PayPal banking on the digital wallet

Payments giants believes digital wallets could beat out Bitcoin and social payments to become the biggest payment innovation since credit cards and ATMs.
Written by Tim Lohman, Contributor

PayPal is banking that digital wallets will be as transformative to the financial services sector as the introduction of credit cards and ATMs.

Speaking to ZDNet, PayPal and eBay's Australian spokesperson, Adrian Christie, said that while recent financial services innovations such as real-time banking were important, digital wallets would, in time, be seen as the major innovation of the current period.

"If you look at payments innovation, such as the credit card in the '50s and the ATM in the '80s, we really haven't seen much change," he said.

"But, digital wallets will be as big an innovation as credit cards and ATMs, and it is evolving really quickly and will not be in the form factor that we see today."

While the convenience to pay for goods and services using a smartphone is compelling, the payments company admits it has an uphill battle convincing consumers to abandon cash and coins altogether.

"We have moved into the first stage [of payments innovation], which is the digital wallet, but it is very early, because to be quite frank, the consumer isn't crying out for a digital wallet," he said. "Cash and coins work really well and have done so for thousands of years."

According to Christie, PayPal has been working to address two major factors required for the success of digital wallets — convenience, and ubiquity. The company has been working with small businesses to help develop smarter point of sales terminals able to accept digital wallet payments.

In addition, it is also increasingly back-ending new third party apps, such as Beat The Q and Eat Now, to allow consumers to order and pay for coffee and take away restaurant food without the need for cash. It is also encouraging developers to create further applications through the company's open API program, Beacon.

"As the digital wallet emerges, how you have local, national and international coverage will be a challenge because that is what we have come to expect from other payment methods," Christie said.

In addition, loyalty schemes and discount offers would also be determining factors in the new technology's uptake.

"As we see ubiquity take place and more outlets embrace [digital wallets] we will see new forms of data-based loyalty that empowers the consumer," Christie said.

"Rather than the digital wallet being about you being exploited for your information, with the right controls the consumer will be given value, and offers and incentives through the wallet that change the way we transact and every-day commerce."

Bitcoin, social payments

Commenting on the rise of another major innovation in the financial services sector, Bitcoin, Christie said that the digital currency could prove to be as big a disrupter to the financial services sector as Napster was to the music industry.

"What [digital currencies such as Bitcoin] flexes is everyone's imagination as to what is possible," he said. "The conversation it is driving and the excitement it is driving among developers and innovators says that it won't be too long until we have a digital wallet that we feel is a normal way to interact and transact with."

Commenting on another innovation, social payments through platforms such as Twitter and Facebook, Christie said the extent to which consumers were willing to mix social and financial relationships would be a major determinant of the take up of these services.

"Consumers are putting barriers up between where they are willing to establish financial relationships and where they are not," he said. "Time will tell whether or not people are willing to mix those worlds or keep quite clear separation between what is a social relationship and what is a financial relationship."

"There has been a lot of noise when it comes to social commerce and retailing, but we have not seen a lot of volumes in that. What we have seen is social influencing purchasing decisions."

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