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Mobile Wallet Building Blocks Slowly Take Shape

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A Digital Wallet Versus a Mobile Wallet

After they find the item of their dreams, consumers desire a simple checkout process. "Consumers want a frictionless buying experience," explains Christian Lunoe, senior client service analyst at comScore. They want purchasing to be as quick and easy as possible; they do not want to enter a lot of information or stand idly by as payment information moves from place to place.

Mobile wallets offer that potential. Customers simply point their phone at the payment system and walk away a few seconds later. But what if buyers do not like using their phone or want to quickly purchase an item after browsing a Web site on their PC?

Here, they may be able to use a digital wallet. How do digital wallets, which made their way onto the scene at the turn of the millennium, differ from mobile wallets? E-commerce payment giant PayPal offers consumers a few ways to securely pay for goods online.

PayPal lets users link their bank accounts, debit cards, and credit cards directly to one online account. When shopping, the consumer opens his wallet and chooses to pay directly from his digital PayPal account or with debit or credit cards. All of the user's payment information is available in one place.

Also, the retailers from whom they're buying never receive the consumers' credit card information directly. PayPal pays the vendors and the PayPal users pay PayPal. The electronic financial services company makes its money from merchants that pay the company monthly fees and transaction costs so consumers can use the payment system on their Web site.

A mobile wallet has similar capabilities. The key difference is the consumer only pays with a smartphone. If he is using a PC or a laptop, he cannot access his payment information. —P.K.

Start at the Beginning

The process begins with mobile software apps. These applications need to be able to begin, authorize, and reconcile payments. Currently, a number of techniques are emerging to complete these steps.

The first element is identifying consumers via their phones. Smartphone vendors are outfitting their devices with Quick Response (QR) codes, which consist of black modules (square dots) arranged in a square grid on a white background. An imaging device, such as a camera, reads the code, and an application connects the code to the consumer's phone. Apple, Google, Microsoft, and Samsung AG have all delivered cell phones with this capacity.

The handset vendors need to provide an interface to users so they can set up and monitor their transactions. Right now, the feature sets vary greatly. With Google Wallet, consumers redeem items from loyalty programs and take money from an ATM. Apple has been enhancing its Passbook service so customers can redeem coupons at stores. Square's system produces a photo of the user at checkout.

A New Way to Connect

Next, the mobile device needs to be able to exchange information with a receiving system. Near field communication (NFC) relies on radio frequencies to allow smartphones to communicate with other systems. Most smartphones support this communication option.

On the other side of the connection, the receiving station, much work has to be done. "There is a significant need for infrastructure at the retail store," says Ashish Gedamkar, associate engineer of digital marketing at Allied Market Research. Retail outlets now rely on other network systems, such as Wi-Fi or Bluetooth, so their end points must be upgraded with NFC functionality or they'll have to place another device at the checkout counter.

Then the payment data needs to pass from the retailer's system to a third-party authorization system. With credit cards, American Express, MasterCard, and Visa emerged as the primary authorizers. In the mobile wallet space, a handful of options are taking shape.

PayPal Extends Its System

PayPal now plays a key role in many digital transactions. The company enhanced its electronic payment system, so it works with mobile devices from Apple, Google, and Microsoft.

MasterCard developed the PayPass Wallet Service, which has three components: PayPass Acceptance Network, PayPass Wallet, and PayPass API. MasterCard's partners include American Airlines, which has been integrating the PayPass Wallet into its mobile application, 

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