This month Visa Europe announced its expansion of V.me, a digital wallet service which will be available to the majority of internet shoppers in the UK before the end of 2015. V.me launched in 2013 following a surge in the use of smartphones and tablets to shop online. It has now secured support from over half of the UK’s issuance base, accounting for over 60 million card holders, and from numerous retailers including the Arcadia Group, Iceland and Costco.co.uk.
The term “digital wallet” covers a range of electronic payment services. Digital wallets like V.me allow customers to store multiple card details online in a ‘wallet’ so that they can select which card they would like to use when they are making a purchase, and complete transactions with participating retailers simply by entering a username and password or PIN. Other features of some digital wallets include the ability to use the same digital wallet across a variety of channels (e.g. on a laptop, on a mobile, by telephone and in-store) and the storage of data, such as billing and shipping addresses, so that customers can avoid filling in the same information each time that they make a purchase. Digital wallets are offered by a wide range of organisations including banks, technology companies and retailers themselves.
For retailers, the growth of mobile commerce creates significant opportunities. By offering payment via a digital wallet, retailers can give customers more choice in terms of the payment methods that they are able to use, as well as the ease and flexibility of selecting which account to make the payment from if they opt to use a digital wallet.
By storing all of the information that customers are required to fill out to make a purchase, customers have access to a speedier and more seamless shopping experience. For online shopping, this may reduce the rate of customers who abandon their shopping basket, which is estimated to be as high as 68% according to a recent press release from Visa Europe. The speed of use could also help to reduce queues in-store.
Wallets such as V.me also allow transactions to be executed without a customer’s payment details being exposed to the retailer. This is expected to result in increased customer confidence when shopping online.
Another significant opportunity for retailers is the possibility of integrating rewards and loyalty schemes with a digital wallet. Which will add value by giving customers the ability to track and spend reward points electronically and making the customer experience even more seamless. Some retailers have already created their own digital wallets with this type of capability.
Further, digital wallets can provide retailers with increased information about their customers’ spending habits. This is a significant opportunity – by increasing their insight into customers’ purchasing behaviour, retailers are able to target offers and promotions to individual customers in order to drive sales.
With such a vast range of digital wallets available, a lot of fragmentation in the industry and increased competition, retailers face a significant challenge deciding which type of payment methods to adopt. As customers may wish to only maintain one digital wallet, retailers need to ensure that they are choosing carefully in order to maximise the opportunities provided by these technological advances. Key considerations are likely to be the flexibility offered by the wallet (e.g. can it be used online and in-store?) and the security package provided. Security will, of course, be a key consideration for customers; two factor authentication, the ability to quickly lock a wallet if fraudulent use is suspected and the ability to remotely wipe a wallet are some of the security features already used by digital wallet providers.
There are also important data protection considerations for retailers to consider. If the retailer is providing the digital wallet and collecting the personal information from customers signed up to the service, the retailer will be the “data controller” for the purposes of the Data Protection Act 1998 (“DPA”) and will hold the risk if any data security breach or non-compliance affects the personal data. Risks include ICO fines, requests for directors’ undertakings, compensation claims by affected individuals and formal enforcement notices compelling alterations to practices. In addition, the FCA has the power to impose unlimited penalties. Further, a new “data protection regulation” is currently in draft form and is expected to come into force in the next few years. The proposal for the most serious breaches is for fines to be introduced as a percentage of annual worldwide turnover. It is absolutely key to ensure that the personal information held in, or relating to the digital wallet is kept secure in accordance with DPA security obligations and also that PCI DSS security standards are considered.
Retailers also need to provide fair notice to customers (at the point at which they sign up to the service) about how their personal information will be used. There must be one or more lawful reasons to justify the processing of customers’ personal information for the service, consent being one, provided that it is valid, informed and freely given prior to the commencement of any processing. If direct marketing is proposed, there are additional rules to comply with and opt-in/opt-out consents would be necessary depending on the nature of the marketing and the sender.
On a practical level, if retailers allow customers to pay using their mobile devices in-store as well as online, they should consider whether their stores are in an area of strong 3G or 4G coverage or offer customers a secure and reliable Wi-Fi connection to complete their transactions. Retailers may also wish to consider whether they can offer customers a way to charge up their phones so that customers do not end up without their ‘wallet’ due to a dead battery. Payment pages on websites and cash desks in-store should also be equipped and tested for use with digital wallets to avoid technical glitches and lost sales.
If the use of digital wallets continues to grow, we are likely to see an increase in the level of consolidated services offered to customers, such as integrated loyalty cards, voucher codes and stored digital receipts, empowering the shopper and making the purchase experience more seamless. In the short term, retailers have some key decisions to make if they are going to take advantage of the technological advances in payments.