Mo Money: How Apple and Google Rewired Your Wallet

You say you want a revolution? Digital wallets are about 

to bring one

There’s a revolution going on. Yes, right now.

You’ve probably seen it on the checkout line at your local grocer, or maybe while getting coffee at your favorite shop. The digital wallet is arriving and the way we pay for things is changing. Soon, spending money will never be the same. The power of the credit card will fade, as we begin paying for everything in a bunch of new ways, from phones to the very clothes we wear.

Around the world, big banks, tech giants, and startups are fighting to build the digital wallet of the future. They’re writing apps, designing smart cards, and revamping everything in between in calculated efforts to win our hearts and earn our trust.

Whether you’re clinging to cash or holding tight to your credit card, it’s going to become more and more difficult to avoid the evolving future of money.

Google starts the revolution, Apple sets it on fire

Every revolution has its watershed moment, a “shot heard ’round the world” that makes you realize there’s no turning back. The money revolution’s moment came in October 2014 with the launch of Apple Pay in the United States. Apple wasn’t the first company to design a way to pay with your smartphone, but it was the first to do it seamlessly, proving that this technology is not a novelty.

Digital wallets come in all shapes and sizes. We’ve seen tap-and-pay on our smartphones, gift-card apps with scannable QR codes, and even digital smartcards that mimic the features of a regular old credit card but come with extra features. Google was first with a true “digital wallet” contender in 2011, its tap-and-pay Google Wallet, but the feature never gained much traction.

In the three years that followed, Google made little progress with Wallet. It couldn’t rally enough fans behind the project, get enough phone makers to support it, sign up enough credit card companies and banks, or get merchants to upgrade their terminals to support NFC mobile payments.

Abdsalem Alaoui Smaili, Managing Director of payment solutions company HPS, told Digital Trends that many other firms will soon build wallet apps thanks to Apple.Apple Pay changed all that when it launched with support from thousands of merchants and dozens of banks, and quickly grew to support 90 percent of iOS devices. There was also Softcard, a rather unknown digital wallet backed by T-Mobile, AT&T, and Verizon. Softcard ended upmerging with Google Wallet to help close the gap between it and Apple Pay. Frankly, Google Wallet and Softcard were just never seen as a threat to the status quo. It wasn’t until September 2015 that Google put together its new payment solution to take on Apple Pay. It called the app Android Pay.

“The market has been hesitating to go to NFC … but having Apple come into this field is really a confirmation that it will be the platform that will be taken by most,” Smaili said. “Now that they’re in, all the others who were hesitating will now massively invest — because usually Apple is a visionary on anything they do.”

Meanwhile, other payment innovators, such as Samsung, look to circumvent the entire NFC part of the equation, so merchants need to do nothing to get compatibility going. Its payment service uses magnetic loop technology that’s supposed to support just about any card reader on the market today.

But as much as we blame Google and Softcard for their slow pace, there’s another big reason it took so long to see the war for our wallets to crawl out from under that rock: the payments cartel.

How cartels impede innovation

Since Apple Pay’s debut, alternative payment methods have exploded. Whether it’s Android Pay, Samsung Pay, Coin, Swyp, Stratos, Plastic, or whatever else is launching tomorrow, countless tech firms and startups are popping out of the woodwork to join the race.

But this wasn’t the case a little more than a year ago. Before Apple Pay, Google Wallet and Softcard struggled to hold ground, and many of their problems stemmed from the industry they tried to take on.

“Everyone’s trying to get their own piece of the payment processing pie,” Patrick Moorhead, President & Principal Analyst at Moor Insights & Strategy, told Digital Trends.

He’s referring to the companies operating behind the scenes of the credit card world. The payments industry — including everything from credit cards to bank accounts — is steeped in cartels and fiefdoms. Each group claims fees and controls a particular realm, whether that’s issuing cards, processing transactions, or some other part of the payments puzzle. Getting a revolutionary money app like Apple Pay or Google Wallet to work requires many of these cartels to give their consent. It took Apple’s blood, sweat, and tears to get its payment app to work. It also involved partnering with individual banks to support debit cards and other secure transaction requirements. Even Samsung has to play nice with banks and other players in the payments cartel to get secure credit cards to support its Samsung Pay platform.

But while Apple courted banks and payment processors, it made enemies. Another cartel has lined up to take on digital wallets, this one representing the many merchants sick of paying credit card fees. 7-Eleven, K-Mart, Dunkin Donuts, and others banded together to form the Merchants Customer Exchange (MCX), which offers its own digital wallet, CurrentC. At one point, CVS and Rite Aid even said no to Apple Pay, expecting to soon support MCX instead. They soon reversed this decision, and while CurrentC is still around in limited use, one look at its Play Store rating says everything you need to know about this digital wallet. While CurrentC is dead in the water, there’s no doubt that some merchants will continue resisting digital wallets as they gain traction.

Despite its accomplishments, Apple Pay is still a far cry from a true universal digital wallet. Pain points remain for digital wallets of all shapes and sizes. Yet the concept set fire to the old ways of paying, and as a result, there are now plenty of fresh faces looking to take on the payment cartels. Android Pay is finally in full swing, and a host of other competitors are emerging, including ones looking at digital wallets in an entirely different light.

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2. HOW STARBUCKS BANKS MILLIONS ON FREE 

COFFEE

Starbucks isn’t in the business of trying to beat Android Pay or Apple Pay, but its digital wallet is doing something few have done so successfully. The Starbucks app simply lets customers pay using a gift card on their smartphone, and it’s simply genius.

The Starbucks Rewards App has been around for several years now, and it’s nothing too fancy. Rather than tap and pay, it uses a QR code on the screen to load your gift card information for payment. Customers can load their gift cards using a credit card, and refill the card as they spend it. In return for using the app, customers get free drinks and other nifty rewards.

This sounds just like any other rewards card from any old company, but Starbucks isn’t like any other company. Starbucks sells more than $5 billion a year in gift cards — nearly a third of its entire revenue. 2015 was a record year, too, since the mobile app helped spur gift card sales.

Starbucks is also making millions off its mobile app, no matter how much free coffee it gives away. First of all, Starbucks saves money on credit card fees by encouraging customers to use gift cards. When customers use credit cards less and gift cards more, Starbucks saves on the hefty transaction fees from each credit card purchase.

In addition, Starbucks makes interest on the money stored on its gift cards by investing it. The numbers are not clear, but Starbucks can easily earn two to three percent interest — if not more — on the billions it has saved up in gift card balances. Starbucks is your bank without you even realizing it.

This reveals where Starbucks gets it, and merchants like Rite Aid and CVS miss the point of digital wallets. It’s not about alienating customers and picking sides, but finding your niche that makes everyone a winner. Venmo, Robinhood, Dunkin Donuts, and countless other companies use your stored balances to make money while giving customers new rewards and added convenience. It’s digitizing how and where we store our money, all right under our noses.

The woes of early adoption

As great as the money revolution is, it’s also terrible. Paying with your phone or with Coin is like a box of chocolates: You never know what you’re gonna get.

I’ve made cashiers go wide-eyed with wonder when it works. I’ve also made 7-Eleven employees glare suspiciously when it doesn’t. My colleagues and I know all too well the pain of getting out a regular credit card after a failed transaction. Having to carry around an extra credit card defeats the entire point of a digital wallet.

It’s chaotic, really. Every time I take out my smartphone, I’m never quite sure if I’ll be able to buy something successfully. When it comes to using our money, that’s not something easy to shrug off.

We’re still in the beginning of it all, so it’s fair to understand why there are kinks that need working out. For tap and pay, a lot of people — users and merchants — don’t quite get it, and not all devices are supported. Apple and Google are working hard to improve compatibility, however, and have made strides since launching their digital wallets.

For smart cards and other such devices, it’s a different story. The Payment Card Industry (PCI) sets strict rules about the shape, size, and technology inside credit cards. The smartcards we see launching, such as Coin, Swyp, Stratos, and Plastic, often just don’t work with the millions of different card readers that exist.

Other payment solutions, such as Samsung Pay, are not free of this problem either. The magnetic loop technology works only with some payment systems, as others require you to hand over a card to a teller, or just contain too much plastic around the secure elements to detect the magnetic loop technology. It also isn’t useful when you head to the restaurant — it’s hard to imagine a waiter or waitress rushing to the card reader with your smartphone to make a payment.

While it’s frustrating when these smartcards and other digital payment solutions don’t work, it’s a tall order to put all of that technology in something as small as a credit card. The cards look suspicious, not just to an unsuspecting waitress or cashier but to ATMs and other machinery that expects stringent design standards. We’ve yet to see how Plastc and Swyp fare, but hopefully the revolution continues to fuel new designs and innovations to overcome this hurdle.

Related: Our review of Coin 2.0

Plus, no launch is ever meant to be perfect. Even the credit cards we know and love launched with much chaos back in 1958 as thousands of people woke up one morning with strange new devices called credit cards. It took years before paying with plastic really caught up. Only time will tell to see which digital wallets really catch on.

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3. THE DIGITAL WALLET IS GOING MAINSTREAM

While adoption woes continue for these many payment solutions on the market, new kinds of digital wallets are already coming in the months ahead, including an unlikely partnership between wearables, smart cards, and a major payment processor:MasterCard.

As we’ve seen at Mobile World Congress 2016, smart card maker Coin is partnering with MasterCard to set a new software standard for wearables handling payments. While Coin continues to iron out the quirks with its alternative to a credit card, its already trying to grab a piece of the payments pie for wearable devices, whether they’re our smartwatches, clothes, or other accessories. The software standard is meant to ensure safer transactions, but it also gives Coin and MasterCard a foothold as consumers look to make payments with a flick of the wrist, or even a selfie.

Meanwhile, Visa is looking to stake its claim in the Internet of Things, setting a software standard for making payments across interconnected devices in the home, office, or elsewhere. The digital wallet of the future will enable payments across all these devices, and companies like Visa, MasterCard, and Coin are getting in early, rather than wait around for an Apple, Alphabet, or Samsung to do it first. Paying in more ways than paper or plastic is becoming mainstream, and everyone wants their piece of the pie before it’s all carved out.

There can be only one … sort of

As digital wallets continue to evolve, the money revolution will continue in full swing. All of this has happened, but we’re still in the early phases of something amazing. As digital wallets are refined, backed by banks, tech giants, and startups alike, we’ll continue to see new ideas get tested, fail, and come back in better versions. All of this comes down to one thing: giving us all an easier way to manage our money and spend it on the things we love.

No one knows which digital wallet will be crowned king, but there will certainly be one. The entire point of a digital wallet is to replace our entire wallet — gift cards, credit cards, and all — and each contender is trying to be the single, best choice. While there’s a place for niche apps like Venmo and Starbucks, there can be only one digital wallet that rules over our digital lives.

Which will it be?

Read more: Soft Tech
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