The Digital Wallet as Component

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Last week, I wrote that “PayPal is refocusing on the digital space, broadly defined” as part of a discussion of the company’s recent agreement with MasterCard that it would no longer try to steer consumers toward ACH-funded transactions. That “broadly defined” caveat requires further explanation, however.

Digital wallets are evolving from stand-alone applications into components that can be plugged into many different kinds of platforms.  You can see this in the recentannouncement by Facebook that it is integrating payments into FaceBook Messenger chatbots. Also, with the release of iOS10, Apple is now allowing app developers like Venmo and Berlin-based N26 to integrate with Siri, its voice-activated digital assistant. Apple has also opened iMessage up to similar integration, allowing money to be sent as part of a text message.

We are also seeing wallets integrated as click-to-pay buttons on websites, as shown on this Office Depot checkout page.

This sort of integration is enabled by the fact that digital wallets are moving to the cloud. Instead of having a dedicated app on a device, the consumer has a cookie, which can be read by a cloud-based service, which provides the tokenized payment information to the merchant. For example, the way PayPal’s One Touch feature works is that it allows the user to store a secure browser cookie on their device; whenever the user clicks on the PayPal button, they don’t need to login again. You do still have the popup window that takes the user out of the merchant site, but work is being done to make the window appear “in context,” as a part of the checkout page itself.

Since this was a problem with adoption of 3D Secure, it is important to get the process to become more transparent and seamless.

Once done, the user is allowed to choose from a variety of sources of funds, although most will just go with the default.  This, by the way, is one of the reasons by the PayPal agreements with MasterCard and Visa are so important; card issuers want to be sure that their cards have a good chance of being the default.

This is where loyalty programs come in, and become the means by which card issuers can pull transactions onto their cards. If I get a discount for using a particular card, I will choose that card, just as I would in a physical wallet. Digital wallets, however, need some way to communicate which offers are available on which cards. This is a major part that is missing right now. Streamlined sign-in is an improvement, but serving up offers would make the digital wallet a much more valuable component of the checkout experience.

Nevertheless, the switch from stand-alone app to component is making digital wallets a lot more useful and versatile, and should accelerate adoption.


 is consultant in Senior Payments Executive | Real-Time Payments, Tokenization, Digital Wallets, Payment Hubs, and Loyalty Programs