The e-wallet: how it works

A forgotten relic of the late 1990s...

A little-noticed detail of Amazon.com's recent deal with Target may revive an ecommerce feature once given up for dead: the online wallet.

Here's the background to e-wallets:

During the heady days of ecommerce, online wallets seemed like a sure thing. Credit card companies, software developers and portal sites all rushed to deliver programs that would allow consumers to store their credit card data and other personal information, then would automatically fill out the forms during the online purchasing process.

Although the programs did fill a need, they met with resistance. Consumers were concerned about privacy, while some merchants balked at handing customer data over to third parties such as portals. Compatibility issues surfaced as well, so that consumers still ended up filling out multiple forms instead of just one. And the rise of one-click shopping, pioneered by Amazon, made e-wallets unnecessary at many retailers. Some companies eventually gave up on the idea.

Despite these problems, Microsoft is bidding to become a major player through its Passport initiative, a user identification and sign-on service that includes an electronic wallet.

A recent study put Passport membership at around 14 million, which may be due to new requirements that Passport authentication is needed to use some Windows XP features, Hotmail email, Microsoft's developer site and other Microsoft products.

Although it isn't clear how many customers are using the wallet services, Microsoft is continuing to push Passport towards ecommerce. It plans to offer a service this fall that will let banks use Passport IDs to authenticate Visa or MasterCard credit cards.

Passport was also expected to play a starring role in Microsoft's consumer web services plan, called .Net My Services. But that project has been sent back to the drawing board after partners and consumers complained about Microsoft's central role in managing user data.

As originally envisioned, .Net My Services was to become a "digital safe-deposit box" for hosting and delivering personal information while providing an array of services, ranging from commerce to communications, in partnership with web retailers such as eBay. The company had hoped that consumers would pay fees that would cover the bulk of the expense of running these services, which would manage passwords, calendars and other personal information in one place.

Instead, the plan has been the source of continual confusion among potential customers and has encountered a series of problems with its underlying technologies.

Amazon is currently offering its wallet service with retail partnerships rather than pitching it to merchants and consumers as a standalone feature. But the potential is there.

Consumers who want to shop online at Toys "R" Us, Borders or Virgin Entertainment already go through Amazon, through its e-commerce arrangements with those companies. In addition, the company hopes to set up deals with other retailers similar to the one it has with Target.

"The real benefit is we do have 26 million active customers. For some retailers who may not have a customer base as large as Amazon, having the ability to have (a connection to those accounts) is very powerful," said Jody Kalmbach, general manager of platform services at the company.

The online retailer won't say precisely how the data gathered at these customer sites is handled. But the more merchants it brings online, the more valuable the shared accounts become.

"This multi-site 'persistent wallet' is potentially very useful (and lucrative) as Amazon expands its family of partners. If these partnerships end up including most of the top general and specialty retail categories, Amazon will establish a much wider set of relationships with the majority of U.S. consumers, leveraging popular brand names," wrote USB Piper Jaffray analyst Safa Rashtchy.

Amazon won't be alone in the online wallet game. Despite unsuccessful attempts to establish wallet standards in the past, a group of companies have formed the Liberty Alliance, which is working on software that would allow consumers to log in once and then use that authentication at other websites. The Liberty Alliance has gotten support from both technology vendors and other companies who have an interest in ecommerce, including American Airlines, Nokia and eBay.

Elsewhere, America Online still offers a "Quick Checkout" feature for purchases at 285 merchants. Yahoo also offers a wallet feature, which it says works with the 10,000 Yahoo store merchants on its shopping site. Neither AOL nor Yahoo would say how many consumers had signed up for accounts, however.

One point in Amazon's favour, however, is that while new initiatives still require consumers to sign up for service, many ecommerce users already have accounts at Amazon. Amazon has more than 27 million active customer accounts, according to documents the company filed with the Securities and Exchange Commission - and those accounts are for people who are already making purchases online, not just signing into a website.

"(The e-wallet) really becomes a de facto standard for the Web. Other retailers will say if we don't have one-click, we need to get it," Delhagen said.

Margaret Kane writes for News.com