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No Small Change
Editor in Chief
Perhaps only the beleaguered euro has undergone more makeovers than the digital wallet. The first e-wallets to poke their heads out of the cyber-age ooze about three years ago only slightly resemble the second- and third-generation programs available today.
To boost the prospects of e-wallets, developers have evolved their business strategies, too. In the biggest shift, they are forming marketing alliances with credit card issuers, computer hardware manufacturers and e-commerce software companies. “Digital wallets sprang to life independent of card companies but are finding a marriage,” observes Chris Musto, senior analyst with Gomez Advisors, an Internet research firm based in Lincoln, Mass. Card issuers bring a hefty dowry to the relationship: marketing dollars far beyond the means of the typical digital wallet startup. That, combined with wallets’ promise of bringing customers back to the same sites again and again, makes for a potentially powerful combo.
Though card issuers dominate the marketing arena for digital wallets, many Net-centric entities also are jumping in. Santa Clara, Calif.-based 3Com Corp. and Freeinternet.com of Seattle offer their customers software from EntryPoint Inc., based in Sunnyvale, Calif. Web retailers also have joined in with site-specific versions, Amazon.com’s patented one click shopping being the best known.
After a shaky genesis, e-wallets gained momentum during the 1999 holiday season as an easy way to store credit card and shipping information to speed online buying. “Three years ago, wallets were solving the problem of security,” says Ted Goldstein, chief technology officer of Brodia, an online shopping service based in San Francisco. “Today, a consumer may shop at dozens of Web sites for everything from medicine to laundry detergents. Wallets make it easier by bringing one-click shopping to every Web site.”
Despite that, the jury is still out on who actually uses e-wallets. Last November, in a bid to sign up 1 million new users for the nine Visa issuers that offer digital wallets, Visa U.S.A. launched an advertising campaign to promote the cause. While Visa declines to share the results, a spokes-person claims issuers were “happy” with the outcome. Meanwhile, Gator.com of San Mateo, Calif., says it’s tallied approximately 1.5 million downloads from its own Web site, while IBM claims it has signed up 2 million users.
Wallet developers tout the same benefits to issuers and other potential corporate customers. The companies with the most impressive client lists are Brodia; CyberCash Inc., Reston, Va.; Gator.com; and GlobeSet Inc., Austin, Texas. Digital giants Microsoft Corp. and IBM announced their own wallets later and have had fewer takers.
Technologically speaking, there are two main schools of thought on how e-wallets should operate. So-called fat wallets from Gator.com, IBM and others operate entirely on the user’s computer. After the wallet program (usually at least two mega-bytes) is downloaded from the issuer’s site, there is minimal communication between the developer’s site and the form-filler applet. And credit card numbers and other sensitive information remain on the user’s computer.
Server-side, or “slim,” wallets require a smaller download for the client and heavier administration for the server, which holds all customer-input data. According to Brodia’s Goldstein, the biggest selling point for the server-side wallet is that users can use it from multiple machines at home or work. So far, credit card issuers MBNA America, Capital One, Providian Financial and Wells Fargo are going the slim route, partnering with Brodia to offer cobranded wallets.
Fat versus slim
Which works better? “I would be concerned about putting all my personal information on a server” for a bank to access, says Jeff Sumner, marketing manager for payments suite at IBM. Not surprisingly, client-side wallet issuers like IBM argue that maintaining credit card numbers and other data on the consumer’s PC minimizes the need for a secure server infrastructure on the Internet.
Fat or slim, virtually all wallets are compatible with e-commerce markup language. Developed by a consortium of e-commerce companies, ECML sets universal standards for merchants to use in data field labels on online purchasing and customer information forms. “With the idea that simple things are often the best, the ECML standard strives to be a very simple idea,” says Brodia’s Goldstein. To create a shipping address, every ECML-compliant wallet can fill in fields from its internal database. Merchants have been slow to adopts the standard in online forms, but several developers expect that to change now that program-ming lockdowns related to Y2K compliance have been lifted.
Along with developers’ mostly empty promises of trouble-free form filling and password storage, wallets are supposed to offer greater security-another largely unfulfilled promise so far. Until Web retailers adopt secure electronic transmission, wallets will likely continue to offer about the same security as consumers have when they input their credit card numbers online.
With adoption of the SET standard “spotty and slow,” Andreas Schreyer, GlobeSet’s marketing and product management vice president, says his company started offering products that deal with the more prominent secure sockets layer standard. SET requires that both parties involved in a transaction present digital certificates for authentication, but SSL requires only a password. So far, only American Express Co. offers a SET-compliant wallet, with the digital certificate stored on a microprocessor chip embedded on its new Blue credit card. These transactions are considered more secure because both the card holder and the card itself must be present to complete the transaction.
One of the most elaborate wallet products comes from EntryPoint Inc. of San Diego. Though marketed as a wallet-type product, it offers constant news updates as well as links to shopping and travel sites. EntryPoint’s software resides on the client’s PC. Once the user is online, the software receives broadcast updates from EntryPoint’s servers to power the constantly moving ticker tape display.
Card brands AmEx and Discover Financial Services Inc. forged a new path with issuer-specific wallets that require entrants to their server-side wallets to be cardholders of their brand. AmEx allows multiple cards in its wallet, but Discover allows only its own.