Digital wallets are emerging as the next focal point and major opportunity, or threat, for payment providers. According to data from Ernst & Young, As of 2014 the mobile payment market was expected to reach $245 billion by the end of 2014. The digital wallet market can be subdivided into two core areas: (1) online wallets designed for remote payments, and (2) mobile wallets designed for on-site, point-of-sale payments. With time, the divide between these two distinct categories is becoming increasingly blurred.
With the advent of the digital wallet, at least two consumer problems have been improved upon. First, by storing virtual payment information in the cloud, digital wallets make it impossible to lose your wallet. Second, even if you lose your phone, your wallet is safe. Unlike a wallet full of cash and credit cards, if someone finds your smartphone they won’t be able to empty it’s contents into their own pocket.
Recently, Coin announced its entry in the digital wallet market place. Coin promises to manufacture a battery-powered, credit card-sized device that stores all of your credit card information in one place. Coin’s splashy launch—a pre-order campaign that blew past its $50,000 goal in 40 minutes—generated a lot of attention. There are several big issues, however, that need to be resolved if the Coin is going to be a successful product.
Credit card companies might nix it: Coin hasn’t secured approval with any of the major credit card issuers and networks it hopes to work with. Nor has the company gotten a sense of whether the industry would embrace it—though the $50,000 it raised in 40 minutes seems to show it has. There’s a lot of potential money in digital wallet services, and a number of companies have been jockeying for a position in the market. Firms like Visa and MasterCard, however, are not going to go down without a fight. In fact, Visa and MasterCard want to push their own digital wallet services—V.me and PayPass Wallet, respectively. American Express, PayPal, and other players are all involved in the market as well.
Furthermore, it has been speculated again and again over the past couple of years that Apple is also positioning itself to be a dominant player in the digital wallet space. Apple has 500 million iTunes accounts with credit cards attached (vs. Amazon’s 200 million). With it fingerprint scanner, the iPhone 5s provides Apple the opportunity to leverage its database of consumer credit cards and release a quick and secure digital payment platform in a matter of months.
Coin has to comply with industry security standards: Visa, MasterCard and American Express have all kinds of rules for logo placement, holograms, raised lettering, CVC codes, expiration dates – even card thickness. Many are for fraud prevention. Others are for branding. Regardless, stores that accept Coin payments that prove to be fraudulent might ultimately bear the risk of the fraudulent charge. Should Coin provide its own fraud protection services it might ameliorate that problem, but that would be a very expensive undertaking for such a new startup.
Coin won’t work if your phone is dead: It’s a security measure to ensure that you don’t lose your card. With smartphones’ increasing functionality and decreasing battery life, though, having to depend on battery-guzzling smartphones in order to pay for dinner is an obvious problem. The company quickly responded to criticisms on this front, and is now working on a way to let users re-activate their Coin from the card itself. Specifically, the company added a button to the Coin allowing users to tap the button in a Morse-code-like fashion to reactivate the phone even if their cell phone battery has died. The results of those efforts, however, are yet unknown.
All in all, though Coin has a way to go until it reaches maturity, the digital wallet trend is here to stay. Whether Coin will ultimately be at the forefront of that trend has yet to be determined.