In Customer Acquisition and Retention

iStock_000025748970SmallWith all the different apps available to hold ID, credit cards, and airline tickets, we haven’t yet achieved the convenience that consumers desire for a complete digital wallet. Progress is being made by many companies and government agencies, yet the result is disjointed as each focuses on their own piece of the puzzle. Will our digital European Carryall always contain multiple wallets?

Estonia was the first country to adopt a digital national ID card, including mobile support. Nestled near Finland (Nokia) and Sweden (Ericsson), it’s not hard to imagine they are open to new technological approaches. In addition to an ID, it is a health insurance card, online banking verification, public transport ticket, digital signature, medical records access, and even a tax filing token.

There are many efforts in the United States to support digital identification, though the results aren’t quite as robust. A national ID card with a tax filing token would save the IRS a few billion on fraud, but there are significant constitutional challenges to nationalizing identity. State efforts started with accepting digital proof of insurance and are just beginning to move into identity.

Iowa announced last December that it will be releasing a digital ID smartphone app that contains residents’ driver licenses and will be accepted by state troopers as proof of ID. The app is targeted to roll out later this year and will likely be the first state app available. Basic privacy issues, such as disallowing the trooper to access other content while verifying the license, are being carefully planned for. The only major security concern remaining is the risk that a pin may not be sufficient security to protect one’s identity.

There is a lot to be said for states embarking on this path. Research has shown that most consumers are never more than an arm’s length from their phone. Even more stunning, is that consumers will realize they’ve lost their phone within minutes, while it might take two days to realize they’ve lost their wallet. A smart phone-based digital wallet could greatly reduce losses from compromised accounts if consumers notice their phone is missing more quickly than a physical wallet, not to mention the hassle of replacing lost identity cards.

Is digital ID likely to work? We can consider auto insurance as a use case. Thirty states are already accepting electronic proof of automobile insurance, and for the most part this practice seems to be working well. The biggest problem has been phone malfunctions. Since the requirement to prove insurance coverage remains with the consumer, Delaware Insurance Commissioner Karen Weldin Stewart suggested “that all drivers still keep a physical copy of their current insurance ID card in their vehicle in case your cell phone has a dead battery or can’t get a signal when you need to show your proof of coverage.” Not a ringing endorsement of the digital age.

Privacy is another concern. Several states have passed amendments to their laws that prohibit officers from looking at personal information on drivers’ phones if they are provided as proof of insurance. And police officers, for the most part, have demonstrated great diligence in handling consumers’ phones carefully. Unfortunately, not all police love the idea. At least one driver with a digital license on a working phone received a ticket for failing to provide proof of insurance because the police chief refused to look at his phone, even though electronic proof was legal in his state.

The same points hold true for digital ID. Smart phones might seem more convenient, but reliability is a challenge. Whether it’s an Android that hangs or an iPhone’s battery that dies, there is a tangible risk of being unable to reach your digital wallet when needed. While the Finns would likely argue in favor of Nokia’s Windows phone, it’s really impossible to beat the reliability of paper and plastic. And, if you’re going to keep a physical copy of your documents as a backup, do smart phones offer much of an advantage?

There are situations where a digital wallet could prove to be invaluable. For example, I arrived particularly late for a flight and it turns out that boarding passes can’t be printed within 30 minutes of a flight’s departure. Fortunately, I had already downloaded my boarding pass and was able to get through security and catch my flight in spite of arriving at the airport nearly an hour late. There are clear advantages to realtime connections to the cloud, but they are still limited.

So, how can we move from digital ID to digital wallet? We must close the gap between ID and payments living in separate apps. Perhaps Apple and Google will develop solutions that can be adopted by most states and insurance companies. But until ID and payments are integrated, the advantages will remain limited. As technology stabilizes, battery life improves and integrated solutions are further developed, we may yet see the evolution of a true digital wallet. If the advantage of digital wallets is convenience, we haven’t yet arrived.

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