Digital wallets beyond $16T in payments; banks want to handle identity transactions too
The launch by the Linux Foundation Europe of the global OpenWallet Foundation (OWF) drive to create an open-source engine – toolbox, repository, collaboration place – from which anyone can build a digital wallet seems to be creating something of a moment for the digital wallet.
Many are already using tools on their smartphones like Apple Wallet, Google Wallet and Samsung Wallet.
Of course, there are major wallet projects already underway such as the EU Digital Identity Wallet scheme, which is being joined by others such as Inji from MOSIP. India already has DigiLocker. The Nordics have shown how a banking sector can create a multipurpose ID app with BankID. Then there is Singapore, Estonia and so on.
But this could all still be the tip of the digital pocket iceberg.
‘Why the World Needs an Open Source Digital Wallet Right Now’ is the white paper by the OWF released at its launch (and should maybe have the word ‘engine’ after ‘wallet’). As we have a growing number of apps acting as digital wallets for various use cases such as tickets and currency, we are prone to vendor lock-in and potentially weaker security.
OWF does not want to build a wallet, but support the development of other wallets that are secure and work on any operating system, in any currency and language. “The digital wallet could become the most important tool ever for asserting control and engendering trust in our digital lives,” notes OWF Founder Daniel Goldscheider in the foreword.
A digital wallet’s three main functions are payments, ID and access, such as to health records, warranties, tickets. For payments, they are already ahead of the game. The report quotes from Worldpay’s ‘Global Payments Report 2022’ to show how digital wallet transactions reached US$15.9 trillion in 2021, making up 49 percent of e-commerce payments and 29 percent of retail, the latter projected to rise to 39 percent by 2025, almost catching up with cards at a predicted 44 percent.
The paper considers the hundreds of wallets already on the market and outlines issues such as vendor lock-in, questionable business models where user data is sold, unknown black-box designs and lack of interoperability.
The paper does not consider the likes of Apple, Google and Samsung’s wallets. Countries and states are trying to integrate identity credentials with these first-party providers, such as South Korea for its digital ID.
“Coordinating all these projects is a huge challenge that no one is doing. But it points to a likely solution: an open source wallet engine that promotes interoperability around the world,” states the white paper.
“Right now, we all have a common problem: consistent, compliant, and secure access to products and services,” Juliana Cafik, a principal standards architect at Microsoft’s identity standards team is quoted as saying.
The OWF does not foresee a super app that does everything for all. This seems an opportune moment to note that Futurewei, the U.S.-based research venture from Huawei is an Inaugural Premier member (sponsor). Tencent, developer of super app WeChat, does not have a seat at the table, nor does the Ant Group.
“We see a future where we’ll still have multiple wallets,” says Drummond Reed, director of trust services at Gen Digital. “That’s why we need a world-class wallet engine to ensure that interoperability is built in.”
Banks want a neutrally collaborative piece of the identity action
The Mobey Forum, “the global industry association empowering banks to shape the future of digital financial services,” has launched its Digital Wallet Expert Group to help financial institutions explore digital wallet use cases.
“The Expert Group will help banks expand their role in the digital economy to offer trust-based services that move beyond payments,” states the release. Mobey Forum’s Mobile Wallet Working Group had successes in the early 2010s that would go on to “commercially entrench specific stakeholder groups, including banks, in the creation and delivery of the technology and its supporting infrastructure to end users.”
Goal posts move. “A decade on, the digital wallet is not only pervasive but is again evolving to serve a variety of new use cases, including as a vehicle for digital identity.”
Banks’ position of trust with their customers is a real advantage, according to Executive Director Elina Mattila: As more consumers rely on digital wallets to store everything from plane tickets to identity credentials, it’s clear that banks have an important role to play in the growth and evolution of the ecosystem.
“Our Expert Group aims to help banks build on their strong positions of trust to establish prominent roles in the development of the infrastructure that supports digital assets, identification and trust services, open banking, and embedded finance.”
Mobey Forum “welcomes engagement from banks and related stakeholders interested in advancing the evolution of the digital wallet ecosystem through commercially neutral collaboration,” states the release.
The Expert Group announcement came one month after the release of the Expert Group’s report ‘The Rise of Digital Identity Wallets: Will Banks Be Left Behind?’
It urges financial institutions to consider their role in the digital identity ecosystem and finds that while they do not need to be building entire wallets, they can create “the infrastructure that enables issuance and acceptance of Verifiable Credentials. In addition to issuing wallets and credentials, banks also have opportunities to act as credential consumers, relying parties, authentication providers, and to combine these services in accordance with their own strategic approach.”
But they can also very much seize their trust advantage with consumers, governments and the private sector to explore whole new products.
“The growing need for trusted online identity means that Digital Identity services can enable banks to be more embedded in their customers’ daily lives,” states the report. Banks can generate new revenue streams by sharing data, note the authors.
From its survey of financial institutions worldwide in mid-2022, the Expert Group found that none saw public infrastructure as the ideal technical identity network infrastructure operating model. The majority see a joint public and private future.
“Banks should be part of forums and expert groups, and to contribute to the Digital Identity conversation,” states the report.
Meanwhile, Visa is a premier member of OWF. American Express is a general member.
“Without banks, it’s going to be very difficult for society to stand up a Digital Identity system. So, it’s not just about a business case, it’s about driving positive, real, and long-lasting change.”
There is an accompanying podcast on the issues.