The future of the digital wallet is (almost) here

Jeroen Schlosser, managing director, Equinix MENA, says awareness and innovation will boost the digital wallet, but interconnection is needed

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The future of the digital wallet is (almost) here Jeroen Schlosser, managing director, Equinix MENA.
By  Jeroen Schlosser Published  July 15, 2017

Digital wallet adoption is low, awareness has lagged, and people have questions about its security. None of that changes the fact that the future of the wallet is digital. In fact, there's every reason to think that digital wallets will soon be as ubiquitous as the mobile devices they live on.

More and more people are learning about digital wallets, interest is high among key demographics, and security concerns are being met. Most importantly, companies are innovating to increase the value and utility of the digital wallet to consumers. That, above all, will drive adoption.

But a future with digital wallets must be a highly interconnected future. Tasks as basic as buying a coffee require a community of service providers working together instantly and seamlessly. Direct and secure interconnection between the multiple parties involved is essential for high-performance transactions, customer satisfaction and digital wallet growth.

Slowly replacing leather

Digital wallets are essentially bank accounts or credit and debit card numbers tucked inside smartphones. They are generally used in two ways: 1) for in-store purchases at a payments terminal, where account information is transmitted from the phone to the retailer via near-field communication; 2) for online purchases at online stores or within apps.

In either case, digital wallets are today used only by a minority of consumers. According to a recent report by Accenture, just 19% of consumers pay in store with their phone, while 23% regularly use their mobile phones to pay online. Among the reasons: Concerns about payment safety, a lack of the terminals needed to process an in-store payment, and a lack of awareness about the technology. But overall, the trend in digital wallet use is unmistakably upward.

Awareness, for instance, is going mainstream. Accenture says that 56% of consumers last year knew about digital wallet technology (up 15% from 2012) and adds that millennials are poised to drive digital wallet growth. In their survey, millennials were more likely than other demographic groups to try new technologies, pay in-store and be "extremely interested" in new ways to make payments (such as with wearables). Meanwhile, Juniper Research projects that in 2017, global mobile wallet spend will increase 32%, to $1.35 trillion.

Security is also becoming a strength. People are learning that losing a digital wallet isn't like losing plastic or paper money because you can often restore your wallet to a replacement mobile phone. You don't even need to cancel credit cards because you can remotely wipe your lost or stolen phone. The industry has also developed numerous technologies and techniques to prevent hacking or unauthorised use:

Tokenisation replaces sensitive data with a token, which can be used by a consumer to access the sensitive account numbers without ever exposing them on public networks.

Biometrics uses physical characteristics that are unique to individuals, such fingerprints, iris patterns or facial geometry.

Multi-factor authentication requires the user to present multiple pieces of evidence about his/her identity, such as a code from Google Authenticator or a physical key (e.g. YubiKey).

Finally, companies are continuing to develop ways to add value for digital wallet users. They start with the advantage of using a device nearly everyone already has with them. As services and conveniences are added, and concerns about security drop, the argument against adding a digital wallet to your smartphone's capabilities won't seem like much of an argument at all.

For instance, if you can safely use your digital wallet to pay for your coffee ahead of time at Starbucks, and then skip the line to pick it up (which you can), why wouldn't you? If your digital wallet allows you to cover your Uber fare without even pulling out your smartphone, (which it does), why not use it?

Being smooth isn't easy

It's critical for transactions with a digital wallet to be smooth, but it's not easy. Mobile network operators, financial institutions, retailers, and anti-fraud platforms are just a few components that need to collaborate in real time to execute a successful digital wallet transaction. At Equinix, we've brought all the ecosystems needed to enable a successful digital wallet transaction together in place - our global interconnection platform - for faster collaboration.

It's also essential for companies in the digital wallet space to be as close as possible to their partners and dispersed digital wallet users. Achieving this proximity takes a commitment to an interconnection-first approach, such as an Interconnection Oriented Architecture (IOA) strategy.

An IOA strategy shifts IT infrastructures away from centralised corporate data centers to the digital edge, where commerce, population centers and digital ecosystems meet. It is a distributed approach that increases proximity to all the elements needed to complete the most secure, highest-performing digital wallet transactions possible.

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