The Future of Digital Wallets Gradually Unfolds

Carl Weinschenk

It is reasonable to assume that a market as potentially large and with as many moving parts as the digital wallets sector would take a while to develop. It is, after all, no small feat to work out all the business and technology issues involved in empowering smartphones and feature phones to make transactions by simply being waved at readers. There also are vendors, carriers and payment card companies whose various and sometimes conflicting agendas must be considered.

That deliberate process is ongoing. And, while Apple -- the most important single player -- has yet to clearly state its intentions, observers report that significant progress has been made during the past several months.

The real drama surrounding digital wallets is not about technology. Indeed, most technical questions are settled or are close to being so. "It's more business relationship issues," said David Eads, the head of product marketing for Kony Solutions, a mobile application vendor to Fortune 500 firms. "That piece is the key. It's been a chicken and egg problem for the last 10 years. The other pieces are working themselves out. We know it can work. The last pieces are the business relationships."

The numbers provide good testimony to why so many big players are interested in digital wallets. ABI Research estimates are that in 2016 there will be 553 million NFC-enabled handsets available out of a total of 1.8 or 1.9 billion phones shipped, according to John Devlin, the firm's group director for AutoID and Smart Cards.

iSuppli is even more aggressive in its projections. Last year, the firm said that NFC chips were embedded in just over 56.1 million phones. By 2015, that number will jump ten-fold, hitting the almost 580 million devices.

The caveat with both estimates is that a chip embedded in a device doesn't mean that it actually is being used. A better measure is the extent to which consumers actually will use the technique. ABI predicts that the value of "contactless transactions" by 2016 will be $101 billion, Devlin said.

That's a lot of phones and a lot of cash, and much of the groundwork is being done today. Jagdish Rebello, a senior director and principal analyst for iSuppli, pointed to reports that AT&T, T-Mobile and Verizon Wireless are on the verge of investing $100 million in ISIS, an e-wallet joint venture that they own. This can be interpreted as a ramping up in the coming war against Google. In May, the company launched Google Wallet, an electronic wallet initiative that also includes Citi, MasterCard, First Data and Sprint.

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