What’s In Your Digital Wallet?

Using new digital wallet applications, and a near field compatible phone, you’ll have a virtual version of your real world wallet.

The new digital wallet application Isis Mobile Wallet™ is scheduled to launch on October 22, 2012. With this software, and a near field compatible ( see related article on NFC ) phone, you’ll have a virtual version of your real world wallet.

This is primarily to replace your physical credit and debit cards, and you’ll be able to just tap your phone at any Isis Ready™ merchant to make a payment.

It’s expected that by the end of the year, there will be dozens of compatible phones from ATT, T-Mobil and Verizon supporting NFC and payment apps. The Isis app will initially only work with three credit / debit card issuers – American Express (AmEx), CapitalOne and Chase Freedom. More will be added as this technology gains acceptance both from the consumers and the merchants. In addition to the payment options, stores will be able to link purchases to their loyalty cards, eliminating even more plastic cards both issued by stores and carried by consumers. It’s anticipated that stores will be offering merchant coupons and on-site promotions triggered by the NFC proximity of your phone

Although this was first announced nearly two years ago, it wasn’t until this fall that users were able to complete a transaction with Isis. The first markets were Austin, Texas and Salt Lake City, Utah. Following successes there, and modifications to the service, the program is now being offered in other major U.S. cities.

One main obstacle for expanding service is its owners must work to attract bank partners and get merchants equipped with the proper technology needed to accept mobile payments. Given that over 90% of the merchants in the U.S. already have point-of-sale credit card equipment and access to fast, low-cost interface with the credit / debit companies, it remains to be seen how quickly they will adopt to another payment interface. There is also discussion as to who would pay for the merchant side NFC processing equipment.

The second obstacle is users upgrading to compatible devices. The recently released iPhone-5 did not include NFC chips. Presently, NFC support is found only with T-Mobile customers who have a Samsung Galaxy S III or Galaxy Relay 4G. Second. And, the app requires a special SIM card to be operational.

This is big business. Transaction fees can cost the merchant up to 3% of each sale. Research firm Gartner Inc. in May said it estimated the value of mobile-payment transactions would reach $617 billion world-wide by 2016, up from $105.9 billion in 2011. At the current rates, this is roughly $2.5 billion in transaction fees in the U.S.

Competing with Isis are Visa, MasterCard and Discover.

Visa is focusing on its “V.me” digital wallet technology. Working with PNC Financial Services Group, Visa will roll this out to about 1 million of their existing “Virtual Wallet” customers who are banking on-line for their checking and savings. After the initial trial period, they may incrementally expand to include their entire customer base of over 6 million users.

MasterCard is working on a similar strategy as Visa.

American Express is embracing the new Isis program while also promoting their own brand, “Serve”.

The largest competitor in the payment space is eBay’s PayPal service. Discover Card is joining with eBay to enable its merchant base (7 million) to accept PayPal in their stores and process through Discover.

Google has also been working to capture a slice of this market with their Google Wallet.

Overall, there are many players trying to establish dominance in a fracture and segmented market. Unfortunately for both the consumers and merchants, there is no clear champion as to which application will win out.