What’s in your digital wallet?

By Maksim Rokhlinedigital wallet, Innovation, Liberty, Payments

This blog is about  what can possibly fit into an e-wallet and be actually spent.  This blog is a bit more about money as a whole class of assets (not limited to national fiat currencies) that can be placed into our e-wallets and be transacted over multiple relevant payments protocols.

e-Wallet as is

Its been awhile since I wanted to write about e-wallets.  It is obviously a ‘container’ of payment accounts (PANs, bank accounts, internal reference to stored value).  It is its own protocol for authorization and settlement.  It is a technology to decouple transaction that presents itself as a processor in the first lag of it and as a merchant of record in the second lag.  e-Wallet can expose itself via other mechanisms like a debit card number issued against a wallet account.  In such a case, an e-wallet is a form of a prepaid account that knows how to load up itself to commit to an authorized request (obtained via debit card rails).

e-Wallet is also about a new level of account servicing.  With it we (merchants and / or consumers) received instancy of underwriting and settlement (for the most cases).  We got P2P payments and cross border remittances simplified.  We got PCI scope reduced.  We received pricing simplicity.  We got shielded from enormous complexity of interchange assessment.  We got simplified checkout (sometimes even one-click checkout) process.  We got whole new level of risk management that allows for ‘more’, ‘faster’ and ‘simplier’.  Across web and now getting into mobile..  We got a lot.  So, – thank you e-wallet.

In the aspect of being its own protocol e-wallet success requires oligopoly power (i.e. you have to aggregate a lot of buyers and sellers to be relevant).  Within e-commerce space an e-wallet is often its own protocol and you had to come in the right place and the right time to aggregate sufficient number of users to have sufficient number of users to feel compelled to continue to use it.  PayPal managed to become an oligopoly (power) protocol in the ecommerce space that was still new at the time PayPal service was launched.  But obviously it failed to break into the mature offline space with its protocol and had to revert back to card rails to be spent (as a container with value references) in bricks and mortar environment.  It is that difficult to come up with a new language and make people speak it.

But, to me, the value of the e-wallet is not in its protocol.  I care about what’s in it and the level of service I get as its user.  The latter does include acceptance and transaction experience but doesn’t require supremacy of e-wallet own rails.

What’s in your wallet?

As I said above, – this blog is supposed to be more about medium of exchange.  I should skip the whole question of commodity money vs. fiat money.  This is my favorite subject and I am firmly convinced in denationalization of currency, private competition in money issuance and resulting formation of the most suitable class of assets that can serve as money.  Sufficient to mention here that most of the e-wallets contain references to accounts (PAN, bank account, wallet credit account..) denominated in national currencies.  However, even within the limitations of present legal framework there are possibilities and real attempts to introduce other assets into the spending container.  We have cryptographic ‘currencies’, gift certificates, commodities, stocks and other securities.

No question that gift certificates are privately issued promissory notes to redeem value upon request.  They are money to me.  With availability of effective exchange networks for such assets, an e-wallet can (a) serve as a container for them and (b) make a use of them as a payment with ANY merchant whether it accepts the gift certificates or not.  Whatever the protocol is used to authorize a payment in gift certificates, an additional conversion process (of a gift certificate to an accepted currency) can take place.  The swap can effectively happen either in parallel with settlement process or right before it.  So, I can pay at Safeway grocery store (a merchant) with my debit card (a protocol) linked to my e-wallet (container) that holds my Gap gift certificates (money).  e-Wallet can authorize the request by checking market value of my gift certificates to ensure funds sufficiency.  It will then (a) convert gift certificates to USD and (b) in parallel to that will settle USD with Safeway.

There are now Debit card accounts linked to cryptographic currency balances.  So, over the internet (and with the parties that accept such currencies) it is a pure blockchain technology.  Off-line and with these that don’t like the currency, an e-wallet can accommodate for additional authorization and exchange services.  (Authorize debit card request, exchange crypto currency to USD, settle with a merchant in USD, manage floating and exchange risks…)

I personally really like Bitreserve company. In their container I store my value in gold (I own actual metal) and in the mix of national currencies.  When I am ready to spend my stored assets, Bitreserve exchanges them into BTC and submits a payment via Bitcoin protocol.  It feels like I am paying with gold or euros when I buy from a bitcoin merchant.

Nothing technically precludes same Bitreserve to offer ‘deposits’ (or references to them) in the form of a publicly traded stock with quick and low cost conversion service when it comes to a payment.  Stockpile, an innovative gifting and brokerage platform, offers gifting service and brokerage account of fractional units of stock.  With Stockpile, I can gift someone $25 of publicly traded stock of X, which might be some 0.178 fraction of its basic unit.  I can have a brokerage account with $56 value or 1.38 units of stock Y.  Having such assets in my e-wallet I can pay with them over any accepted protocol coupled with effective conversion service.  I can pay at Safeway with my Tesla stock.  Safeway will accept my debit card issued against my e-wallet account.  My e-wallet will authorize the request and proceed with two parallel processes: exchange (Tesla stock to USD) and settle USD with Safeway.  It could be a bitcoin protocol with the conversion.

What you get is a personal treasury tool  (e-wallet) that can hold many asset classes (national currencies, precious metals, gift certificates, stocks, other securities), help you maximize their value and let you spend them over any protocol (its own closed loop, bitcoin, debit card, …).  It will be a job of a e-wallet provider to manage settlement risks.  It will be this e-wallet service where a brokerage account is morphing into demand deposit account seamlessly and quickly, where the boundary between physical and virtual space is irrelevant and payment protocols are (m)any.

To be honest it is not solely to my libertarian inclinations I choose to have this richness in monies and payment types.  I see how a digital wallet can become a next generation digital financial platform offering amalgamated blend of services ranging from financial management to liquidity and investments notification to special offers, – all in such blended and smart way that at a POS instance a falling or rising asset price can determine a choice of a currency for a particular transaction.  An example…