Digital Wallets

The idea of Digital Wallet is not new. It is there for almost 20 years and probably started with a stored value card concept commercialized by Mondex in 1990.

The name ‘Digital Wallet’ is often misleading. It sounds, as if, all your money will be in virtual form and you will be paying your bills with that virtual currency. Digital wallets do the bill payment part, but its functionality goes much beyond covering many other aspects. The most important aspect is to authenticate the user. This authenticating not only helps the user but also helps the establishment providing service or goods. Digital wallets should potentially verify a buyer’s age while purchasing alcohol from shops and allow the transaction after that. It safeguards everybody’s interest. It actually encompasses various technologies together. It covers the electronic infrastructure (including payment gateway and owner’s personal and financial information), front end software (which interacts with the user) and the device (which contains the software)

The individual information database portion is a very important aspect here. This is because, it holds the bank account and credit/ debit card information, driver’s license, health card and loyalty card information. Additionally, it may, in the future, hold the digital ID and passport/visa information. Safety and security of all these information is important here and it is done by using strong encryption which can be decoded only by the valid owner. Equally important is the ease of access of this information by a valid owner. One should be able to transmit the credentials to a merchant’s terminal wirelessly via near field communication (NFC). Currently, digital wallet concept has gained popularity in Japan. In Japan, they are called Osaifu-Keitai or “wallet mobiles”.

Reading upto this, you may think that you got the basic idea about the digital wallets but actual digital wallet concept is much more complex than this. Consider that your information/ database is stored in a remote server and when you need to do any transaction, you authenticate yourself with the server and the server carries out the transaction on your behalf. This is highly possible and qualifies as a digital wallet. This type of digital wallet is called a thin wallet. The only problem is that your information stays in a remote server. In case you don’t have a viable data link (read internet link) you may not be able to complete the transaction. Another problem is the vulnerability. In most of the cases, you will be authenticating yourself in a terminal provided by the merchant. That leaves a question of hacking your authentication credentials. To prevent this, multiple authentications are done these days including sending a code in your mobile device. You can very well understand that thin wallet depends heavily on the communication infrastructure. Thin wallet systems like M-PESA mobile payments system and microfinancing service is very popular in Kenya and Tanzania. In the same way, MasterCard PayPass application is typically getting popular in the U.S.

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