What’s in Your Wallet?

Whatever it is, seven big banks hope consumers will prefer their new app instead—which has no name and about which there are few details.

The seven big banks that own Early Warning Services LLC—operator of the Zelle payments network—are hoping they can make inroads with a new digital wallet. It’s a hotly competitive online arena that already features a number of powerhouse players that are feasting on a business forever lifted by the Covid 19 pandemic. Now, these banks, through Early Warning, want their piece of the action.

What’s their proposal? Currently all that’s known is what’s been published on the Early Warning Web site and in a recent article in The Wall Street Journal. The wallet will be linked to credit and debit cards, but only those bearing Mastercard Inc. or Visa Inc. marks. Other card networks could be added later on. Consumers can then use these cards to pay online using the wallet, but they won’t have to manually add the card details. A token will be provided.

The banks involved in the wallet are Wells Fargo & Co., Bank of America Corp., JPMorgan Chase & Co., Capital One Financial Corp., PNC Financial Services Group Inc., U.S. Bancorp, and Truist Financial Corp.

Early Warning has disclosed very little about the project, news of which emerged Jan. 23. The Scottsdale, Ariz.-based company did not respond to a Digital Transactions inquiry. On its Web site, Early Warning says the wallet will initially include approximately 150 million credit and debit cards from participating issuers.

The company also placed James Anderson—a former Mastercard executive who had worked on the brand’s Digital Enablement Service (MDES), which provides tokenized card credentials to mobile devices—in charge of developing the new wallet.

Early Warning already has begun its outreach, inviting attendees at the Merchant Advisory Group’s 2023 Mid-Year Conference to book a meeting to discuss the wallet.

‘Too Little, Too Late?’

Assessing the potential for this new digital wallet, albeit with few details, yields a general sense of what it is the banks want to achieve and the role its uniqueness will have in potentially attracting consumers and merchants.

Some observers say the product could have strengths, but it’s coming late to a crowded party. “Is this too little, too late by the big banks to keep up with Apple and Google?” asks Emmett Higdon, director of digital banking at Javelin Strategy & Research, a payments advisory firm and part of Livonia, Mich.-based Escalent Inc. “No. But it’s a huge uphill climb for them. The biggest hurdle is simply getting acceptance.”

That means merchant acceptance and consumer acceptance. The new wallet will have its challenges in building a user base. PayPal Holdings Inc.’s digital wallet has 435 million active users and Apple Inc.’s Apple Pay is projected to reach 48.7 million users in 2023, according to a forecast from research firm Insider Intelligence. Google Pay has an estimated 25 million users, according to a report on Business.com.

Though some may argue merchant acceptance will drive consumers to get the wallet, and consumer usage will spur merchant acceptance, acceptance by both will be essential.

Higdon suggests adoption will start with merchants, and for that to happen the new wallet will have to offer something unique. For a wallet backed by big banks, and by the issuers of the initial set of credit and debit cards enrolled in it, the distinction could be the product’s economics, he says.

“What’s the sales pitch to merchants? Is it carrying the same interchange rates?” Higdon asks. “Day one, if those economics are exactly or virtually the same [as typical card transactions] there is little incentive for merchants to go out of their way to support a new wallet.”

The EWS wallet also will have to ensure the consumer experience is interesting and has a “cool” factor. The banks could play to their strengths of tighter integration and the ability to issue virtual cards with ease, Higdon theorizes.

The potential for payment directly from a consumer’s checking account is there, too, he says. Whether the new EWS wallet will remain solely card based or delve into real-time payments is not known. Should the latter happen, it could present issues with the card networks and with how to manage the relationships between issuer and network, Higdon suggests.

If the EWS wallet can price transactions at less cost to merchants, it will have a unique advantage, especially if one day it might bypass interchange or reduce it. “Now they have a magic bullet for merchant acceptance,” he says. “Lacking that on day one is an enormous uphill climb.”

‘A Steep Hill’

Gaining consumer acceptance will be just as important, if not more so. Success, says David Schiff, a senior partner of financial services at West Monroe Partners LLC, “has to be driven by customer adoption first and merchant adoption second”—an argument that flips the one Higdon makes.

Citing the adoption model of Apple Pay, Schiff says many merchants initially resisted accepting it, but customers kept asking for it and Apple Pay acceptance eventually became a de facto choice for merchants.

The consumer onboarding process will have to be seamless. The Journal reported a likely scenario might involve asking consumers to type their email addresses on a merchant’s checkout page. Early Warning would be pinged, using connections to banks, to identify which of the consumer’s cards can be loaded into the wallet. The consumer would then select a card to use if he or she wanted to check out with the Early Warning wallet.

Veteran payments experts express skepticism about the latest wallet, even if backed by major banks and Early Warning. “Good luck to those taking on Apple and Google in attempting to dominate the market for digital wallets or winning the race for adoption of the [financial institutions’] current footprint,” says Greg Cohen, chairman and chief executive of Fortis, a Novi, Mich.-based payments provider. “I applaud the effort and in some way am rooting for the underdog and the greater competition, but it is a steep hill to climb.”

The big problem for the banks is developing the wallet just to hold off any disintermediation effects they may be experiencing or could face from nonbank apps, says Dan Poswolsky, head of product for Curve U.S., a fintech. Poswolsky also was part of Chase Pay, a payment service from JPMorgan Chase & Co. that sought to get Chase customers to make transactions using its own wallet.

When Chase Pay launched in 2015, part of what Poswolsky calls the “magical” experience was paying with a Chase credential and never exposing the card information. “The value for the merchant was better data and a decrease in acceptance costs,” he says.

Yet another recent wallet effort, he warns, could serve as an example for the Early Warning engineers to avoid. Based on publicly available information as of early February, he says, the new wallet could repeat the Softcard outcome. Softcard was a digital wallet operated by three wireless carriers that failed to gain traction. Google acquired most of its assets in 2015.

“They tried to do a similar thing,” Poswolsky says. “They didn’t want to be disintermediated.”

One of Softcard’s issues was that the user experience lacked a “magical” experience. “If anything, it made it harder for customers to pay,” he says.

So far, the Early Warning wallet experience appears to mimic that, he adds. “The experience they’ve announced is mundane and dead on arrival,” he says.

That’s a common viewpoint. “It’s hard to see, based on what little information has come out, what they view as the differentiated feature,” West Monroe’s Schiff says. “Right now, it feels like an early-stage, ‘We’re still relevant,’ play. They have to look to differentiate what will benefit the customer and consumer as well as the merchant.”

No Need?

It’s similar for Patricia Hewitt, head of PG Research & Advisory, a Savannah, Ga.-based consultancy. “There’s not a problem they’re trying to solve,” Hewitt says. “They’re not solving the problem of trust. They’re not solving the problem of being able to use your credentials online.”

The problem Early Warning is solving, in her estimation, is the problem of transaction activity outside of its ecosystem. “They definitely see PayPal as a main competitor,” she says. “There is no need for another trusted payment method.”

In the end, the new wallet’s fate will come down to a message about what makes it unique. A robust user experience will help. “Arguably, PayPal is the best experience in the online space today,” Javelin’s Higdon says. “Who stands to lose the most in this effort is probably PayPal.” That means a tighter integration into a consumer’s existing bank account and more digital banking connections could benefit the new wallet, he says.

For consumers, though, the new wallet will be confusing, Higdon predicts. “There will be a direct comparison to what’s already out there.”

For merchants, the question they’ll ask is how it will help grow their businesses or how it could improve the economics of payment acceptance, Higdon says. He adds that, while consumers can become interested in new technology, it will take actual merchant support for the new wallet to grow.