis Franklin Jr., Executive Editor | 3/1/2012 | 6 comments

Curtis Franklin Jr.
It's funny, when you think about it, just how quickly actions and practices in the financial industry go from "possible" to "allowed" to "required." I'm old enough to remember when the idea of walking up to a machine to get cash anytime you need it, rather than waiting to see a tellar during banking hours, was an exciting possibility. Not long after, banks started offering it as an option for customers, and within a few years, many institutions were charging a fee if a customer wanted to deal with a teller rather than an ATM. The pendulum has swung back and forth over the question of which will be the extra-cost option, but it wasn't a long journey from possible to required for some banks.

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.

View Comments: Newest First | Oldest First | Threaded View
Syerita Turner   What's in Your (Customer's) Wallet?   3/4/2012 2:28:44 PM
What's in Your (Customer's) Wallet?
The one question that is being overlooked is that of our older members of society. It is becoming harder to implement technologies as a mass because not everyone it "with the times" in terms of understanding and using the latest technology available now. Implementing for everyone to use electronic wallets will take forever to do im msss quantities. What is the incentive for someone to switch to using this? I don't even think I would want to use an electronic wallet because of hacking and identity theft. How can we ensure our custoners that yes you will be able to use this and not have any adverse or bad occurences happen? - We can't.
nasimson   What's in Your (Customer's) Wallet?   3/4/2012 1:49:59 PM
People will accept it.
The idea of using Credit Cards online had security issues. Similarly, e-wallet introduction might raise some questions but if it's safe and easy enough, people will accept and start using it widely like they used Credit Cards for online purchasing. In Asia, majority of the people still avoid using Credit Cards for purchasing due to privacy and security issues.

With the changing technology, people minds are changing too and today's generation is quite receptive towards technology changes (especially those which help saving time and effort).
CurtisFranklin   What's in Your (Customer's) Wallet?   3/2/2012 3:35:54 PM
Re: Payment by Bio metric method
@Gigi, I agree that some sort of biometric component will be part of the ultimate system, but vendors will be wary of biometrics adding too much "friction", especially when consumers are still getting used to the technology. It's good that security and privacy have become such compelling issues for so many consumers -- it's forcing vendors and banks alike to be far more careful as they roll out the technology.
CurtisFranklin   What's in Your (Customer's) Wallet?   3/2/2012 3:32:20 PM
Re: Interesting Arc
@David, it's interesting to see how quickly processes and technologies move through the phases from "We're offering this for our customer's convenience," to "We're providing economic incentives to use this because it's more efficient for us," to "We're charging extra for this because it costs us money to provide it." In many ways it's another side of the same arc, but it's one that is getting far more scrutiny because of recent moves by major banks to increase revenue.

These services really are becoming competitive differentiators for banks -- I'm looking forward to seeing how the process shakes out in the electronic wallet space.
Gigi   What's in Your (Customer's) Wallet?   3/1/2012 11:07:04 PM
Gigi
Payment by Bio metric method
Curt, today's imagination is tomorrow's technology. So there is no wonder that tomorrow you may able to make any payment by punching your fingers or by recognizing your face. Some new developments are happening in back end for similar payment mechanism by linking the bio metric details/images with the credit/debit cards.
David Wagner   What's in Your (Customer's) Wallet?   3/1/2012 7:21:12 PM
Interesting Arc
I never really thought of the "Possible, allowed, required" arc before. That really is a common thing, especially in banks isn't it? It is similar in the way technology changes in the IT department, too. You can see it old school stuff like the password ("Can we secure this with a password?" to "change this password every three months and it must have letters, numbers, special characters and drawings of your aunt mildred in it").

I think the process sneaks up on us a lot of the time. As a user or a customer, I think I'm going to become more aware of this and maybe push back some.


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