A digital wallet (or e-wallet) is exactly as it sounds. It is a blanket term for a range of technologies that are changing the way we pay for things. The days of inconvenient swiping and PIN entry are over. We are well on our way to a world where a mere “tap” is all that is needed.
With the recent announcement of Apple Pay, digital wallets are getting more attention than ever before. Apple Pay certainly isn’t the first company to launch a low effort, high security payment method, but it’s no surprise that it’s generating a noteworthy buzz. What IS surprising is that most Android phones have had these capabilities for a few years but Apple hasn’t until now.
This transformation in value transfer has been happening since PayPal first came to the market. Google and Amazon also lead the charge with digital online payments. Then there was Square, saving thousands for the average small business owner and anyone who couldn’t stand paying bank-fees.
It’s hard not to wonder what this will mean for the online/offline retail world. These digital wallets boast about one thing the loudest: Security. No data transferring. No identity theft. Just a simple tap and you’re on your way. It seems too good to be true, but it’s not!
How it works:
The services can typically be broken down into two types: server-side and client-side. Server-side is referring to a company storing and hosting your data on their own servers, like Visa’s V.me digital wallet for example. Client-side refers to those maintained by the end-user, typically by downloading an application you input all of your financial information and manage it on your own. Both claim to be highly secure options with un-hackable encryptions to keep your identity safe.
Near-Field Communication (NFC) is a type of wireless communication created for short distances that will eventually make mobile phones the only thing needed for physical in store purchase. Many smartphones already have NFC capabilities, and around half of all smartphones are predicted to have NFC technology in them by 2015.
When using a payment-enabled app, a signal will be sent to the NFC chip inside your phone. A weak magnetic field is produced through the electricity flowing through the circuitry of the chip. That magnetic field is what allows the phone to transfer data to whatever NFC tag is located in the object you are tapping. The tag itself does not have to have its own power source; it is considered a “passive NFC tag”. By being in close proximity it will generate a radio field that is then decoded by your phone and sends information back through the app.
What’s next truly depends on the adoption from both the merchant and the consumer. Merchants will face the costs of upgrading and installing the new technology and consumers will have to decide if they trust the security. Not to mention if certain apps and stores are only accepting specific forms of digital wallets, how convenient will that really be? Wal-Mart for example, has expressed no interest in accepting Apple Pay, and Target will only use digital payments through their own app.
“Tap” purchases are expected to go from $1bill in 2013 to $58.4 bill in 2017, said Mark May from Citi Investment, a huge increase for a mere 4-year span. This is likely accounting for some cool innovations made possible with digital wallets that have yet to be announced.
You can also now pay your restaurant bill without having to wait for your waitress to come at the end of your meal. Restaurants are allowing you to pay through an app with a set gratuity to help those in a rush. However, this example is only feasible if you use both PayPal’s mobile app and the Tab application.
True convenience will come when there are no limits or restrictions on what can be used where, on what phone with what application. When that time comes, it will certainly change the face of retail and consumerism.