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Wallet Wars

You order coffee filters with the TV remote control during a commercial break of The Today Show. On the way to work, you tap your way onto the bus. For lunch you walk into your favorite sandwich shop, give your name, order the usual, and — bam! — it’s on your tab. On the way home, you buy eggs at the bus stop by scanning a bar code. It’s all possible now through a variety of technologies vying to be part of our daily routine of paying for stuff.

Contributed by:
Sean Miller, Group Strategy Director, R/GA NY

Companies you may have never expected to be players in the space are creating new utilities and experiences at a rapid pace. The so-called Wallet Wars are heating up, and experts say it’s all going to take a while to settle down. Until then, we’re in for an exciting period of experimentation.

And talk about a space ripe for innovation. Imagine a typical buying experience at a small restaurant. You get the check and present your credit card. The server runs your card. You wait, then sign a receipt. She takes the receipt and prints you another one. You leave with two pieces of paper and throw them away as you exit the restaurant (or a few weeks later when you see the charge on your statement). Now imagine how much more pleasant that whole experience could be when you scan the check with your phone, add a tip, and send the money digitally. The receipt is instantly filed in your digital wallet. No waiting for the server to return with your card, and no paper to manage.

And big ideas aren’t just on the consumer side. New companies are identifying the angst around the merchant experience and transforming it into opportunity. Most small merchants loathe the credit card companies. They hate the terminals they have to rent and the complicated fees they pay every month. So when a start-up like Square brings an Apple- inspired sensibility to the interface, a usable dashboard of transaction data, and a consistent 2.75% fee on every transaction, they embrace it.
The new vision is carried by payment outsiders like Square’s Jack Dorsey, who starts with user pain points and imagines an elegant solution. He sees payment as a “form of communication,” an opportunity for “beautiful design” and “magic” — words rarely heard from traditional payment companies. In a scene reminiscent of the .com boom, these upstart companies are commanding the attention of investors and attempting to leapfrog slow-moving market leaders.

As a result, new ways to shop and pay are popping up almost daily. Some of these innovations are using fairly established technologies like QR codes or simple bar codes. For example, Peapod in the US just rolled out virtual stores at commuter rail stations, using only outdoor posters and bar codes.
Experts say it will still be a decade before our phones replace our wallets. After all, the wallet today isn’t exactly broken. In order to get people to engage with a new and disruptive behavior, clever services and incentives will have to be key. As a result, expect to see a lot of marketing tactics that spur the uptake of new payment behavior.

In a way, we are facing a situation similar to the one faced by banks when credit cards first emerged. Banks wanted cards to be used everywhere, but that couldn’t happen until consumers perceived them as being accepted everywhere. And even then, cards weren’t widely adopted until rewards systems were put in place to motivate people. Today’s consumers won’t commit to mobile payment until they perceive universal acceptance and reward. And merchants aren’t quick to accept it because even by 2016 only one-quarter of US consumers will have an NFC-enabled phone.

The holy grail of this space will be whom we decide to trust with our virtual wallet. Some research has shown that consumers currently default to payment providers like MasterCard, Visa, and PayPal over Apple, Google, and the like. But this will likely shift as people dabble in new ways to pay and want to consolidate their finances with other parts of their lives. After all, we’re already trusting tech giants with trafficking a lot of our daily data.

The bottom line is this: While we may not be ditching the physical wallet anytime soon, the humble act of paying for things is about to get a lot more exciting. And only a few digital wallets will be left standing.

But lest you think all these technologies leave cash in the dust, common currency may still have a few tricks up its sleeve. Last year the Royal Dutch Mint released coins with QR codes that reveal “surprises” when scanned, and Sweden has announced plans to do the same with its paper currency.

May the best buying experience win.