Redefining the e-Wallet Landscape

IDC Financial Insights today announced the availability of a new report, “Business Strategy: Mapping the e-Wallet Landscape”. Referred to variously as digital wallets, mobile wallets, or mobile payments, e-wallets can take many forms, leading to confusion and misunderstanding.  In this new study, IDC Financial Insights proposes the use of the term "e-wallet" as a context-neutral designation, and a division of e-wallets into "remote", "proximity", and "hybrid" types as a way to produce useful comparisons.

According to lead author, Aaron McPherson, IDC Financial Insights Practice Director, Worldwide Payment Strategies, “Cutting through the superficial differences between various e-wallet services will allow financial institutions to focus on exploiting the technology to add value for customers and extend their influence into mobile and digital commerce.”

e-Wallet Sub-Segments

In this study, IDC Financial Insights breaks down the e-wallet market into several sub-segments, each of which is recognizably different from the others in its goals, uses, and vendor landscape.  The new terminology for these segments should help avoid false comparisons.

• Proximity e-Wallet: these are e-wallets that are optimized for face-to-face commerce.  As such, they often rely on integration with a point-of-sale (POS) terminal. 
• Remote e-Wallet: these are e-wallets optimized for use in e-commerce.
• Hybrid e-Wallet: these are remote e-wallets that have a proximity component added on, using any of the methods employed by remote e-wallets to communicate with the POS terminal.

While the most common fear among financial institutions is the insertion of an intermediary into a commercial transaction, IDC Financial Insights recommends that financial institutions focus on the core value proposition of the e-wallet: a persistent digital identity that can be used to facilitate commerce and influence consumer choice.  Financial institutions, by virtue of their place at the center of payments, have unique information about consumer behavior that is being underutilized.  By shifting from an obstruction or controlling strategy to an opportunistic one, financial institutions can generate new revenue streams and provide more value for their customers, regardless of which e-wallet model becomes dominant.  To enable this, IDC Financial Insights recommends financial institutions:

• Develop expertise in the use of big data analysis on transaction data, so that they can deliver actionable recommendations to consumers and merchants.
• Negotiate with payment networks for greater flexibility to set pricing, so that partnerships can be developed on the basis of tradeoffs.
• Focus on a "soft strategy" of influencing consumer behavior, rather than a "hard strategy" of attempting to control it.  

 “With a clear view of the e-wallet market as heading toward open rather than closed models, the ideal strategy is one that is robust under an open model.  This requires the financial institution to focus on leveraging the information it has about its customers to influence their purchasing decisions, and thereby earn the right to charge retailers a commission,” concluded Aaron McPherson.

Today, April 9th, at 1:00 p.m., U.S. Eastern time, IDC Financial Insights will host a  complimentary one-hour web conference featuring McPherson, called "Making Sense Out Of Digital Wallets." Register for the live event or gain access to the replay recording by following this link.