COMMENTARY: As the Digital Wallet Craze Spreads, Potential and Pitfalls Abound for Banks

As the modern payments landscape has developed, digital wallets have become nearly impossible to avoid—not that consumers want to stay away. In fact, the recent decision by America’s largest banks to team up and create their own digital wallet points to quite the opposite.

It’s easy to see why consumers have an appetite for tools like these. The pandemic-fueled e-commerce boom saw low-friction checkouts find success, and the ability to pay or be paid quickly with digital platforms made slow-moving banks look stodgy and antiquated by comparison.

However, banks moving into direct competition with existing wallets could be a watershed moment in the space, and one which pushes these tools further into the mainstream. As banks gear up to roll out their offering, there’s plenty of opportunity to supplant existing competitors, but also a potentially steep learning curve that just may determine success or failure.

First and foremost, large, national banks can boast a major differentiator from platforms like PayPal in the form of established credibility and a reputation for security. Just months ago, in fact, PayPal experienced a credential-stuffing attack that exposed the data of 35,000 customers.

Consumers want their money to be secure above all else, and banks’ ironclad reputation goes a long way in building a customer base.

Another advantage for banks is the simple fact that building that customer base could prove to be a relatively easy task. With so many existing customers and access to relevant data, banks have a head start on other wallet platforms. The mandate then becomes building a platform that meets the needs of the user.

Some of that cascades from overall sentiments around security and reputation. Existing, proven practices will need to be adjusted to fit modern payment methods, but the principles at the core should remain the same. With so much capital available, building a capable and airtight product shouldn’t be an issue, but managers will need to ensure the design strategy is informed by consumers’ payment needs.

When it comes to potential roadblocks in big banks’ digital-wallet endeavor, agility is the first thing that comes to mind. Reputation is a two-way street, and while security is an area where banks can win out, the glacial pace they’ve traditionally moved at was likely a reason fintech platforms gained popularity in the first place.

Now there has been a recognition on the part of banks that they’ve been moving too slowly, and that survival is predicated on keeping pace with a fast-evolving payments landscape where super apps, digital wallets, and the like all threaten to supplant traditional cards.

It all comes down to banks being willing and able to unlearn some more traditional practices and mentalities that might prove prohibitive to success in the digital-payments space. After operating in a legacy environment for so long, banks may find these nuances tough to catch. But that will be essential to delivering an optimal customer experience.

For now, it’s a waiting game. It’ll take some time for the banks to get their offering up and running, but customer and merchant knowledge of the upcoming launch could help to build early support. Merchants should be expected to respond positively, so long as banks prove that they can hold up their end of the bargain when it comes to efficient, frictionless checkouts, at competitive rates and settlement cycles.

Existing brand reputation should ultimately go a long way in fostering trust, and that may lower some barriers to quick adoption. But banks need to make sure they can process transactions as quickly as competitors can to make their offerings amenable to merchants and consumers alike.

Banks should expect the learning process for consumers to be dynamic and full of trial and error. Consumers want to bypass waiting periods and have transactions happen instantly. Banks will need to make sure they can deliver on that expectation in a safe and compliant manner.

Entering into the world of e-commerce payments also brings different regulatory and compliance requirements, where banks may not yet have the appropriate expertise. Regardless, the landscape is rife with possibility, and this foray presents a landmark opportunity for banks to not only modernize their processes, but also expand their audiences.

—Ron de Bos is senior director of payments & fraud at Digital River.