Digital wallets: the empowering role of banks

As the scope of digital wallets expands, retail banks are defining and developing the role they will play in this new wallet ecosystem, keen to retain and evolve their central position in customers’ financial lives.

As Co-Chair of the Digital Wallet Expert Group at Mobey Forum, the banking industry association helping to shape the future of digital financial services, Kristian T. Sørensen has been instrumental in the evolution of digital wallets for over a decade. G+D is a member of Mobey Forum.

Spotlight sat down with Kristian – who is also Head of eID Product at IN Groupe Denmark – to get his insider’s perspective on the opportunities that are opening up for banks to lead in the next generation of digital wallets and to win even more valuable engagement with this fast-growing customer touchpoint.

The wallet revolution

From your expert viewpoint, what is driving the accelerated focus on digital wallets today: is it government pressures, consumer demand, banking industry opportunity, the ambitions of Big Tech – or “all of the above”? 

In many ways, we are at the second wave of the digital wallet revolution. The topic has been high on many agendas for more than 15 years, since work began on what were then called mobile wallets. Indeed, the Mobey Forum Wallet Expert Group that I co-chair published its first series of whitepapers as long ago as 2011, with the aim of defining what a mobile wallet was and what it could become.¹ Our focus then on the mobile side may have been slightly misleading. It wasn’t the mobility that was the key feature; it was the fact that the wallet was digital and that it was connected.

But the analogy of a wallet was right, as a container that you could add different valuable items to and carry those with you wherever you go. Even then it was clear that such wallets would be used for more than just payments – for banking, asset management, identity, investing, and much more.

What followed was almost a decade when financial institutions struggled as they tried to bring their different versions of wallets to market, only to see Big Tech – Apple, Google, Samsung, and others – stepping in and addressing the wallet use case. And that made many banks feel that they lost.

While they may not have won in that first round of “wallet wars,” did that sharpen banks’ focus on payment apps?

Banks brought specific payment apps to market, such as Barclays with Pingit, which became a blueprint for other local champions, such as MobilePay in Denmark, Vipps in Norway and TWINT in Switzerland. These were backed by banks and very successfully implemented, especially in areas such as the Nordics, which were becoming increasingly cashless with the functionality really solving the challenge of person-to-person (P2P) payments. 

But both these local champion P2P wallets and the Big Tech wallets were still largely payment wallets. And while the payments industry was happy that it finally got the digital payments use case working, we had almost forgotten about all the other wonderful things that we wanted to do with digital wallets, and it has only been in recent years that things have really started to accelerate again.

Changing scope for digital wallets

What are the main catalysts for that broadening of the function of wallets? And are the triggers different in different parts of the world?

One is digital identity. In Europe, in particular, the political agenda takes the form of the EU’s Digital Identity Wallet initiative.² That is driving a second coming of the wallet – with the capability of changing the competitive playing field, in terms of who is best positioned to win this next battle in the wallet wars. 

The fact that we will move beyond monetary assets within a wallet towards other types of assets is a really a big deal, especially for the banks. Today we often use smartphone wallets from Google, Apple, and others for our daily payment transactions. However, in case of fraud or transaction failures, or if money is lost, then we trust our bank and expect them to sort it out. 

So, there is deeper trust relationship with the bank?

There is another element. A key attribute of monetary assets is that they are fungible. So, if somebody loses €100 out of their account, they’re perfectly happy if they get a different €100 back. However, when we move towards other types of assets, like identity, these are much more sensitive. I think people would really take more notice of what they do share if they had their valuable assets in their digital wallets and, as a result, they’d more actively decide what goes where and what they wanted share with whom. 

Is that part of a wider trend toward the tokenization of many key assets?

The fact that we can how digitally exchange any asset is a massive global trend, to the point where we talk about “the tokenization of everything.” Digital identities are a prerequisite to facilitate such exchanges. Otherwise, I could try to sell you the Eiffel Tower in a tokenized version and then you could decide for yourself if I was the rightful owner and if it was indeed a proper representation of the Eiffel Tower that I was selling you. And digital identity is not just an enabler, it is also an asset in its own right. So, I think that is why we will probably see digital identity wallets really taking center stage right now because they become the enablers of any type of transaction, not just payments.

Identity-driven interaction

Is that going to create a new dynamic in the wallets market, not just in Europe?

Most definitely. There’s no doubt that the EU initiatives have put Europe at the forefront of the development, but it is part of a global trend towards the creation of broader capabilities of wallets. It is a bit like open banking, which wasn’t invented by The European Commission’s second Payment Services Directive, but it was catalyzed by it. The same goes for both pure identity wallets and broader identity-centric wallets.

There are other important developments, too. In July 2024, Apple agreed to open up the contactless payments functionality of iPhones, so European competitors will be able to provide a host card emulation–based alternative to Apple Pay. As a result, many banks will now be looking at this opportunity to enable iPhone payments functionality directly from within their own banking app – and beyond.

Opening up opportunities

If we’ve got this new kind of platform of a wallet, what opportunities – and challenges – does that present to banks?

There are already strategic discussions within many banks around wallets. One of the things that many highlight is the fact that today’s wallets have become high-frequency touchpoints that they are missing out on. Banks may have been successful in digitizing and automating their core businesses, and as a result most things like direct debits, recurring card payments, payment approval, and the like run very efficiently. But it means that the customer’s interaction with their bank has been brought down to a minimum. Moreover, since the introduction of P2P solutions, whenever I owe somebody money, I just use mobile payment, whereas earlier I would have logged on to my banking app and transferred the money. So, the banks feel that they’re missing out on those high-frequency touchpoints.

Another driver for banks is the asset and custody aspect of the wallets of the future. Today’s payment wallets are very transaction-focused, whereas I believe that wallets going forward will be where you hold all sorts of digitized and tokenized assets. For banks, that will create a custody opportunity, and many banks see themselves as being in a prime position to play a big role there.

First of all, historically, banks are the ones that have offered or facilitated custodial solutions, not just as custodians of your money. I believe that they’re the ones that are best positioned to do so again.

The question arises again: where would you like to store your assets?

Banks as wallet owners or wallet populators?

Are most banks looking to issue wallets or to use partners on wallets to offer a range of additional services?

With the wallet, there is both the content and the interface. While not all banks will win the wallet interface battle, they are likely to win the custody part of the content of the wallet.

At these early stages, we see different banks taking different approaches. As the market matures, and people start to interact with a lot of different types of assets and different items via their wallets, I think we will look to our banks for custody, aggregation, and perhaps also some analysis tools for such things as fraud monitoring.

The payments industry has always talked about value-added services as something you build on top of payments to make payment more attractive. But things have completely changed. Now we have finally realized that payment is not a product; it’s a feature, a value-add to things that really matter.

That is also why we will probably see a lot of merchant wallets, with banks adding payment solutions to those wallets. One of the key features there is in-app in-store payments, where you use your merchant wallet to self-scan and receive targeted offers, loyalty benefits, and more.

The schedule for change

So, if we know banks have this game-changing opportunity high on their agendas, what is the time frame for their next moves?

In Europe, the European Payments Initiative (backed by 16 European banks and financial services companies) has recently launched its wallet, Wero, in Germany, France, and Belgium, and soon in the Netherlands.³ So, I think the time is right for European banks to challenge Big Tech in this area. We also see big changes elsewhere – for example, in India, with the country’s universal payments interface (UPI). So, there is a bigger global trend towards wallets.

I certainly don’t believe that card payments will disappear anytime soon as a result. In fact, with almost every payment innovation we’ve seen in past decades, it seems we are actually adding payment solutions, not removing them.

Collaboration and interoperability

So, if there is going to be a proliferation of wallets, will there need to be a high level of interoperability and integration between related wallets? Because, I guess, no one wants a phone with 50 standalone wallets on it!

There are many in the industry today who already advocate that we need wallet consolidation, that we need to integrate everything and create some kind of “one wallet to rule them all.” But for me, that’s a flashback to the dot-com era when the proposition from companies like Yahoo! and MSN was for a single internet portal – a front page to the internet that the service would own. The simplicity and power of the Google Search page soon disrupted those ambitions by enabling you to easily access whatever you wanted to access yourself.

I believe we will see some wallets that are analogous. But instead of aggregating all, these higher-level wallets they will be the enablers for multiple other wallets, a sort of “wallet of wallets.” Your wallet of wallets will probably be your digital identity wallet, because it will hold the key to all the other ones.

You’ll use your digital identity wallet to go into your financial services wallet to manage money, pension, savings, and other investments, for example. And you might use the same wallet of wallets to access your transit wallet where you have access to public transportation. 

What I don’t think we will see is one big, cramped super-app, at least not in Europe. Of course, in Asia, where you have super-apps already, the wallet model might develop in a different way because there are some cultural differences at play there.

A stronger role for banks

So, how does the role of banks look in an environment where digital wallets are widely adopted?

I believe that the banks who embrace this development will find themselves in a good position. There’s nothing in this evolution of wallets, as I see it, that will disrupt and remove the need for banks. The more complex the scenarios become, the heavier the regulation gets, the bigger the need we have for consumer protection. Who will I turn to for safekeeping those assets when the complexity of my wallet-based portfolio of assets has increased tenfold and I can start to invest in all sorts of digital assets? Who will I turn to for analysis and advice? Who will my business turn to in order to ensure compliance? Banks are in a very good place to offer all of that – and more.

The wallet business is very likely to be highly complex and highly regulated, and banks have always thrived in such environments. So, given that, I see a strong role for the banks here.

Published: 13/03/2025