EXCLUSIVE: “Grabyourwallet!” – Alex Bowen, HSBC Hong Kong; Kurt Schmid, Netcetera and Alex Gatiragas, Giesecke + Devrient in ‘The Fintech Magazine’

Could digital wallets put banks back at the centre of their customers’ universe? We hear from three experts who believe institutions big and small are finally beginning to grasp the opportunity they represent.

CB Insights’ 2022 report Future Of The Wallet: How AI Advisors, Digital IDs, And Wearables Are Turning Mobile Wallets Into The Next Super Apps, demonstrates how fast and how far the virtual wallet has come in recent years.

Fintech network Baku, which published what it claimed is the biggest report into the growth of mobile wallets last year in association with Juniper Research, forecasts that half the world’s population will use one by 2025. That’s not an unreasonable assumption, given that every man jack of an organisation seems intent on launching its own, be it big tech, telco, online gaming company, retailer… or bank.

Not all wallets are made equal, of course, and the nomenclature around them – e-wallets, mobile wallets, virtual wallets, digital wallets and even super wallet – is contested and confused. But there are certain generics on which all can agree. Closed wallets limit the user to transactions, and route all the valuable data attached to them, through a non-financial issuer (like Amazon Pay, the Starbucks’ or online gaming retailer E Sports’ wallets).

Some have been so successful that they’ve transformed organisations into defacto payment companies. Semi-closed wallets can offer more on- and offline spending choices, including bill payments, and are often interoperable with other e-wallets, but they demand additional know-your-customer (KYC) processes. And then there are open wallets, owned or issued under a third-party arrangement by licensed financial institutions.

They’re the full monty, providing a comprehensive range of transaction options. The utility of wallets doesn’t stop at payments, though. Driven by customer demand for convenience, automation and customisation on their phones, what began life as a virtual store of value is evolving into an all-round enabler of everything from accessing places and services, monitoring the state of our health and, more recently, proving who we are.

The big techs are well-placed to dominate the digital wallet space, leveraging their brand power, extensive customer bases and reputations for outstanding user experience – not to mention the vast data pools they hold. Apple, whose wallet already stores users’ debit and credit cards (including its own, courtesy of Goldman Sachs), as well as digital car keys, tickets and boarding passes, recently announced plans to launch digital identification options, allowing a user in the States to add their US driver’s licence and/or state ID to their iPhone and Apple Watch.

Google – the first major organisation to launch a wallet in 2011 – has similar plans for an ID wallet that can be loaded on to multiple brands of device.Wearable-compatible wallets are a growing segment. Apple and Samsung have led the charge, pairing their wallets with smartwatches for seamless digital payments, helping to propel the worldwide wearables market alone to $1.3trillion by 2028.

“Apple Card sets the bar high for virtual cards. Everyone else now needs to try to meet it”

Alex Bowen, HSBC Hong Kong

Google is rumoured to be launching its own smartwatch, Pixel Watch, this year after acquiring Fitbit in 2021. All three are already leaders in the IoT space, which could see wallets used as machine-to-machine payment vehicles.While some wallets have been developed for a specific purpose and have no ambition to be anything more, others (notably the big techs’, which dominate the top of the download charts) clearly aspire to be all things to all people.

In Asia we’ve seen the smartest smart wallets gradually evolve into superapps, including Alipay and Grab. And, across the world, mobile wallet providers, including Revolut in the US, Lydia in France and M-Pesa in Kenya, aspire to follow in their footsteps.

The CB Insights report predicts that superapps ‘will be the dominant fintech strategy of the next decade, and pose a growing threat to legacy financial players as well as single-function fintech apps’.

It’s against this backdrop that banks must determine where their wallets fit in. Could the wallet put them back at the centre of the consumer’s universe? PayMe is a good example of what banks can achieve. One of the first wallets issued by a major bank, it was launched by HSBC Hong Kong in 2017, in partnership with Episode Six and its Tritium platform, which helps banks quickly scale up products for large customer bases.

PayMe’s boyband marketing and talking cat mascot, PayMeow, puts the wallet on a very different plane to its highly corporate parent bank. But its credibility and popularity is such that it was recently selected as one of the conduits for distributing the Hong Kong government’s consumption vouchers, part of its post-COVID economic stimulus package, which can only be used via digital payment apps. It’s as clear an indication as there can be that wallets will become central to everyone’s life, everywhere.

Alex Bowen, who is the fintech’s chief operating officer, says HSBC Hong Kong’s journey to launching PayMe was shaped by a highly competitive market.

“There are a lot of wallets in Asia, and some huge names as well. In terms of superapps, each country has a leading couple,” he says. “In such a saturated market, innovation around giving customers the experience they want is really the only way to differentiate.

There was a strong use case in Hong Kong, around solving payments between people. There were bank transfers, but you have to log in and find your payees, and it’s not customer-centric,” he says.“We were lucky that we had the relevant funding, so we didn’t need to consider whether a white-label product was cheaper or better, but we followed some very stringent principles around scaled agile, to make sure that we could design with the customer in mind and release often – to get the product out and then innovate.

“We’ve kept PayMe deliberately small, in terms of its footprint, to allow that continued design and innovation, and a sense of ownership by the team. It’s a great feeling, when you see something you’ve designed and deliberated on, go out and get used.”

He has every reason to be proud of the wallet’s success: with 2.7 million users, it represents more than 75 per cent of all P2P payments in Hong Kong. Bowen acknowledges that big techs have made the running with wallets and related products. But that’s been to the banks’ advantage, he says.

“The wallet proposition is about taking care of the value-added space around them once you have that user interface. For a bank, it’s very important to own that”

Kurt Schmidt, Netcetera

Citing Apple’s new completely fee-less credit card (which also exists in physical form, if you request it, but otherwise lives in your wallet), he adds: “Will I take up an Apple Card? Yes, I’m sure I will try it out. It gives the consumer choice. That’s a positive thing, and it will force everyone else to look at the journey, look at the end-to-end, look at how many clicks and scans it takes to make a payment. “Apple Card sets the bar high for virtual cards. Everyone else now needs to try to meet it.”

PayMe is by no means the only successful wallet to be launched by an incumbent bank.

PayLah!, the wallet owned by DBS bank in Singapore, is already bordering on a superapp model – it’s described on the bank’s homepage as ‘the ultimate everyday app for getting rides, booking tickets, ordering meals and more’. It also has more than two million users and enables them to earn and manage rewards.Spanish banking giant BBVA is busy innovating along the same lines.

Last October, it organised a virtual hackathon that challenged more than 700 participants from 164 global universities to develop a superapp that could meet customers’ needs for finance, entertainment, shopping and transport in one place. The problems they were challenged to solve were put forward by BBVA’s business units in Mexico, Peru, Colombia and Spain, and their associates.  A team of five Mexican students won the competition, organised by BBVA’s Open Innovation arm, using artificial intelligence and QR code payments to develop a full mobile application that ‘integrates financial and non-financial services to streamline users’ day-to-day transactions’.

This is an example, says Kurt Schmid, marketing and innovation director for secure digital payments at software solutions provider Netcetera, of how banks can make much more than a transactional tool out of wallets.

“The wallet proposition is about taking care of the value-added space around them once you have that user interface,” he says. “For a bank, it’s very important to own that and then bring in this additional customer experience and journey, for commercial benefit.

One function, he suggests, is as a store for receipts that are generated during the payment process and which can then be automatically uploaded to the wallet.

“When I’m identified with my payment credential, I want my digital receipt to automatically be pushed into my wallet. Then I have it and can search for it, for warranty purposes, expenses, or whatever.

“That has many appealing aspects –ecological, so you’re not wasting paper and trees, which, I think, is more and more important; convenience; and it also builds the relationship between the shop and the purchaser. It’s one of many other features that could be built around the wallet.”It would also cut across providers and demand a partnership approach, according to Schmid. To build a smart wallet, you need to accept you can’t do it alone.

“Partnership is how to survive in the future,” says Schmid. “If you just look to the payment side of managing a credit card or whatever, yes, the bank can do this alone. But when you’re delivering a full customer experience journey, for all their needs, and all the other use cases around the payment – value-added services like financing, lending, insurance, instalments, digital receipts, personal finance management – you need the interoperability of open banking, open APIs and open finance, and to be interlinked with merchants.”

Of course, persuading people to lodge all the important information they use to manage their lives, day-to-day, in one digital ‘place’, requires large amounts of trust, particularly if it’s where your most valuable personal identity documents also reside.CB Insights predicts that digital ID wallets will boom in the next decade, prompting greater collaboration between technology companies and government and inevitably increasing the amount of regulation and processes required to manage privacy and other associated risks. Banks are already sitting on huge reservoirs of trust, points out Bowen. His own wallet, PayMe, makes play of the fact that it’s powered by HSBC’s security systems.

“We’re seeing a lot of interest from banks and fintechs in providing additional tokenisation services to their end customers in the form of visibility… which wallets and merchants they have pushed their payment card to”

Alex Gatiragas, G+D

“Most banks today, in most countries, have an established position in the market. They’ve been there for a number of years – even centuries – so, from a consumer point of view, there is that feeling that they are here to stay. Banks can leverage that position of trust by looking at how they deploy, how they partner and how they innovate. They don’t need to do anything to generate that trust, but have an inherent responsibility to protect it and ensure what they’re doing is the right thing to do.”

Alex Gatiragas, product and technology director for established global payments solutions provider Giesecke + Devrient (G+D), explains how it is providing the technology to help organisations of all kinds build trust, through secure tokenisation of sensitive data among other things, using its proprietary Token Cockpit platform, which gives consumers and merchants alike full visibility of all aspects of their transactions, including the cards they have on file with different users and organisations.

“Most of our activity, when it comes to digital wallets and payments, is around tokenisation. We help a lot of the banks and fintechs have their own issuer wallets. From an end-customer’s perspective, tokenisation is something come that’s been in the background as the silent achiever, protecting their payment credentials. But we’re now seeing a lot of interest from banks and fintechs in providing additional tokenisation services to their end customers in the form of visibility – seeing where their tokenised details are, which wallets and merchants they have pushed their payment card details to, also giving them the ability to suspend or delete them. It gives customers trust in the payment ecosystem by putting them in control.”

If, as Gatiragas says, the ‘magic word’ when it comes to the future adoption of wallets is trust, banks are in a good position to leverage the confidence users already have in them to combining identity credentials with payments – something others have not yet fully managed in the same wallet. So, for instance, you wouldn’t have to use a digital payment and a separate digital age verification to authorise an age-restricted purchase – the bank could vouch for you and facilitate the transaction in one. Certainly, the agenda around digital identity and wallets seems to be gathering pace.

An EU digital identification wallet is being introduced this autumn, in which the Commission has signalled that banks will be involved further down the line. The New South Wales government in Australia has begun work on a what it calls a ‘credential vault’ (aka a digital wallet) that will prove an individual’s identity by sharing decentralised credentials. HSBC’s Bowen for one believes banks have a sizeable advantage in terms of experience and resources to keep up with regulatory requirements, which puts them in line for lucrative partnerships.

“Banks are very well-capitalised and they’ve got the infrastructure, which is a significant advantage because, as companies get larger, handling more customers and more billions of dollars, they are rightly subject to more regulation,” he says. “Banks have been used to this for eons. Newer finance companies, less so. We’ll therefore see more partnerships, more ‘powered by’ statements, where the front-end is in sync with the vehicle driving it, but powered by bank technology because it’s already there and meets relevant standards.

“Find a way to join them together, and you’ve got something which is both customer-centric and meets whatever standards are in place.”

This article was published in The Fintech Magazine Issue 25, Page 118-120