Blog: From Atoms to Bits: The Digital Age of Money
By Samee Zafar; Edgar, Dunn & Company
The urge to digitize is as old as the Internet. In his 1995 book “Being Digital,” Nicholas Negroponte, the founder of MIT’s Media Lab, predicted the Internet would transform physical forms of information, such as books and CDs (made up of “atoms” as he put it), to digital forms of information (made up of “bits”).
Today, we see the atoms-to-bits transformation everywhere. We use iPads, Kindles or other tablets to read books and newspapers at a time and place that suits us. CDs and DVDs rapidly are becoming relics and most book and music shops barely make ends meet.
Could this also be the fate of banking and payments?
The answer is yes and to a large extent; the digitization of banking has already begun. People do their banking online. Most people cannot remember the last time they walked into their bank branches to do their routine banking chores.
E-commerce payments are digital. While we still use physical payment instruments, such as cash or plastic cards for making purchases in stores, advanced technologies can digitally embed the payment card information on personal items, such as mobile phones, watches, glasses or other “wearables.” Some visionaries are trying to develop digital currencies—transforming coins to “bit”coins.
But the dream of digitizing the wallet—cash, credit cards, loyalty cards, paper coupons and all the paper paraphernalia that resides for indefinite periods of time in our wallets—remains elusive. The technology is there but as any product manager knows, great technology does not mean always translate to great products.
Many available wallet products and concepts are half wallets—containing only a few of the items mentioned above—or offer only a prepaid account with a mobile interface. The idea, however, is so compelling that many of the biggest names in business are trying their hands at it. Visa and MasterCard have sophisticated products aimed at helping consumers replace the old wallet-in-the-pocket with the new digital wallet. Google’s wallet is an elaborately engineered and ambitious undertaking, while Apple’s Passbook is a great step forward but remains limited in functionality.
Mobile network operators (MNOs) are particularly interested in digital wallets. They see the wallet as a source of potential future revenue. In the U.S., a group of leading MNOs has joined hands to form Isis, a consortium dedicated to making mobile wallets a reality. In the U.K. a similar venture called Weve is the result of collaboration among the country’s three major MNOs. One of these, O2—part of the Telefónica group—had developed and rolled out its own digital wallet with much fanfare in 2011. But less than two years on, it pulled the plug on the enterprise and announced the discontinuation of the service by March 2014. What went wrong? The answer to the question depends on whom you ask.
Lessons from O2’s Exit
O2 is a member of Weve, so it makes sense for the company to focus on the interoperable wallet Weve is developing. Why duplicate the effort? Officially, O2 explained that the wallet was dropped to “give us time to look into new and better ways to help people manage their money on the move, both in the U.K. and abroad.” This statement alludes to geography. Telefónica, a global company, would be better off developing products that work across the number of markets where the company is present instead of developing separate country-specific solutions. All this makes make strategic sense at the corporate level. But at the product level, it seems O2/Telefónica may have made the same mistake many companies make when developing innovative products in areas outside their core competencies: Too little budget and too little time for a task that could hardly be more challenging.
The operational design seemed clunky. Here I use the term “design” as Steve Jobs defined it: “Design is not just what it looks like and feels like. Design is how it works.” When I installed the O2’s wallet app on my mobile phone, shortly after it was released, it took me nearly two hours to get it running and I still couldn’t link it to my cards. I lost interest. Some online reviews and people I spoke with also found it difficult to link up. Those who were able to get it working didn’t find the small discounts from selected merchants compelling enough. And it didn’t prove to be much easier than using cards. For those who did not have cards to begin with, the wallet could have been attractive; however, that’s only a small segment of customers in the U.K.
Once you’ve been through an arduous setup process, you’d expect a wallet to provide something new or improved or simplify something that’s already there. The mobile channel offers the perfect opportunity for a digital wallet that makes it easier to pay online. Entering payment card and shipping details on a small screen can be frustrating for consumers and lead to abandoned shopping carts for e-merchants. Consumers who want to browse and buy using their mobile phones, and that segment is growing, will welcome the opportunity to make the whole purchasing process more convenient. Until we achieve channel convergence, the wallet on the mobile makes more sense than a pure online wallet. That’s what the O2 wallet was aiming for, but in its last iteration it was far from its ultimate goal. However, it was discontinued too soon. It should have been given more time and money to explore a design that ultimately would resonate with consumers.
Samee Zafar is a director in Edgar, Dunn & Company’s London office. He has advised some of the largest financial services organizations in Europe and North America on competitive strategy, operations and technology. His expertise covers retail banking, card issuing and acquiring, as well as online and mobile payments. He can be reached at firstname.lastname@example.org.