Digital wallets are our banking future

Oct 06, 2015

[Published in Lafferty News.]

In a combined article by and interview with Sopra Banking Software's Dr David Andrieux, he discusses the opportunity banks have to offer proactive and personalised services to capture a wide range of new revenue opportunities.

In the Digital Age, competition in banking is not (only) about better rates or branding anymore. Competition is now about bringing customers new value and a frictionless experience. The winning banks will be those that will best capture and leverage the context of their customers to offer them timely and relevant services.

This evolution is especially visible in the payments space. Here, winning the customer relationship means gaining control over customer data and the ability to offer high–margin services, within and beyond payments.

As customers manage an increasing part of their daily activities online, digital wallets provide an essential gateway to capture the customer context and to deliver the resulting personalised and contextualised services.

In their simplest forms, wallets digitise traditional payments instruments like cards.

But, to live up to their potential, digital wallets will not only need to deliver payments services, but also non–transactional functionalities. Optimisation of loyalty schemes, budgeting, ticket  management, receipt management and other services are essential for wide adoption.


These additional services will be enhanced if they take into account the context of the customer, including their location, preferences, account status and more. Importantly, customers will need to stay in control, over the services they want to include plus the level of personal data they want to share.

Digital wallets will therefore play a central role in capturing the new revenue opportunities that digitalisation brings. However, the battle for the wallet space will be fierce.

"The difficulties that banks face at the moment are the many different companies, non–banks actually, that are trying to enter the payments space," Dr Andrieux told Lafferty News.

Card networks have launched their wallet solutions, and they benefit from brand power, size and international dimension. Retailers are coming together, like MCX in the US. Many tech companies are also moving into the payment space, such as Google, Apple, Samsung and Microsoft.

Each of these actors has introduced their own wallet solution, such as Visa.me, MCX's CurrentC mobile wallet, or Apple Pay. In parallel, banks are partnering to launch local (country–specific) initiatives, like PayM in the UK.


This abundance of competing solutions has resulted in a very fragmented market.

Regardless, no single digital wallet will be the 'winner'. Consumers will hold multiple digital wallets and will pick and use the most appropriate and convenient wallet solution.

Banks are faced with difficult strategic choices. Should they partner with the likes of Apple, with the risk of losing the customer relationship? Should they launch their own wallets, adding another solution to an already very fragmented space?

"From the point of view of the bank it is a short–term, quick win," Dr Andrieux said when discussing banks partnering with companies like Apple, "but in the long term the problem is that as Apple, Samsung, Google, any of these wallets, gain enough traction, they get into position to dictate their conditions to the banks because in the end, what a customer sees is an Apple Wallet and not a bank's wallet."

"On the other side, you want to launch your own wallet solution on your own as a bank it is difficult as well because you have an installed customer base, that's good, but it's hard to get enough customers to buy into your specific solution instead of using a generic one like MasterCard wallet"

One mustn't forget that banks have significant advantages. They have an existing, strong customer base, whose majority uses mobile banking applications. Banks still enjoy the highest level of trust amongst financial providers (albeit companies like Paypal are closing in). And banks have access to other account–related services and information, which perfectly complement wallets' functionalities. Also, the use of credit transfer systems to develop online bank–enabled payment systems and the development of real–time retail payment systems pave the way for more bank– centric wallet models.


"You really have to find a balance between the two approaches which is why we think having the digital wallet management platform is the best of both worlds," he said. For banks, it is important to combine rapidity of implementation, a large acceptance network, established brands and differentiating services. Therefore a hybrid approach, open or semi–open, is required. Complementing its services with those from third parties will allow the bank to quickly build a strong portfolio of services and to benefit from existing brand recognition and network acceptance.

Now, a digital wallet in itself might not be enough. So, instead of competing with other wallets directly, banks should offer their customers a 'digital wallet management platform'. With digital wallet platforms, banks provide access to an ensemble of services and wallets appropriate for their customers. Customers can then activate and manage the services that best suit their needs.

The battle for the customer context and relationship is raging. Instead of competing with the plethora of existing wallets, banks can give their customers access to various wallets and services with the ability to manage them as they see fit. This approach brings new value to customers
whilst allowing banks to best position themselves in the overall digital value chain.

Find out more on the challenges and opportunities of digital wallet management platforms by downloading a special Sopra white paper, co–authored by Dr David Andrieux, Sopra's market intelligence manager, and Bernard Rame, Sopra's head of payments, "Contextualizing digital banking with wallets" here.

This article originally appeared on Lafferty News in September 2015, click here to access the original article (account required) 

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