Wealth Watch: Dreams of a Digital Wallet

Photograph by Christine Balderas Close

Photograph by Christine Balderas


Photograph by Christine Balderas

Banks, credit card companies and tech start-ups spent the last decade obsessing over the prospect of using mobile phones as “digital wallets.” Google, for example, made $300 million in acquisitions to break into mobile payments with its underperforming Google Wallet.

Consumers are quite a bit less taken with the idea. A 2012 Forrester Research poll found 69 percent of U.S. adults are “not interested” in using a mobile device to pay in a store, with 17 percent interested. One reason for the lack of interest, suggests Forrester analyst Denee Carrington: “Our current way of paying is really quite convenient.” Swiping a credit card takes mere seconds. Credit cards and cash don’t run out of batteries.

There are at least two real advantages to using a phone as some kind of wallet. The first, as Finovate founder Jim Bruene notes in a wide-ranging interview on financial technology, is security. While credit card numbers can be stolen and signatures forged, phones can contain sophisticated technology to verify who we are.

The second is in helping us manage our money better. At least in theory, digitizing our money means we can keep track of budgets, optimize investments and take advantage of coupons, all in real time and on the go. In industry jargon, this is called “personal financial management,” or PFM.

If PFM hasn’t taken off yet, it might be because many PFM apps require a lot of work to set up, says Ginger Schmeltzer, senior vice president of emerging payments at Fiserv. “We want to have a budget, but we don’t want to do the work to make it happen.” Those tracking their spending on Mint.com these days are the same sort of conscientious people who tallied all of their cash transactions in Quicken in the mid-1980s. The rest of us may only start using phones to optimize our finances when such apps are both stupidly easy and provide big, obvious benefits. That’s a tall order.

With all the industry enthusiasm for digital wallets, the number of mobile payment apps and technologies has skyrocketed. Google, Apple, PayPal, mobile carriers, major retailers and several start-ups including Square are all competing over a payments market that Forrester predicts could increase seven-fold in five years. Yet so many options mean consumers are more bewildered than ever about which to choose and what benefits they bring. “Nobody knows what a digital wallet is,” says Andrea Jacobs, payments practice leader at comScore. “There’s a lot of confusion out there.”

Then again, maybe a lot of experimentation is exactly what’s needed. The goal isn’t necessarily one elegant mobile phone payment method for everyone, but a vast array of apps aimed at different financial problems – from clipping coupons and tracking receipts to paying rent and exchanging currency. “The notion that there will be one app that sits on your mobile device that takes care of everything is a bit far fetched,” says Aite Group senior analyst Ron Shevlin.

A classic episode of the sitcom Seinfeld focuses on George Costanza’s giant wallet, so large it messes up his back and so stuffed that it eventually explodes, sending paper all over the street. George wouldn’t have had the same problem with a digital wallet. “The beauty of the mobile device,” Shevlin says, “is you can shove more and more stuff in there.”

This essay originally appeared in Bloomberg.com's weekly personal finance newsletter, Wealth Watch. Sign up here.

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