Profile of Technology

There are three types of Digital wallets: client-side and server-side and combined solutions. Within these types are wallets that work only on specific merchant sites and those that are merchant-agnostic.

According to Jupiter Communications, client-only wallet software offers basic completion of forms across major merchants. Server-only systems characterize the one-click shopping programs offered by major merchants currently. Full-fledged client-server schemes promise the greatest functionality and security, but also require the greatest degree of integration and standardization between consumers, merchants, and banks. The division between client-based and server-based systems is important and inhibits a clear distinction between wallets that depend on merchant adoption to operate and those that consumers can use at any online store whether or not the merchant has signed on. The latter, which Jupiter terms "interloper" wallets, can be client-based or server-based. A server-based interloper wallet such as that from Transactor Networks resembles a wallet service sold to merchants. But like other interloper wallets, the success of Transactor Networks depends primarily on adoption by consumers. In contrast, "voluntary" wallet systems and services such as CyberCash or VeriFone distribute payment solutions directly to merchants and/or banks.

Client Based

Client-based digital wallets, the older of the two types, are falling by the wayside, according to analysts, because they require users to download and install software. (Computer World) A user downloads the wallet application and inputs payment and mailing information. At that point, the information is secured and encrypted on the user's hard drive. The user retains control of his credit card and personal information locally.

Server based

With a server-based wallet, a user fills out his personal information, and a cookie is automatically downloaded. In this scenario, the consumer information resides on the server of a financial institution or a digital wallet vendor rather than on the user's PC.

Computer World states that server-side wallets provide assurance against merchant fraud because they use certificates to verify the identity of all parties. When a party makes a transaction, it presents its certificate to the other parties involved. A certificate is an attachment to an electronic message used to verify the identity of the party and to provide the receiver with the means to encode a reply.

Click Here to Read How A Server–Side Digital Wallet Works

Interloper model

According to Jupiter Communications, a wallet vendor's technology and business model are closely intertwined. Interloper wallet outfits such as eWallet and Transactor Networks operate a marketing business similar, at root, to a vertical e-commerce portal. These companies aim to attract users—effectively members—by tweaking their wallets to complete forms at many online stores. In theory, the wallet interface and the information collected about users and their shopping patterns create multiple marketing opportunities that a wallet vendor can sell to merchants. For instance, Transactor Networks plans to strike affiliate deals with online merchants that return a percentage of every purchase successfully referred through its wallet (much like the affiliate deals between merchants and content sites). In addition, interloper wallets can sell added services, such as outsourced customer service, to merchants that become partners. Interloper wallets seek distribution through branding/promotion deals with card-issuing banks; those relationships can include revenue sharing as well as a bounty for each wallet user who becomes a card member. (A Citibank pilot program, for instance, offers a CitiWallet built on Transactor Networks's wallet.)

Wallets that form part of integrated payment systems store information on local software clients (e.g., VeriFone) or on servers (e.g., GlobeSet); functionally, however, these solutions are all client-server systems that require specific interaction between uniquely identifiable consumers and merchants and banks. These vendors therefore support SET as the only available end-to-end architecture; any standard that eliminates interoperability hurdles opens up the payment market, making it easier to sell to selected merchants, banks, or processors without selling to all of them. But wallet systems vendors recognize that widespread SET adoption remains highly unlikely in the near future (particularly in the US), and also offer proprietary and secure sockets layer (SSL)-based systems.

Wallet Constituencies Cripple Standards

According to Jupiter Communications, the development of universal, standardized digital wallets poses a classic technology adoption dilemma:

The core benefits that would motivate online merchants and consumers to use any proposed wallet standard accrue only when that standard is in widespread use among other merchants and consumers, rendering marginal adoption benefits relatively small.

This stifling effect is magnified by the competing interests of the key players mentioned earlier. In general terms, technology vendors, card associations, and—to a lesser degree—banks have a strong interest in the adoption of standardized payment systems by merchants and consumers. Among consumers, however, widespread adoption of a standard wallet depends even more on integration of the wallet into a technology platform (such as the browser or the operating system) than on compelling benefits. Merchants arrive at a standards decision via a cost-benefit analysis that depends on existing consumer penetration.

Click here to Read about the Three Payment Standards


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