EXCLUSIVE: “Holding on to the Past?” – Jukka Yliuntinen, Giesecke+Devrient in ‘The Paytech Magazine’
The notion of what a ‘wallet’ is, has already altered beyond recognition. But the biggest change could yet lie ahead, according to G+D’s Jukka Yliuntinen
Banks and financial institutions like to talk about ‘share of wallet’, by which they mean the amount of customer spend their brands command. Now, there’s a new twist on that phrase. Financial and technology companies are competing for a share of the growing digital wallet marketplace, which is opening up many opportunities for payment and personal identification – not to mention emerging cryptocurrency – services.
One company with a strong interest in this space, which Graphical Research says will be worth $60billion in Europe by 2026, is Giesecke+Devrient (G+D). The specialist in security technologies operates across connectivity, identities and digital infrastructures as well as banknote and securities printing, smart cards, and cash handling systems. There’s not much it doesn’t know about the evolution of payments, having watched them develop since 1852 – not quite as old as the physical wallet that emerged with the first banknotes in the West in the late 17th century, but an impressive heritage, nonetheless.
As its head of digital solutions and part of the company’s mobile security initiative, Jukka Yliuntinen is at the heart of the company’s digital transformation strategies, looking after the digital solutions portfolio for financial institutions.
“Although printing is still something we do, we’ve come a very long way since the 1850s; digitisation is now the driving force behind all our specialist areas,” he says.
Digital cards and mobile communication are at the heart of wallet solutions that have been developing for more than a decade on the back of smartphones But, Yliuntinen admits the semantics around ‘wallets’ are often confusing, the technology described in different ways for different objectives. And, as use cases increase, the definition has become even more open to interpretation.
“Nowadays, most people think of wallet technology as an app that you run on your smartphone,” says Yliuntinen. “The first implementations were around 15 years ago, through mobile money providers such as M-Pesa in Kenya and GCash in the Philippines. The arrival of near-field communication (NFC) was a big enabler and we saw the rapid emergence of the now-familiar ‘Pay’ brands – Apple, Google, Samsung, and so on.”
It’s become a very crowded marketplace since, with many different types of wallet, operated by a sea of brands. And, as adoption has increased, people are using them for a variety of purposes, linked to, but with utility way beyond, payments. Samsung, for example, has just unveiled a digital wallet with crypto and digital documentation capabilities. Among other features, it can store student IDs, driving licences and national ID cards in digital formats. Apple, meanwhile, is improving usability with the announcement that it will enable millions of merchants across the US to use their iPhones to accept Apple Pay, contactless credit and debit cards, as well as other digital wallets.
Tap To Pay will be available for payment platforms and app developers to integrate into their iOS apps and offer as a payment option to business customers. Stripe will be the first.
“Positioning has become important over the last two years, in terms of who the wallet issuer is,” says Yliuntinen. “Banks are very conscious that, if they’re not active in this space, they might lose some of their business, or at least lose relevance in the eyes of their customers. The question for them is: if you don’t have app-based financial services, how can you reach and retain customers?
And, of necessity, over the last two years everything has become more digital because of the pandemic.”
In particular, COVID-19 has highlighted the case for digital identification and verification, with digital health certificates becoming a hot topic, and fuelling the debate around digital identity as one of the services wallets could offer beyond payments.
Yliuntinen points to the European Commission’s recently introduced proposal for electronic identity wallets, in the form of smartphone apps, whereby EU citizens would be able to access a wide range of public services and store official documents. The Singapore government’s Singpass operates on similar lines, but across one jurisdiction.
“It remains to be seen who the issuing organisations [in Europe] will be,” says Yliuntinen. “Will it be the government, a bank, a coalition of banks or other companies? But what it does mean is there will be a very high level of identity assurance, via a digital wallet, for every European citizen as well as every business. From a banking and financial services perspective, even if you don’t issue an identity wallet, you need to accept one.”
Yliuntinen says wallets have an innate versatility because they can embrace different attributes and data elements for identification and verification. For instance, for age verification, it’s only necessary to know how old someone is, not their name or where they live, while other data in the wallet could also perform specific functions to access a service. As for the pandemic, although Yliuntinen thinks digital wallets haven’t changed much in the short term as a result of the pandemic, not least because regulations need to keep pace with digital transformation, it has demonstrated how switching to a digital infrastructure can work smoothly for essential services. It has also shown that the more digital we become, the more digital identities will be part of our online and connected world.
“Payments, of course, is where the big change has already occurred,” says Yliuntinen. “Payments are a must for banks because they’re an everyday interaction. If you don’t offer this facility, you don’t have appeal for the consumer. On top of that, you can provide other essential banking and financial services, and perhaps even offer insurance. Some of our customers are insurer
s, and they now want to embed payments to engage customers.”
Digital identification is a nice add-on, he says, but, as a consumer, you need to know who to trust as the provider – in other words, the digital wallet issuer – amidst an ever-growing array of providers and loyalty schemes. Trust and security are clear issues, as is interoperability, which is still a challenge for the widespread adoption of digital wallets. Tokenisation is one of the technologies that is helping to smooth the path for wallets and mobile payments. Yliuntinen explains how it can help improve wallet security by digitising payments and masking sensitive data with non-sensitive information so that transactions can’t be exploited by fraudsters.
“If I have a credit card or debit card, I can tokenise it,” he says. “That means I can use surrogate data, which could be in my Apple Pay wallet, or my issuer wallet, or it could be with my e-commerce provider. I can use it to make the payment securely, like any physical card, because it runs on the same card rails.
“Moreover, if I lose my Apple Pay or Google Pay or something is compromised, I can terminate the token, but my real card still works and my Google P ay still works. All I need to do is generate a new token, then I’m ready to make another purchase with my Apple Pay.”
Yliuntinen says that this simplicity and ease of use has obvious appeal for consumers, and that the availability of so many services has big implications for loyaltyand customer relationships across the financial industry.
“Nowadays, you have so many different options for the same services,” he says. “And if there’s a deterioration in user experience, an individual will consider shifting their assets to another provider.
“If you look at what the big techs are doing, you see a portfolio of attractive and readily-available services through their apps. If your bank can’t provide the same service level, the same experience, you may transfer your loyalty to another provider.”
But while usability and convenience are the most important factors for the long-term success of digital wallets – as well as the need to progressively add new use cases and enlarge their scope – trust, believes Yliuntinen, will remain a key issue. Convenience and slick functionality are not the only criteria for consumers. Big tech may have power, reach, plenty of resources and innovative ideas, but the likes of Facebook and Amazon still need to win the confidence and acceptance of consumers.
While the ‘wallet’ for many banks and established financial institutions is still that dog-eared card carrier in your back pocket, rather than a mobile app, they have earned trust through generations of reliable service and dependable security. Those are the ties that will still bind many consumers.
This article was published in The Paytech Magazine #11, Page 41-42
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