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It started with a bang.
In September, 2011, Google posted a video on its YouTube channel promoting a new mobile payments service. It was a reworked version of a famous scene from the sitcom Seinfeld, and showed George Costanza looking at a poster for something called Google Wallet. Intrigued, he tears a reminder strip off the bottom of the poster, and tries to cram it into his leather wallet, which is already overstuffed with cash, receipts and bank notes. It’s the final straw, the wallet explodes in a shower of cards and paper, and its entire contents are scattered to the wind.
The answer? A digital wallet. Google had partnered with Mastercard, CitiBank and others to let people make payments in a store simply by “waving their phones at a special cash register”, as one commentator of the time described it.
Osama Bedier, then Google’s VP for Payments, announced that this was “just the beginning” of the digital wallet story – and he was right. Today, digital wallets are used for nearly 30 percent of global in-store payments, and are also used online for more than half of all global e-commerce payment transactions. Usually available as an app, the leading wallets include those that come with your phone, such as ApplePay for iPhones and GooglePay for Android phones, as well as the likes of Paypal, Venmo and Cash App.
The technology may be complex, but the principle is simple. The digital wallet stores your encrypted card details and when you make a payment, either in-store, via near-field communication between devices, or online, those details remain secure thanks to tokenization: the wallet generates a single-use token made up of random numbers, rather than sending your actual card information.
Apart from security, key to the wallet’s success is its ease of use – no more rooting around for your credit card or having to enter all your payment details for an online transaction. For online merchants, that’s a real boon: consumers using wallets complete transactions far more frequently than those who don’t.
Inside the digital wallet revolution
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SUPER APPS ARE THE NEXT BATTLEGROUND
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This feature can be found in Volume 1 of J.P. Morgan's 'Payments Unbound' Magazine, created in collaboration with WIRED
Still only a little over a decade old, the digital wallet has plenty more evolving to do and is likely to play a key role in technologies that will transform our lives. That includes areas such as the increasing intersection between payments and the Internet of Things, and the development of digital identity wallets, plus a whole world of new possibilities conjured up by the emergence of Web3.
But in the meantime, one wallet-based development that’s “definitely going to take centre stage” in the US and UK in the near future, says Saraf, is the ‘super app’...
In 2010, Mike Lazaridis, the founder of BlackBerry, coined the term ‘super app’ to describe “a closed ecosystem of many apps that people would use every day because they offer such a seamless, integrated, contextualised and efficient experience.”
To say that WeChat has taken that ball and run with it would be an understatement. Launched by Tencent as a simple messaging app in 2011, it has grown to become China’s “app for everything”, offering more than a million ‘mini-apps’ on its platform. These provide WeChat’s 1.2 billion monthly active users with a massive range of everyday services, from social media to shopping, booking travel to playing games, and much, much more – all accessed via this single super app.
WeChat is by no means alone – Ant Group’s Alipay boasts a similarly huge number of mini apps, while Meituan, originally a Chinese food-delivery app, has branched out to offer other services, mainly in the tourism and F&B sectors – a route also followed by Colombia’s Rappi. In Southeast Asia, Gojek and Grab have evolved from ride-hailing apps into providers of everyday services. And in India, super apps are proliferating, with the likes of Paytm, Tata and Reliance.
The pattern has been set: establish a core, trusted service, and then add more services and experiences via a single sign-in. Customers benefit from the ease of moving around this ecosystem without the need to enter new passwords or payment details, and are thus more likely to hang around. The super app owner enjoys significant efficiencies in development costs and customer acquisition, as well as the ability to acquire increased amounts of user data – which can then be used to make the entire experience more personalised.
Key to the success of any super app is an integrated digital wallet: a safe, virtual place to store encrypted card details or to keep a cash balance ready for use.
Paytm has launched its own fraud risk management platform, Pi, that uses AI and machine learning to protect customers and clients from online attacks by connecting data signals across the customer journey. As well as using it in-house, Paytm also offers it to other companies building their own super apps.
Takhar believes that if western companies can overcome super app security concerns, there could be “huge wins” for whoever gets it right. “I anticipate seeing more integrated services and embedded fintech offerings from brands consumers already love and trust as the stepping stone into super app status,” he says. “We’ll have to wait to see how some of those smaller steps play out to find out if a true super app will take hold in the US and the UK.”
Adit Gadgil, Global Co-Head of e-Commerce at J.P. Morgan Payments, believes Western consumers will ultimately enjoy a multiplicity of super apps. “I see continued growth in this space,” he says, “and more partnership opportunities for merchants, banks, and platforms to work together.”
“At the end of the day, the wallet is the most important element, you need some kind of sticky point that means people will keep going to the app and using it. Typically it’s because they have a balance in the app that they want to spend.”
Arik Shtilman, CEO and Co-Founder of Rapyd
Shtilman adds that the super app wallet can also enable an in-app loyalty program, which further increases engagement. Tata’s super app, Tata Neu, for example, offers NeuCoins, which users earn whenever they shop, dine or book travel within the app. These can then be redeemed on future purchases.
Until very recently, the super app trend had been slow to take off in the US and Europe. The first movers have come mainly from the payments sector, as they attempt to establish themselves as the go-to destination for all our financial needs. Last September, PayPal launched a super app in the US offering a range of services, including savings accounts, buy-now-pay-later (BNPL), messaging and even crypto trading. And this year Block acquired BNPL company Afterpay, adding to the services on its Cash App that include stocks and crypto trading as well as sending and spending money. The digital wallet at the heart of both companies’ core payment offerings provides the ideal springboard to create a broader financial services ecosystem.
For super apps in the finance space, there’s a world to play for. Offering a broad range of products and services in the same place – and subsequently being able to charge less for them than individual providers – is a prospect that will set alarm bells ringing for legacy banks. As a report by KPMG put it, “While the rise of super apps in the East may seem like a fairly peripheral trend to the banking sector, the reality is they have the potential to up-end it.” Super apps are likely to disintermediate banks from their customers, deliver better services thanks to their wealth of data, and increasingly leverage their growing reputations in financial services, the report concluded. A recent survey by PayPal and PYMNTS.com of consumers in Australia, Germany, the UK and the US found that seven in ten were interested in the idea of a super app, and four in ten said they would increase their banking activities on one.
However, those who were polled also had worries around data and security. To Harinder Takhar, CEO of Paytm Labs, the R&D arm of Paytm, whose super app for payments and financial services is used by more than 400 million consumers in India, their concerns are understandable. “As more services and offerings are added to an app,” he says, “the attack surface grows, introducing potential vulnerabilities for bad actors.”
We’re accustomed to waving our smartphones at the till, but London-based startup Walletmor lets you simply wave your hand. In August this year, the company’s 1,000th customer paid €199 to have a biopolymer payment device subcutaneously implanted under the skin on the side of their hand. The size of a small safety pin and about half a millimetre thick, it consists of an integrated circuit and a metal sheath that acts like an antenna. Once it’s been linked to an online digital wallet, it acts like any contactless card or smartphone: just move your hand over the payment terminal, and ker-ching.
Whether Walletmor is the future of in-store payments remains to be seen. However, there now exists many equally convenient – but considerably less invasive – wearable payment devices, from smartwatches and wristbands to an array of rings, key fobs and jewellery.
The phenomenon is part of a much wider trend where payments and the Internet of Things intersect: the Internet of Payments (IoP). In this new paradigm, payments are initiated and completed through internet-connected devices – not just wearables but also cars, domestic appliances and more. Amazon Echo users are already accustomed to paying bills via voice commands, while Samsung’s Smart Fridge lets users order groceries via a built-in screen, as well as getting meals delivered via Grubhub. According to J.P. Morgan, the global IoP market could be worth $240bn by 2026.
MEET THE INTERNET OF PAYMENTS
Henk Kuipers, Innovator at Rabobank, believes a pay-per-use model will play a major role in the development of the IoP ecosystem, because usage of connected devices can be easily monitored online via sensors – and this usage can be automatically charged for. He has carried out several proof-of-concept projects, including creating a pay-per-use heating system in his own home and a robotic milking machine on a farm, with payments by the litre. In both cases, the money was collected in wallets on a private blockchain, as the systems were not connected to the main banking system. This kind of service can be cheaper for consumers, as they only pay a fee for actual usage, and merchants can use the payment data to personalise services and to offer incentives.
In a range of sectors, the potential for the model is considerable, from co-working spaces offering desks by the hour, to industrial equipment hubs that provide, say, forklifts on a pay-per-use basis. “The concept incentivizes the shift from ownership to usage, which will stimulate manufacturers to develop products that last longer and can be repaired more easily, and are even designed in such a way that you can reuse all the raw materials,” says Kuipers. In other words, it could usher in a more circular economy.
But the road to the Internet of Payments is not a straightforward one. News stories about Wi-Fi baby monitors being hacked by strangers are evidence that the security of IoT devices is a concern, which is amplified when payment is added to the mix.
“I think there’s still a lot of work to be done in terms of securing IoT devices and not allowing them to be open to others,” says Veronique Steiner, Head of High Growth Tech EMEA at J.P. Morgan Payments. She adds that there will also need to be safeguards around the payments themselves.“I think you’ll need thresholds and identity checks, especially for bigger payments,” she says. “Payments should be completely embedded and seamless – but at the discretion of the customer.”
Kuipers believes that in the future, devices will increasingly communicate between themselves and initiate payments autonomously, without the need for human intervention. Using computer vision, your smart fridge will realise you’re running low on milk and communicate with an online grocery to order some more. In terms of payments, it doesn’t get any more seamless than this. The digital wallet will have a crucial role to play in this future, he says, not least because the question of identity verification for devices will become an even more pressing one.
“Wallets are not just useful for payments but also for identity.” “And if we can use a wallet not only to identify ourselves but also to let devices identify each other, then a whole lot more things become possible.”
Henk Kuipers, Innovator at Rabobank
“It’s not a wallet. It’s Google Wallet” proclaimed this summer’s relaunch of the Google Wallet brand name. Back in 2018, seven years after its original launch, it disappeared after merging with Android Pay, to become Google Pay. But now it’s back, and the Google Pay app is no more (except in the US, India and Singapore, where it’s a way to send money to friends).
Like Apple’s Wallet, Google Wallet can also store loyalty cards, tickets for travel and events, a vaccination card, and even a digital car key if you happen to own the right BMW model. Significantly, it will also become a place to store digital ID verification, following Apple, whose wallet already supports mobile driving licences in certain states of the US.
Both companies have ambitions in the rapidly growing world of digital ID wallets. According to Gartner, the technology will reach mainstream adoption within the next two to five years, becoming part of our daily lives both online and in the real world. Rather than carrying physical documents around with us, we’ll use digital wallets to share our driving licence when we hire a car, to prove our age when we buy alcohol, to prove who we are when we open a bank account, and much more.
“I’d say it’s more like five years than two,” says Antonio Mugica, founder of Folio.ID, which offers a digital wallet app that stores users’ encrypted ID documents in a vault on their mobile device, where they can be accessed only by means of facial recognition technology. The app matches your selfie with your photo ID when you upload it, verifying it’s yours.
Mugica believes one of the strengths of the Folio app is that it can not only store physical ID documents, but also has the capacity to accommodate government-created digital IDs.
Governments around the world have long been invested in the concept of digital identities to help their citizens gain access to public services and also prove who they are when onboarding to private service providers. And now they’re increasingly embracing the idea of the digital ID wallet. The US, Canada, Europe, Australia and New Zealand are just some of the places where legislators are progressing down this road.
The French multinational Thales, which helps governments and businesses in the identity management and data protection sector, is a prime mover in this space and has developed its own “citizen-centric” digital ID wallet. Their promotional video shows a student using her government-issued wallet in a range of scenarios, from proving her identity when she goes to sit an exam, to allowing a doctor to access her medical records. To prove her credentials, the wallet displays a QR code for that examiner or doctor to scan. In short, says Thales, the wallet “gives the right access to the right data to the right person”. For the consumer, that enhances convenience. For the ID issuer, there are cost savings in not managing physical documentation, plus there’s the ability to communicate directly with the user, sending push notifications and document updates as required.
IDENTITY, REIMAGINED
“[the digital wallet] gives the right access to the right data to the right person.”
Kristel Teyras, Market Owner of the Digital Identity Services Portfolio at Thales
“I believe we’re going to enter a multi-wallet digital ID ecosystem,” says Kristel Teyras, Market Owner of the Digital Identity Services portfolio at Thales. “Some countries will consider that the identity of their citizens is a question of sovereignty, so they’ll drive their own initiatives for a digital ID wallet. Others will say there’s also room for, say, Apple, Samsung or Google wallets as well, and it will be up to the citizen to decide which one they prefer. But at the end of the day, governments will still need one single platform to orchestrate all the different flows of identification authentication signatures.”
Last year, the EU Commission announced a framework for a European Digital Identity, with the aim of making wallets available to all EU citizens which can be recognized across the continent. That would mean, say, a French person might move to Greece and could prove their identity in all the same ways that they could at home using their ID wallet.
Europe will in effect act as a “huge laboratory”, as Teyras puts it, for the development of digital ID wallets, as member countries pilot their solutions. “We’ll learn best practices and also the pitfalls,” she says. “That will accelerate deployment.”
One form of digital wallet that until recently has enjoyed a relatively narrow field of use is the crypto wallet, which is used for holding the private keys that prove ownership of cryptocurrency. While hardware versions exist, online versions are more common, in the form of apps or other software, and they’ve generally been used by those who invest in crypto or trade it as a speculative asset.
That could start to change, thanks to an idea dubbed Web3. The pitch goes like this: Web 1.0 was the early web; then Web 2.0 came along and made the web interactive with social media and user-created content. That made the online experience more dynamic but, in the eyes of some, it came at a cost. It gave rise to tech giants, and turned consumers – and their data – into the product. If you believe the hype, Web3 will solve the web’s ills – and it will do that through blockchain.
Blockchain is best known as the technology behind peer-to-peer currencies like Bitcoin, but that’s not all it can do. It can also run decentralised computer programs known as “smart contracts.” These can be used as the basis for decentralised web applications such as search engines or social media sites.
The business models for these decentralised applications (or Dapps) aren’t about user data. Instead, the typical model is that people who use or help run the Dapp are rewarded in tokens. These tokens are considered valuable because they may confer voting rights over the governance of the Dapp, or they may be used for in-Dapp purchases. The Dapp’s value is thus held by the community engaging with it, and – so the theory goes – this aligns the interests of those running the Dapp with those using it.
If Web3 becomes reality and we end up with a web based on blockchains, the crypto wallet would be central to navigating it. Some draw a parallel with the function of the current internet’s browser. “I actually think it’s more than that,” says Tyrone Lobban, Head of Blockchain Launch and Onyx Digital Assets at Onyx by J.P. Morgan. “It will be your browser, plus your banking app, plus your passport and all of your identity pieces, all rolled into one.”
WILL ‘WEB3’ SPARK A WALLET REVOLUTION?
"Your crypto wallet is increasingly going to become the gateway to a whole decentralised world"
Taylor Monahan, CEO of MyCrypto
“Your wallet is how you will access all of Web3,” agrees Taylor Monahan, a veteran of the crypto wallet world who’s currently CEO of MyCrypto, a crypto wallet manager which she founded in 2018, as well as Global Product Lead for MetaMask, a crypto wallet used for interacting with the Ethereum blockchain, where most of the Dapp action is centred. In the past two years, the number of MetaMask’s monthly active users has mushroomed from one million to 30 million, thanks to what the company terms “a frenzy of interest” in finance Dapps, NFT marketplaces, play-to-earn games that reward players in crypto or NFTs, and new metaverse worlds constructed on blockchains.
“At the moment, we tend to think of a crypto wallet as something that just holds financial assets, but increasingly it’s going to become the gateway to a whole decentralised world,” says Monahan. “And if you have a phone or computer, you can access this new world through your wallet.”
Web3 – and its possibilities for decentralised finance apps (De-Fi) – promise to revolutionise many aspects of the financial system, including payments, promising greater ease and efficiency in transactions. According to Alex Bouaziz, Co-founder and CEO of Deel, an international payroll and compliance platform, a glimpse of the future can be seen in the increasing number of people around the world who are choosing to be paid in cryptocurrency via, say, a Coinbase crypto wallet.
“Sometimes, their home currency is very volatile, so there’s an obvious advantage in being paid in a digital stablecoin like USDC,” he says. “But as well as that they also get their money in a couple of minutes, versus being paid by SWIFT – which usually takes three to five days, but sometimes can take weeks.”
The crypto wallet of the future may also solve an age-old friction with how we use the web. Currently, as individuals navigating the internet, we depend on organisations to issue us with login credentials so that we can use their services, or else we use an outsourced credential such as ‘Log in with Facebook’. However, Web3 will allow us to take full possession of our own identities. This summer, the World Wide Web Consortium, which develops protocols and guidelines for the web, launched the official web standard for decentralised identifiers (DIDs), which allow a person, group or thing to uniquely identify themselves in Web3. DIDs reside in digital form on a blockchain and validate verifiable credentials that can be stored in a crypto wallet.
“The Web3 wallet will revolutionise how we think about identity and payments on the internet, historically, if you’ve signed up to a shopping app or shopping website, you've typically used your email to identify yourself, and then provided more details, if needed. That's going to change with the crypto wallet. Because you will now own your identity, you’ll have the ability to take decisions in terms of what you share, how you share it and where you share it – and in a provable way.”
Tyrone Lobban, Head of Blockchain Launch and Onyx Digital Assets at Onyx by JP Morgan
“The Web3 wallet will revolutionise how we think about identity and payments on the internet,” says Gadgil. “Historically, if you’ve signed up to a shopping app or shopping website, you’ve typically used your email to identify yourself, and then provided more details, if needed. That’s going to change with the crypto wallet. Because you will now own your identity, you’ll have the ability to take decisions in terms of what you share, how you share it and where you share it – and in a provable way.”
This new form of identity verification could solve the issues mentioned earlier around security for devices connected to the Internet of Things. Because DIDs apply not only to people but also to things, they allow devices to recognize each other, and they are also interoperable across different blockchains. Imagine a supply chain that is run using an interconnected system of sensors, robots and machines. The machines would be equipped with wallets holding both verifiable credentials and digital currency. Smart contracts on a distributed ledger could automatically trigger payments when goods arrive, with no humans involved.
It’s a scenario that would have been little more than science fiction back in the days of George Costanza’s exploding wallet, but Lobban is convinced that the world-changing possibilities of Web3 are now not too far from being realised.
“We’re seeing big tech companies getting very heavily into this space, whether it’s the metaverse or things around digital identity or blockchain-based assets,” he says. “I think there’s now a recognition that it is an easier way to do business and actually creates the opportunity for new products, new services and new experiences to be created. And that’s all going to be possible through a wallet.”
Digital wallets ease the path towards the ultimate goal of an omnichannel experience – one that allows seamless payments across any channel, whether it’s online, on the phone or in-store, or on emerging channels such as smart speakers. But it’s the in-store part of the equation that’s the biggest challenge, according to Sanjay Saraf, Managing Director, Global Head Integrated Payments Group at J.P. Morgan Chase. The point-of-sale hardware in physical stores hasn’t kept pace with the speed of payments software development, he says, but that’s changing as both Android and Apple have introduced ‘tap-on-phone’ payments. This means a merchant can now use a mobile phone as a contactless payment terminal, without the need for any additional equipment.
“That changes the game for omnichannel going forward,” he says. “You’re already seeing it in restaurants and bars and clothing stores, where staff are carrying small, handheld devices, and the checkout counter is no longer the only place to pay.”
E-commerce is changing, too, as online marketplaces grow and evolve. Mimicking the success of specialists such as Amazon, eBay and Etsy, an increasing number of traditional companies are creating digital marketplaces of their own, such as Siemens with its Digital Exchange marketplace. Typically, the idea is for a company to expand its core offering through third-party products and services. And the marketplace boom is seeing a new wallet trend: seller wallets. These online digital wallets, provided as a service by marketplace owners, function in a similar way to consumer digital wallets, but in the opposite direction, making it easier to distribute funds to what could be a huge number of sellers using different banks and in different territories.
“Success for a marketplace hinges on how many sellers it can attract, because if their inventory is good, they’re going to get more consumers,” says Saraf. “The first thing that sellers look for is ‘How am I going to get paid?’ The seller wallet helps to simplify everything and can be transformative for the marketplace ecosystem.”
Still only a little over a decade old, the digital wallet has plenty more evolving to do and is likely to play a key role in technologies that will transform our lives. That includes areas such as the increasing intersection between payments and the Internet of Things, and the development of digital identity wallets, plus a whole world of new possibilities conjured up by the emergence of Web3.
But in the meantime, one wallet-based development that’s “definitely going to take centre stage” in the US and UK in the near future, says Saraf, is the ‘super app’...
Taylor Monahan, CEO of MyCrypto
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