Friday, August 23, 2013

The Rise of the Mobile Wallet

Mobile wallets are the next step in the evolution of commerce.  Society continues to benefit from the efficiencies gained from each incremental step.



In The Beginning
In the beginning, commerce was conducted on a barter system in which two parties traded goods and services with each other.  While it worked well for a long time, the problem with barter is that - well frankly - it's very inefficient.
The problem is that if I have a need for a product or a service, I have to expend a lot of time and effort trying to find not only someone who produces what I want, but also someone who is willing to trade with me for what I have.

Currency:  The First Evolutionary Step
A couple of thousand years ago, the first evolutionary step in commerce came about with the usage of common currency.
Currency made commerce transferable.  With currency, commerce became a lot easier and a lot more efficient.

But the only drawback of currency is that it is a tangible item that must literally pass from hand to hand.  Therefore, commerce between individuals has an inherent physical restriction.

Credit Cards: The Second Evolutionary Step
The invention of the credit card in the 1950's was the next evolutionary step in commerce.

Credit cards made commerce transportable.  Credit cards also laid the foundation for e-commerce, a revolution begun in the late 1990's and gave rise to an entire new way of buying and selling.  Thanks to credit cards, two individuals can transact business even though each can be on opposite sides of the earth.

Digital Wallets:  The Third Evolution Step
The third evolutionary step in commerce is the digital wallet whose birth was legitimized in September 1999 when the U.S. Patent Office awarded Amazon.com Patent No. 5,960,411 "A Method and system for placing a purchase order via a communications network."  The rest of us refer to this patent as the "One-Click" patent.

The digital wallet makes commerce transparent.  By storing your credit card in Amazon's digital wallet, you no longer had to think about commerce at all.  With a single click of a button, ownership became instant.

The first true digital wallet came about circa 2000.

I'm old enough to remember when PayPal first burst into the scene.  I was working at a DotCom startup (who wasn't back in those days?) and we were all scratching our heads asking, "who is this PayPal?  Is it for real?"

Thirteen years later, it's interesting to see three things that PayPal did to revolutionize commerce:
  1. They eliminated risk of online shopping.  Back then, people were hesitant to enter their credit card information on line (I know -- right?).
  2. They enabled online shopping for people who didn't own credit cards by funding PayPal accounts directly from checking or savings accounts.
  3. They truly made commerce transparent.  If you had logged into PayPal at least once and you hadn't cleared your browser cookies, then anytime you clicked on the "pay with PayPal" link on an e-commerce site, the payment was immediate.  You didn't have to think any more about it.
The Mobile Wallet:  Sibling of the Digital Wallet
 Interest in mobile wallets is today's Hot Topic.  Everywhere you look, there's yet another initiative, yet another consortium working on developing the next Big Thing for mobile wallets.

When smartphones were being developed, forward-thinking people were looking at mobile wallets as the next revolutionary step beyond the credit card.

But, there is a problem.  You can't slide a mobile device through a slot like you can a credit card.  So these forward-thinking people started looking at a new type of wireless communication that was emerging at the time.  After all -- a cellphone is nothing more than a radio transmitter AND a radio receiver.
Near-Field Communication (NFC) allows data transfer between a transmitter and a receiver simply by touching the two devices.  NFC is the technology that was considered early on for mobile wallets.  The idea is that your smartphone has a mobile app which is your mobile wallet.  The mobile app communicates with a microchip on your NFC-enabled smartphone and the microchip manages the communication with an NFC-enabled point of sale system.  The data that gets transferred between the two devices is the same data that is normally transferred when swiping the magnetic strip of your credit card.

But there's a conundrum.
As a consumer, why bother with paying by way of NFC when there aren't that many NFC-enabled point of sale systems or NFC-enabled smartphones.

As a merchant, why bother spending all that time and money upgrading to an NFC-enabled point of sale system if there aren't that many people paying by way of NFC?

As a smartphone manufacturer, why bother spending all that time and money development and marketing an NFC-enabled device when there aren't that many NFC-enabled point of sale systems nor people willing to pay by NFC?

This problem is the main reason why digital wallets and their mobile siblings haven't really taken off for in store purchases.

Nevertheless, digital wallets are doing quite well, thank-you-very-much, online -- where it all began.

Do you like the first 30 seconds of a tune you're listening to? Touch a button and it's yours.  Do you want to read a book now?  Touch a button and you're flipping pages within seconds.  Are you in the middle of a MMO game and you need to upgrade your weaponry pronto?  Touch a button and you are instantly ready to rumble.

The key takeaway from my blog post today is an admonition to online merchants all across the globe:  the traditional online payment paradigm is actually costing you money in lost opportunity and sales.

Traditional payment methods haven't evolved much in the past 15 years since the early days when people accessed the web from their desktop computers.  Today's online payment paradigm hinders commerce via mobile devices.  As more and more people are shifting their behavior to accessing the web via their mobile devices more and more of the time, it's time to remove as many barriers to commerce as possible.

Digital wallets make commerce transparent.  Digital wallets make ownership instantaneous.  Adopt digital wallets as payment options on your e-commerce sites. 

1 comment:

  1. Very bad luck for us here is my country not allow Paypal system.........

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