Focus on banking
Opening the digital
wallet: a wealth of
opportunity (and risk)
Digital wallets have leapt up the strategic agenda for the banking industry.
Anna Rodbourne and David Futter explain why they offer rich branding opportunities
T
he smartphone and tablet
revolution is facilitating rapid
growth in mobile payment
technologies and impacting the
way in which consumers pay for
goods and services. According to researchers
Gartner, the global mobile payments industry
is experiencing average annual growth of over
40% and will be worth more than $600bn
by 2016. It is no wonder that businesses in
various segments, including banks, technology
providers, card issuers, mobile operators and
retailers are all positioning themselves now to
ensure that they don’t get left behind.
Digital wallets are seen as a critical
battleground for success, with many being
launched within the last few years. Visa (V.me),
Mastercard (MasterPass), Google (Google
Wallet), Apple (Passport) and Paypal (Paypal
inStore) all now offer forms of digital wallets.
The mobile network operators, including
Weve (a joint venture between Everything
Everywhere, O2 and Vodafone) as well as
the major banks and various independent
technology providers are also coming to
market with their own wallet solutions.
Whether web or app based, digital wallets
typically enable a consumer to register their
debit/credit cards (or other payment) details
in a secure environment. These stored details
can then be used by the consumer to make
payments at the online or physical checkout
without having to produce his/her card.
The reason for all the excitement is the
opportunities that digital wallets present in
generating fresh revenue lines. They enable
new ways for companies to interact with
consumers and increase brand exposure. They
also offer innovative ways to monetise the
rich consumer data collected by the wallet,
as well as providing an enhanced customer
experience through combining payment
acceptance with reward programmes,
augmented reality and geo-location marketing
technologies. However, as with any new
product, implications for a company’s brand
30 Intellectual Property magazine
should be considered carefully before crossing
the Rubicon and offering digital wallet services
to its customers.
The patent of Damocles
Future predictions for a sector can often be
made by looking across the Atlantic to what
is happening in the US. There appears to be a
worrying first round of patent litigation cases
being brought in respect of mobile payment
technologies. Google, Apple, Paypal and
T-Mobile have all had infringement claims
made against them in the US recently over
technology used by digital wallets. And it is
not just technology companies facing claims.
Last year, Maxim Integrated Products filed
“They offer innovative
ways to monetise
the rich consumer
data collected by
the wallet...reward
programmes,
augmented reality
and geo-location
marketing
technologies.”
of sale technology infringes several patents.
Whether these claims have merit remains to
be seen. However, many see these US claims
as potentially signalling the start of a new
crescendo of patent litigation wars, which
could spill into Europe and beyond.
Being associated with a patent
infringement claim can be both highly
expensive and damaging to a company’s
brand. Even if an infringing licensee is not
enjoined directly in the claim, the defendant
licensor’s attempts to avoid or mitigate the
claim can cause significant business disruption
or product modifications for the licensee,
all of which will likely impact badly on its
customer experience. Accordingly, for those
companies contemplating developing or insourcing a digital wallet solution, the early
warning message is clear: comprehensive due
diligence on potential patent risks in target
territories and insisting on robust contractual
assurances from the wallet provider regarding
non-infringement will be important strategies
for brand protection.
Service, please!
infringement proceedings against various US
companies, including Starbucks, Expedia and
Groupon. They claim that these companies’
respective products (including Starbucks’
highly successful mobile wallet app) infringe
technology claimed across four of Maxim’s
mobile payment patents. This was followed
in March this year with PayOne filing a claim
against US DIY giant The Home Depot, alleging
that the retailer’s use of PayPal’s mobile point
Putting aside the threat of infringement, there
are other important brand-related issues to
consider. Most digital wallets are offered as
white-labelled managed services, so that
the wallet is operated by the wallet provider
under the brand of the licensee company.
As such, in using a white-labelled wallet, the
licensee company is entrusting its goodwill
in the market to the wallet provider. The
licensing company will therefore need to
be absolutely comfortable that the wallet
provider’s operational processes/systems align
with its own to ensure a consistent customer
experience and that the wallet provider’s
quality of service will meet its own customers’
expectations.
While white-label arrangements are not
unique to digital wallets, the issues raised are
perhaps more pronounced. This is because
many digital wallets can involve complex
October 2013
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Focus on banking
ecosystems and subcontracting structures. This
is especially the case for those digital wallets
which include mobile contactless payment
technology, such as near-field communication
technology (NFC) or quick response (QR)
codes, whereby the storage, transmission
and processing of the payment card data and
other associated sensitive authentication data
is conducted on behalf of the wallet provider
by trusted service managers (TSMs) or other
third party processors.
Accordingly, for most digital wallets,
appropriate service levels and performance
incentives ought to be key features of the
wallet agreement. Such incentives should
include meaningful service credits, the right to
render the relationship non-exclusive (where
relevant) and, ultimately, clear termination
rights for sub-standard performance.
In terms of service levels, the wallet
provider should clearly commit to an assured
level of wallet availability (uptimes of 99.5%
or higher are not uncommon) as well as
customer support/helpdesk service levels. In
addition, other metrics which relate to those
service elements potentially impacting on end
user experience need to be considered. These
can include: maximum wallet login and activity
response latencies (eg, account balance
retrieval time), payment processing speed
(particularly important for certain sectors,
such as fashion retail, where queue time is
critical) and security testing and vulnerability
thresholds.
commercial remuneration associated with the
transaction.
Where the wallet is being provided on
a white-labelled basis, most consumers will
naturally presume that the licensee company,
rather than the wallet provider, is processing
their data. Accordingly, any data incidents, such
as unauthorised access, data loss, unsolicited
marketing or mis-handled complaints will first
and foremost harm the licensee company’s
market reputation. This risk can be difficult
to mitigate in practice; nevertheless, ensuring
that wallet’s data privacy policy delineates very
clearly the data arrangements can help, as can
retaining sufficient control over how the wallet
provider processes the data in operating the
wallet service.
What (brand) is in your wallet?
One of the key drivers for digital wallet
providers is the opportunity to develop and
leverage enhanced customer data. Much
more personalised and, therefore, valuable
marketing can be achieved by combining
a purchaser’s identity and other personal
information (which the consumer provides
when registering the wallet) with their basket
and transaction level data (which is captured by
the wallet and/or retailer at the point of sale).
Few companies are able to cross-match and
exploit both data sets – supermarkets, through
their loyalty cards, are a lonely exception.
While it may be advantageous for a
retailer to access and use customer data
captured by its digital wallet provider to tailor
its marketing campaigns, the retailer needs
to understand what rights over its customer’s
data the wallet provider is seeking to obtain in
return. The data is unlikely to be protected by
any database right, so it is important that the
contractual position is clear as to who owns
the data and what rights each party has in
respect of it. Often, use of a retailer’s customer
data (particularly at the basket/SKU level) will
be as valuable to the wallet provider as the
Branding strategy for digital wallets is crucial.
For retailers, the digital wallet’s direct link to
the customer is seen as central to reinforcing
their brand awareness and visibility. Whereas
for financial institutions, the digital wallet’s
brand is arguably even more important:
a successful digital wallet’s brand is set to
become a valuable trademark in its own
right for payment acceptance, competing
alongside the existing payment brands at
point of sale (much like Paypal has achieved
for e-commerce).
Until very recently, this “top of the wallet”
battle has largely led banks, card issuers and
the card schemes to offer restricted, own
branded wallets, through which they design,
control and manage the wallet’s functionality
to limit them to their own services only. Card
issuers, in particular, have been disinclined
to enable their cards to be provisioned into
competing branded wallets. However, the
payment industry is beginning to realise that,
in order to avoid market fragmentation and to
drive mass uptake, a less restricted approach
may be needed.
For digital wallets truly to take off, the
solution must provide for a convenient and
effective customer experience, which is likely
to involve a number of competing brands
sitting alongside each other within a single
wallet. Providers and users of these so-called
“integrated” digital wallets will need to
think carefully about how they structure the
necessary trademark licensing arrangements;
undoubtedly each brand owner will be
looking for prominence, adequate quality
control around the use of their mark and an
apportionment of goodwill generated by the
wallet. Balancing these requirements for each
of the participants involved will be challenging.
As demand for mobile payments
continues to grow, a comprehensive and
considered strategy for using digital wallets
www.intellectualpropertymagazine.com
October 2013
Owning the customer
Checklist
when con
sidering a
label digit
white
al wallet:
• Engage
early with
your busin
stakeholde
ess
rs to raise
IP, data an
branding is
d
sues.
• Examin
e carefully
the vendor’
reputation
s
, financial
and technic
resources.
al
• Ask the
vendo
including w r to explain its IP stra
tegy,
hat patent
due diligen
has done in
ce it
your key te
rritories.
• Unders
tand the ve
n
d
or’s intenti
your custo
ons for
mer data a
nd relation
• If locate
ship.
d outside th
e UK, asse
vendor’s ju
ss the
risdiction;
particularly
enforceme
around
nt of contr
actual rem
edies.
will be important for many. Companies
contemplating developing or procuring a
digital wallet, either to license to others in
the payments value chain or to offer to end
consumers themselves, should consider
carefully the IP and branding issues arising
from this relatively nascent product offering. A
company’s successful and efficient deployment
of a digital wallet will depend upon it first
developing a clear approach as to how best
to address these issues so as to maximise
the very significant commercial benefits this
technology can deliver.
Authors
Anna Rodbourne is a partner and David
Futter a managing associate at Addleshaw
Goddard. Anna is a commercial lawyer and
leading advisor on payments transactions,
advising a range of payment network
participants, particularly the banks, on
digital, mobile and other payments related
issues and projects.
David is a commercial, technology and IP
lawyer, specialising in advising banks, card
issuers, acquirers and merchants on their
digital payment products and transactions.
He led negotiations for Visa Europe on the
development of their V.me digital wallet.
Intellectual Property magazine 31