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Why Amazon, Google and Apple Haven't Been Able to Crack the Code of Digital Wallets

The concept of a digital wallet has been around for decades. Why isn't it taking off?

My wallet's a tatty old thing, so worn-out and frayed I'm usually embarrassed to show it in public when it's time to pay. It's stuffed with pointless, old receipts, a couple of smudgy credit cards, a piteous allotment of dollar bills, and two forms of identification that prove I am who I claim to be.

Wouldn't it be nice if I could toss all that away and join the digital revolution, as half-a-dozen really big consumer facing companies tell me I'll soon be able to do with their digital wallets? Case in point: On Tuesday Amazon quietly launched a mobile wallet that lets consumers store all their loyalty points and gift cards in one application. While the ultimate goal is to let consumers spend from that wallet, the app hasn't quite gotten there yet.

Amazon now joins Apple, Google, PayPal, Visa, and a scary-sounding consortium of telcos who started something called Isis, who have all toiled for years to bring the idea of a digital mobile wallet to fruition.

In an ideal world, the digital wallet would function as easily as my real-world wallet, enabling me to pay in retail locations and online with a tap or swipe of my mobile device. My purchases would be linked to all my incentive point earnings, which would be gathered there and available for me to use like cash. And my buying habits would be anonymously aggregated into data that would then be purchased by various retailers who could pitch me offers inside the wallet for products and services they think I might need, as I walk by their stores, or sit in my living room with nothing better to do.

It all sounds grand, if a bit futuristic in a Ridley Scott Blade Runner sort of way. The only problem is that the idea for a digital wallet has been around for more than 20 years--a stored value card concept commercialized by Mondex in 1990 is one example. But the idea never seems to take off.

Bugs in the System

And for a good reason--there's considerable consumer ambivalence about the digital wallets when other ways to pay are perhaps more accessible, like cash and credit card. Meanwhile, the competing technologies and payment mechanisms required to make the mobile wallet fly are so fragmented that no real category killer has emerged.

For example, some companies debate the value of a special "Nearfield communication chip" for wallet payments, which allows payments to be transmitted with the simple tap of a phone. Others allow payments through apps, but payments are usually limited to the merchants who have signed up to participate, or by type of credit card that can be stored in the wallet. 

A recent digital wallet survey conducted by data analytics company Thrive Analytics, reported on by trade publication Payments Source on Wednesday, shows that while 80 percent of consumers are aware that digital wallets exist, less than one third use one. Why? Most consumers are concerned they lack adequate security protections, or they just find cash a whole lot easier to use. 

I'm neither a luddite nor a rabid tech enthusiast. I tend to accept technological advances as they come, if maybe a little too late. And in preparation for this article, I fiddled on my iPhone with Passbook, Apple's wallet app, which I've never really used before. It seemed to be organized nicely by category, and it told me all I had to do was scan in those squiggly SQR codes for offers and tickets and I'd be good to go. I figured I'd try to enter a recent Amtrak trip to the wallet to see if it would work. The only problem was that my Amtrak ticket, and it's SQR code, were both electronic. I'd have to print it out to scan it, so I could have it in my electronic wallet. I have enough useless bits of paper in my actual wallet, so I couldn't see the point and gave up after a few minutes.

A Digital-Wallet Friendly Future

Silly me, though. Because I may not be the target market for digital wallets after all. Large consumer companies are likely developing their mobile wallets for--you guessed it--the millennials and even younger, as yet unnamed consumer groups.

It turns out that the biggest users of electronic wallets are between the ages of 18 and 29, with 43 percent of that age group saying they use one, according to the Thrive report. And for this age group, it turns out that Apple's Passbook is their favorite wallet, and they use it on a weekly basis. 

Companies like Amazon and Google aren't stupid. Their mobile wallet experiments are following the money. As venture capitalist Rob Coneybeer, managing director and founder of Shasta Ventures, told me at the beginning of the summer, the smartphone has changed everything.

"Now you have close to 1.5 billion people around the world with smartphones connected to broadband and connected to payment systems," Coneybeer said. "So your ability to have reach and scale, and your ability to connect someone's wallet with products and services is unprecedented in the history of business."

You don't have to look much further than the multi-billion dollar app economy created by Apple and Google to see what he means.

So, while Apple and Amazon's current digital wallets may seem a little lackluster, and Google's a bit too limited for payments so far, that's likely to change with lightning speed. These companies have access to millions of consumers who use their products and services on a daily basis. And they have time to test and fiddle.

"Amazon is very well-positioned to have this be either a true wallet, or, another 'pay with' variant such as PayPal, MasterPass, or Visa Checkout, if they can add actual payment capabilities to the offering before the market gets too crowded," says Andy Schmidt, research director for payments research consultancy CEB TowerGroup.

Until that time, and until digital wallets are as easy to use as cash or credit card, I guess I'll just stick with my frayed old wallet.

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IMAGE: Getty Images
Last updated: Jul 23, 2014

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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