Digital Wallet Flips The Script On Payments Friction

A year ago, as 2019 was turning over into 2020, the distinction between card-present transactions and card-not present transactions was highly relevant in the world of commerce. As 2020 is becoming 2021, on the other hand — not so much and for good reason. As Ondot Head of Product Solutions Randy Piatt told PYMNTS in a recent conversation, card-present transactions have been reduced in direct correlation with most of consumer’s real-world activities. No one is going to the movies and grabbing a bite to eat in a restaurant, he said. They’re ordering out, having it delivered by Uber and streaming something in their living room.

The conversation about being top of wallet, he said, has moved over the last 10 months to being about being top of digital wallet, as anyone with a reasonable appreciation for consumer behavior can see that consumer behavior has shifted. And though some behaviors will come back, Ondot’s data is becoming part of a growing indicator of the digital-first economy.

“I think what’s important to understand is that there are so many processes around the card today that are defined by the friction of the experience,” Piatt said.

Friction that digitization for the card space can overcome, if done correctly in line with consumer convenience and need.

The Five Key Steps To Digitization

When issuers are considering digitizing their offerings, there are five key switches they need to flip, Piatt said. The first he named as digital issuance itself. How do you put the card in the hands of one’s customers faster digitally? Studies show, he said, that consumers are most engaged with a card right at the moment they’ve requested it. A digital card that can be put into their digital wallet for use on day one is likely to be activated and used, as opposed to the card that isn’t active for a week because it takes seven days to show up in the mail. Being unable to issue digitally is essentially handing a competing card their business for the entire time the customer is waiting for the new card to show up.

The second key competence goes hand in hand with the first, and it’s the ability to push a digitally issued card to the customer’s chosen digital wallet, as “digital issuance doesn’t work if there’s no digital wallet capabilities” underpinning them, he said.

Third, he said, digital issuance is about helping issuers understand where cards are being used.

“How do we help identify subscriptions and recurring transactions so that those card-on-file purchases are and are maintained?” Piatt asked. “This is meaningful for an issuer because the tenure of those relationships for card on file is typically measured in years. It’s long-term interchange revenue.”

And the flip side of that, he said, is the fourth switch: providing spend clarity for consumers, so that when they look at their monthly statement they aren’t looking at a set of confusing merchant designations they can’t follow. This leaves them less likely to spot legitimate fraud when it arises.

And finally, issuers need to better understand how to relate to rewards, where Piatt said being the leader doesn’t pay off nearly as cleanly as one might assume. Being competitive matters, he said, but offering the best or most generous rate and “leading with rewards” doesn’t pay off nearly as well as offering a competitive rate combined with an “experience that provides convenience and clarity. That can really drive that share of wallet.”

Consumers want rewards. Ondot’s data found them to be the leading driver for credit card customers when choosing an offering. But in the No. 2 spot for credit card carriers is convenience — which digital issuers can pursue from a variety of angles.

The Digital Horizon

When considering 2021, there were a few understated factors that were a critical, if quiet, part of the environment in 2020 that didn’t net a lot of press, but did a lot of the heavy lifting and will continue to play a critical role in 2021. Tokens, Piatt said, are an example of this.

“[Tokens] were secretly the most important part of 2020, and as we saw the shift to contactless spend and specifically digital wallet spend which were up 50 to 200 percent a year over year. Tokenization gets to the heart of security,” Piatt said. “Consumers will choose the card that they feel is secure, especially online and on mobile. And it’s not just digital wallets, the other part, it’s the merchant card on file tokenization that the networks have been doing that makes things like subscriptions uninterrupted even when the card number changes. Tokens have been in the background, but crucial.”

And those consumers, he said, will increasingly be online and on mobile — as we’ve seen in the holiday shopping results, the card network figures and in countless data maps all year. The world of physical transactions will reopen, but consumers’ preference for digitization will not revert. Going digital, he said, isn’t a question of if, or even when, at this point. The new question is how fast can we get it done?