Can The Big Banks' Digital Wallet Succeed?

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Hi and welcome to what's going on in banking? I'm Ron shovel and chief

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research officer at Cornerstone advisors hot news this

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week the Wall Street Journal reported that a Consortium of

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large Banks including Wells Fargo JP Morgan

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Chase and Bank of America were planning

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to release a digital wallet

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to compete with Apple pay and PayPal if

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this sounds like a Consortium like

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early warning, I think that's exactly kind of what it is because

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since early warning was cited in the article as

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being the company that's going to run and deploy

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this digital wallet.

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I'll share with you some of my short takes on

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this. First of all, I was not particularly impressed or pulled

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over by this for a number of reasons. First of all,

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I think that for most part I think the digitally the

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big banks are going into this with a winner take all mentality. And

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when I look at consumer behavior in the digital

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wallet P2P and in general payments world

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and you all know this this is not a winner take

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all game and I think to a large extent that that's kind of

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what's guiding the bank's thinking here is that they think

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that they can steal market share away. I don't think that's

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how consumers use the digital wallets and digital tools

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and digital payment tools. I think to a large extent

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it's driven a lot by convenience.

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Well, I also had an issue with them thinking that they were

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going after Apple in particular when PayPal is

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clearly the 800 pound gorilla in the space, but

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I think they were overlooking the strengths of square cash

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and in particular which actually according to

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the consumer research. I've done has higher utilization

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than Apple pay does which shouldn't be surprising because

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apple is limited and bound by iPhone users.

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Whereas square

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cash app isn't but the strength of the merchant

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Network that cash app brings that square brings to

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the table. I think is something that this Consortium was

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overlooking.

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But they're actually seemed to be some confusion as

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well as to what early warnings role was

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in this one of the leading payment experts in

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the space. I'm not going to mention his name, even though I respect him

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greatly posted on

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his own blog and in Twitter as well that this

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was separate from early warning and was going to be a

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separate Consortium and then minutes later after seeing

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that I saw a LinkedIn post from early warning how

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proud they were to be

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part of this engagement. So to help us make some sense of

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this and to get down to the whole so what of

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this digital wallet and announcement I've wrote

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on the show today Scott Harkey who

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is the Executive Vice President of Finance and payments and

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dava.

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One of the leading payments experts in this space

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and actually a fellow Forbes contributor as well.

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Scott I'm really appreciate you coming on what's going

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on in banking podcast and to get

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your thoughts and comments. I kind of want to segment it out a little bit because after

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I had posted on LinkedIn about

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this announcement, I would say

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that 99% of the comments. I got were pretty supportive

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you counted for the 1% that didn't and

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that's cool. That's kind of why I wanted you on but I

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wanted you to just take a few minutes to describe why

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you kind of had an issue with with the post

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and maybe the announcement altogether.

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Yeah, thanks Ron, then thanks for having me. It's great.

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Great to be on the show. There's always at least

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one, right? There's always at least one guy that's gonna call us trouble. I

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guess this time, it's me, but I think the, you know,

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the immediate reaction was probably to um

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how it feels like some of this news came out and that was

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yeah for my perspective the initial Wall Street

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Journal article felt like it made a lot of assumptions about what

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was happening. Not sure what the source of intel was or where it

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came from or how it got out there but certainly over

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the course of the day got updated with a little bit more information

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as ews. I assume put out an announcement

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or Gabe an actual comment and I I struggle sometimes

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when when people make assumptions

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and then judge something based on those assumptions, right?

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And so to me it felt like there was

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a lot of assuming would be a certain thing. There was a

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lot of reacting to you know, oh, well, it's maybe

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Apple pay isn't the right analogy kind of

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like what you said, which I totally agree with but I

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Didn't see a direct quote from ews or any

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party where they said that that was the point, right? And so it's it's less

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than knowing what the point is and more of just saying like well, like

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wait a minute like let's hear what it actually

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is from whoever's initiative. It is let's understand what

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what the go-to market for it is or what

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the objective is. Let's understand the use case is a cement to

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Target and I just felt like everybody was assuming what it

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would be and then judging based on their own assumptions when

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in reality it could it could be

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something entirely different or targeted a completely different set of

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use cases. So that that was really the kind of initial reaction.

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Right which was just like I I I'm not one

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to shy away from critinking critiquing sometimes what

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the big bangs do or you know, the opportunity there and live through a

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lot of a lot of that but you know, I want to

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give everybody a chance let's let's judge it as a product that goes

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to Market not not as a pre-release announcement. That

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wasn't even really announcement good points.

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I do want to well we have to take the report as

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On this one and then get your thoughts because I

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do want it. One of the other issues I had was the description of the user

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experience.

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Which said that in making a purchase online

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the things the

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consumer would have to give the merchant their email address

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that would then go back and check with early warning system

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to find out what cards were available and then present

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a list that list back to the consumer to make

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the choice on payments. My comment was for God's

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sakes. I hope that's not how the actual experience works.

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So actually have two questions for you quickly. Do you

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do you think that that isn't acceptable user inter

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user experience, but I also

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want you to get into that you did comment on LinkedIn that

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you did have some really good thoughts about what

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a what the experience could be. So could

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you address those two things?

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Yeah, you know the way you just describe the experience or that

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it was described in the article makes me think of one of

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the iterations of masterpass a number of years

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ago, right when master pass was being built one of the

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models they tried was trying to trying to provide

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the master wallet while each individual financial institution

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had their own like sub wallet almost within that

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and that description makes me think of that experience a little

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bit which was was not great. Right? It was not widely adopted

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so I will say I hope that that is

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not the in-state experience. But I also think that

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the the way they're credential of

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the underlying customer is is entered,

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you know, it feels like there's

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lots of opportunities for that to maybe not be quite as painful

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as as we just start articulated depending on the use

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case, right? So when I think about use cases that

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are involving, you know, real-time payments as an example and

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the whole request for pay flow around bill pay

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or other things is it gets used. I mean that that is that whole flow

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I mean it's being initiated by the customer engaging

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that flow. It's going to a contact

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email address, you know, based on what the fun institution

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has on file. So if you if you separate again, if

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you separate none of this is with like knowledge of

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how it gets implemented, but just in thinking about a way it

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could be implemented separate the experience today of

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what we think of as a digital wallet in a checkout from

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the assets that the banks

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have or have access to through ews through

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the Clearing House with tokenization in

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Real Time payments through you know

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other entities that they have where they're

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they're looking at how do they not not

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build a directory but you know say leverages they'll

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directory right when you think about the Alias structure in zel

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and what that could enable if you start to

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put these pieces together and you start to separate

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out the wallet experience of Apple pay

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which again, I think is actually a bad example because

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That that is the competition that they're going

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after. I think that's going to be a real struggle from just the

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pure experience and integrated experience Apple can

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provide but if you think of it more of a payment use case

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and what are the set of payment use cases where a

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bank driven wallet could actually provide a better experience. I

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do think there's quite a few of them and and I

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think part one you may program more of a few

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examples use cases where you think what I think Bill Pay is the

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obvious one as I was just saying right I think as as bill pay

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moves into real-time payments or requests for pay who comes an

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integral part of that flow, the banks are going to naturally be embedded in

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those flows and it becomes an easy one. I think

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recurring payments becomes another one right where

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if I'm setting up a recurring biller our recurring

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payment the single

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the one-time facilitation of the connection of that account

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to a payment mechanism is not a big deal in

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the context of you know, a recurring bill that happens or

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recurring payment that happens every month. I think

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some of the e-commerce use cases are some of the P2P use

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cases that they're already exists today again, if

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the if the enrollment or the usage is

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a one-time thing are they enrollment is a one-time thing

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or the connection is a one-time thing then then the

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mechanism for payment can actually become pretty frictionless and

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if you think away shot pay, right?

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The same flow you just described as how shot pay works.

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Every time I go to a site that uses shop pay shot pay

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is the easiest checkout mechanism, but I still have to

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start by putting my email address in there my phone number right and

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that's what builds the connection.

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Everything after that is super fast super easy flow

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super well to me. The model is that

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it's it's okay. I get it. There's a little bit of friction and

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you have to identify yourself somehow right? You can

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use cookies and other things to make that easy, but fundamentally,

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you have to identify yourself. But then once you do

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if it's a fully integrated experience, you can actually be a

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really great check out the bank already knows address already knows

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all these other details about you. They've got access to

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the rail right where they can put it on the real-time payment Network. They

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have Alias is another things they can use to attach it

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to underline accounts. So I think it's applying all

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of those tools all those assets to a payment

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flow or a payment experience that more resembles a shop pay

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then it does necessarily an Apple pay check

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out.

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Yeah, I did tell you Scott you're making a great case. I'm I'm still

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somewhat hesitant because in pessimistic

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because of a couple

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things number one is I go back to my comment earlier that this is

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not a winner take-off thing the year taught your

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pinpointing the use cases is spot on and that's

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the key the key is can the banks capture a

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large enough use case, you

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know where they're significant enough volume because for

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a lot of other things, you know people's behaviors.

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It's hard to change once they've

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changed to using the digital wallet from

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an Apple Google or whoever did then

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and we're support cash app. It didn't gets recodified

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that behavior now the big Bang's kind

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of want to come in and you know try to disrupt that I I

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was a little surprised you pick bill pay

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as an example because I would have thought that

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one would be a little bit harder to kind of crack given the way special

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young consumers who just, you know wait to get

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Mail from the biller and do stuff but I did

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think though your comment about the recurring payments could be

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one that they could crack if they use some smart subscription management

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type approaches and and really help from

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from that perspective. So

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Yeah, just two last questions. I want to ask you

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sort of from an organizational perspective. Do you have any thoughts and

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insights of how this is going to operate? Is this something that

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you from your understanding is the part of

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early warning as I mentioned one of experts. He

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probably know who I'm talking about. He's probably

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I think he's down in your area as well. The geographically,

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you know said this was a separate and

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apart from early warning with its own CEO. Do you have any

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insight into how this is gonna work organizationally? Yeah.

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I I don't in the sense that you know,

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I I saw the press release or the commentary ews put

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out. I saw the the LinkedIn update

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of you know, employees it early learning that

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that identified new roles. I would

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I would read those leaves more than you know,

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I fully respect others and their opinions, but I I

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I've seen a lot of noise and a lot

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of things, you know be circulated

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is rumor understanding back in my Apple paydays that

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Are totally wrong. So I've learned

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to wait for the announcement or wait first, you know

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the official word to come out. Well, that was

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a great Freudian slip and I might not that one

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out. That was an amazing Freudian slip on your part.

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So they are expecting that this to

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be announced second half of

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this year which either that's incredibly fast

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development time where they've been working on this for a

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while under the covers. What's are

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you surprised that they're going to to release so

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quickly?

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I it does feel really soon. I mean

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I've heard rumors of this and I think we probably

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already some of the you know, the headlines about you JP

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Morgan and others kind of going back and forth on

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some of these use cases and you know, and not

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not mission of a wallet specifically but certainly conversation around

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this topic and and whether or not they should enable

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some of it I think in general the banks looking at

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you know, how do they think about RTP and and you know,

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do they they let it replace some of

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the card volume and card transactions, you know historically that

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was really taboo, right? You you wouldn't even have a

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discussion inside a big bank about you know, potentially replacing interchange

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with some you know, some of these lower calls methods,

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but I just it feels like a lot of

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that shifting around it feels like there's a lot of recognition of

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needing to continue to

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kind of own relationship with the customer and the payment space and

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so in that context, it's not really surprising to

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me. It feels like the success of zel is certainly

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I'm propelled the banks to feel confident in their

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ability to bring something to Market. I think

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that's the you know, the other comment I had was you were

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talking when you were talking about use cases is I also totally

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agree that it's not a winner take all I don't

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know any bank that thinks it is though, right and there

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again, that's where I go back to the you know, the commentary on the

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article is like conjecture of nobody said

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that they were thinking about it as they had to win everything. They

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you know, zelle is a massive success to the banks that launched

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it from their point of view, but it doesn't have the

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whole market right then Mom and square cash do a fantastic job. So

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it's I think it's okay to think of

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success as being you know a player in the market

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for a certain set of use cases for a certain demographic even

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right and that's the way I've used success

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for something like this as well. And so yeah, I mean, we'll

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see how it plays out in terms of timing that's that

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that does feel feel soon. But you know

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these things sometimes take years and sometimes po

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Has come out really quick. So we'll see. All right

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last point and a lady brought up the point about cell in

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the winner take all and yes, they they have done

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very well from a P2P perspective. I would say

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that you know that they do love to

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promote the fact that they have such huge volume, but

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you know part of the reason why they were

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able to I think gain such

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success so quickly was a couple couple reasons. Maybe

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number one. The competition was non-bank it

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was venmo. It was Cash app. It was PayPal, you

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know, the existing the existing

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Peter Pan tools were, you know,

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vendor driven and not particularly good and

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many of the early players, you know, we're basically looking to charge people

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a dollar per payment. Nobody wants to pay

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to pay but the other thing that has helped Drive sales

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success is the fact that they have made

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in roads into the smaller mid-sized

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institutions and once again,

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I think I can point to a lot of Institutions who are not

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super happy about the the cost of doing this they're

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in they're seeing the volume. They're they're

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accepting it. And yes, we've seen, you know, one

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one competitor from the Community Bank side to this

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but they've done very well, but part of the thing Scott

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is that not only is there no existing Bank competition.

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They're not really competing with themselves on

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this and with this digital wallet, you

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know, obviously from a credit card perspective.

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You know Chase Bank of America Wells Fargo.

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I don't know if Capital One is part of this Consortium or

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not, you know their duking it out every day on

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the on the credit card side. So it

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seems to be that like unlike clear exchange which you

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know was the the progenitor to early warnings to

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sell as a before they turned

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it over to early warning, you know there. I don't

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I see a whole lot more conflict that's inherent

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in this then there was

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would sell you think that's gonna be an issue.

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I I think it's a great point and I think that the JP Morgan

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example again just from the headlines and stuff. I

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read it's a great example of even inside a single entity how there can

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be conflict or there can be strong difference opinions about how

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hard to lean into some of this so I absolutely think it's

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it's real.

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You know, I I feel like I have to put the caveat out there

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of I'm not saying this will be easier or even that it'll work

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right? I I think all the doubt and all

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the critique is is understandable. I

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think it's more of I I understand why

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the banks would want to do it. I do

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believe they have the assets, you know,

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and and kind of now at this point the proven ability to bring something

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to Market and make it successful. And so I

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feel like if there was going to be a chance with you

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know, with with Isis and soft card and MCX and all those

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things behind us, right? I feel like if there

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was going to be a chance to make something successful now feels

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like a pretty good time to make a run at it. So it's not

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surprising to me that they're they're going for it. And I

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think we just have to see what gets out in the market and and then

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judge it then.

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I have changed the title of my blog post

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three times Scott. It started with delusional on

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announcement. Then it went soft and

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did a book a bit to doubtful on announcement. And

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I finally changed it again to doomed on

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announcement. So I'm I'm a

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little bit pessimistic because you look forward to it one word

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optimistic capessimistic about this concession. Definitely

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optimistic. Awesome Scott Harkey.

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He's VP of payments and financial services in

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Dava. Thanks a lot for being on what's going on in banking everybody

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thanks you for listening in hope to see you on the next episode of

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what's going on in banking.