Banks Have Many Reasons to Build Their Own Mobile Wallets

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How can banks benefit from a spurt of mobile payments innovation that is enabling faster checkouts with the advantage of greater security for customers?

Given the steady increase in smartphones and the number of merchants accepting mobile payments, it has become imperative to have a virtual wallet strategy.

As previously discussed, tokens are critical to mobile payments. In turn, the provisioning of tokens is dependent on the type of wallet used. Essentially, there are two types of wallets: the first is on the device itself and the other is in the cloud.

The device wallet has either a hardware secure element or a software secure element. Tokens are stored on the device itself. Here, the wallet is controlled by either the device manufacturer or the network operator.

The emergence of Host Card Emulation (HCE) protocol has given rise to cloud-based mobile wallets. With HCE, card information is stored on cloud servers and tokens are provisioned to the device on request or at the time of transaction. This enhances security several times over.

The cloud wallet can be either a full cloud solution or a partial cloud solution. In a full cloud solution, no payment information is stored in the device—the card is emulated by the cloud. In this scenario, the device has to connect to the cloud for every transaction.

A partial cloud solution is an alternative in times of limited or absent connectivity. In this solution, the phone application stores tokens pushed to it from the cloud at periodic intervals.

When the secure element is outside the device, the solution becomes open, lending more freedom to banks that want to own wallets. In other words, banks don’t need to be dependent on the device manufacturer or the network operator for their wallet strategy and deployment. Mobile applications can now be created independently with one-tap payment capabilities integrated within the application - thus making physical cards redundant.

Banks will be compelled to opt for wallets of their own. With more consumers acquiring smart phones every day, we are furthering the need for mobile transactions. It should be noted that many of today's devices are now equipped with biometric authentication capabilities, adding yet another layer of security to the transaction at no cost to the bank. Also, once the card, loyalty and delivery details are added to the wallet, the wallet itself becomes invisible to the user. The user experience becomes frictionless, while the payment process remains exactly the same.

Lastly, wallets will override the existence of chip-based cards which are expensive to provision—undoubtedly a major reason for banks to adopt wallets.

Going forward, virtual wallets will be used to withdraw old-fashioned cash from an ATM, completely eliminating the use of cards. The phone could and likely will replace the card. 

Imagine walking up to an ATM, clicking on "virtual wallet," and the ATM displays a QR code that you will scan with your device. Your presence and account are immediately authenticated and the ATM dispenses your cash.

In the future, banks that have their own wallets will be armed with two major advantages. First, they will be able to innovate faster to accommodate customer needs, such as cardless cash ATM withdrawals at significantly reduced costs. Second, further innovations, such as co-branding, card consolidation and loyalty/reward schemes will help create richer relationships with customers. The best option for a bank considering a virtual wallet is to work with a technology partner that has domain expertise, allowing for innovations to be tailored in alignment with business strategy and growth objectives.

Hari Subramanian is a consulting partner at Wipro Limited; Chetan Ghadge is the banking solution group head at Wipro Limited; and Vinodh Ravishankar is a managing consultant at Wipro Limited.

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