Contemplating the problem of wallets is not as simple as it seems. Image: Shutterstock
Consumers have been promised a replacement for cumbersome payments processes since the turn of the new millennium. However, no killer wallet app has emerged from these wallet wars. Retail payments and peer-to-peer payments have proliferated: Google Wallet (now Android Pay), Apple Pay, PayPal, and Venmo are the most commonly used mobile wallets, but banks have entered the fray (Chase Pay, Wells Fargo Wallet) and social messaging brands (Facebook, Snapchat, WhatsApp) have attempted to attach payment technology to their mobile applications.
Why has no clear leader emerged? Why is there no internet for money, no simple, all-in-one solution to the problem of how people pay for things?
The problem is manifold, and it provides an analog to the fundamental problems in global finance.
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First, there were and still are barriers to adoption, both for retailers and for customers for each wallet. Retailers that wanted to accept mobile wallet payments had to invest in point-of-sale hardware capable of near-field communication (NFC) and often upgrade their register systems for integration. In the US, this process was sometimes combined with the installation of chip-and-pin readers as credits cards went through yet another iteration for better security.
With mobile wallets, NFC, and chip-and-pin readers these barriers were the same. The initial investment in hardware made the process distasteful for large retailers and prohibitive for smaller ones. Customer demand has been fragmented among several non-interoperable systems. As an example of what was to come, the early stages of PayPal’s POS program were plagued with cumbersome unfamiliarity for both users and providers. Lessons learned from this failure have prompted retailers like WalMart to launch their own alternative wallets.
All this churn has made it difficult —if not impossible— for one killer wallet to emerge. Moreover, the fundamental non-interoperability of the underlying financial structure makes it far less likely that this will change anytime soon.
So where do the biggest wallet players currently stand?
Samsung Pay recently joined forces with Chinese retail giant Alibaba, allowing Samsung hardware to run Alipay. This partnership is of particular interest to those following mobile payments in Asia, with Alibaba’s Alipay boasting 450 million users in China alone.
Google is phasing out Google Wallet in favor of Android Pay, which boasts some fancy features like simple in-app payments that complete purchases with a single tap. Recently, the Android Pay API has expanded, and Google boasts that developers can integrate this function with a mere 10 lines of code.
Apple Pay has so far made the most successful campaign: calling on 800 million existing customers who already own the hardware is a powerful opening gambit. They have successfully partnered with retailers all over the world to offer a seamless payments experience. However, Apple hardware only accounts for about 15% of mobile phones worldwide, making Apple Pay a better bet in some markets than others.
Ultimately, all mobile wallets and other payment solutions that sit on the top of the stack are just new wine in old bottles. They connect users in friendlier, simpler ways and provide quicker use of funds against a settlement process that has not changed much on the back end. The trends toward mobile and contactless payments are only new iterations of accepting credit cards, designed specifically to improve the security of an outdated and often insecure mode of payment.
In retail payments, as in payments of all kinds around the world, the top of the stack is the simplest and least effective place to innovate. There is no killer wallet app because this wound is too superficial to kill anything. Innovation must dig deep into the payments stack and pierce its heart: the financial infrastructure that keeps payments circulating.