American Express Co.'s decision to pull the plug on its Online Wallet is the biggest admission by a financial services company that digital wallets - which have been much hyped for their form-filling and memory capacities - are dead.
This month American Express sent letters to holders of its Blue smart cards telling them that the American Express Online Wallet would no longer be available as of June 15 and encouraging them as an alternative to use "Smart Chip Private Payments," a feature that requires them to plug in and boot up the optional smart card reader that comes with Blue. Private Payments is a service that generates a one-time-use account number for secure Internet purchases.
Though the change may nudge some people toward more active use of smart cards, American Express said its primary motivation was to get rid of a feature that never functioned smoothly and, perhaps as a result, did not prove popular.
Blue card customers are generally considered the most techno-savvy, Internet-happy credit card holders around, and the fact that they did not embrace Amex's digital wallet is a significant indictment of the product and concept. Two years ago, financial services companies were rushing to offer online wallets, reasoning that people would do more online shopping if they had a convenient way to fill in merchant forms.
But some wallet products on the market - including the one American Express licensed - did not work very well. Worse still, people said they were reluctant to store all their shipping, card account, and password information in one place, where it would be more vulnerable to theft.
"We initially thought the form-fill would offer convenience, but we found out with the number of changes merchants make to order forms and changes over the Internet that there was not nearly the convenience we once envisioned," said Tony Mitchell, an American Express spokesman. "We think it is more of an issue of people wanting a secure way to shop online."
Though Online Wallet worked directly through the Amex Web site, its substitute, Smart Chip Private Payments, requires hardware, software, and an elaborate setup by the consumer. When a cardholder gets it working right, it is supposed to create a single-use account number and expiration date that can be cut and pasted to a merchant's order form so that online shopping can be done without a permanent account number traversing a network. Private Payments does not fill in forms as Online Wallet was meant to.
One problem American Express may have encountered is that its wallet software provider, Globeset Inc. of Austin, Tex., ran out of cash last year and was acquired by Trintech Group PLC, said Ron Martinez, chief executive officer of market leader Brodia, a San Francisco wallet vendor (and rival to Trintech) that has contracts with several top-10 issuers.
"It would be difficult to read much into wallets as a category based on the Globeset wallet, which was plagued with errors," Mr. Martinez said. For example, he said, the Globeset wallet could only form-fill at about 120 Web sites.
In its heyday, Globeset sold its wallet software to Citigroup Inc. and American Express. Citibank's Web site replaced its Globeset wallet last year with a wallet from Obongo Inc. In late 2000, Globeset reduced its staff to a skeleton crew; in December, its assets were purchased by Trintech. Now there are no longer any U.S. card issuers offering Globeset's wallet software.
Mr. Martinez said wallets, in some form, would become more important as issuers adopt more security measures to protect online transactions and transactions move to more devices, such as mobile phones. "Wallets are thought to be PC-related, but to us it is the underlying server-based ID and payment information you can access on any device with the right password," he said. "It is a market requirement" to offer such a service.
Mr. Mitchell of American Express said consumers are more concerned about online security of their credit card numbers than with the traditional digital wallet functions of filling in forms and holding on to multiple passwords. But the digital wallet vendors are not the only ones still high on the technology: This month MasterCard International released a survey indicating growing interest in digital wallets.
The MasterCard executive in charge of the survey said American Express' negative experience may reflect the type of software it chose or perhaps a clientele with less online shopping experience or need for wallets.
"Somebody who is new to the Internet is not likely to download a digital wallet, but that is not our target audience," said Ellen Moskowitz, MasterCard's vice president of application development, global e-business. "Their key functionality is filling out forms," which means they are not suited to someone "who buys a CD once a year." MasterCard's survey, done last fall, indicated that 17% of online shoppers had used a wallet.
Other experts said the whole issue of a digital wallet's usefulness has been obscured by efforts to gain online credit card share by persuading consumers to adopt the wallet technology.
Christopher E. Musto, vice president of research at the Lincoln, Mass., research firm Gomez Advisors, said much of the financial services industry's attitude toward wallet use is optimistic. "The hype can be an effort to build enthusiasm around a brand and searching for a way to drive consumer adoption," he said. "It hasn't really panned out for anyone yet."
Mr. Musto said that form-filling and PIN storage alone are not enough to entice Internet surfers to install a wallet on their computers. PIN storage features may even drive some people away for fear that such a cache could attract hackers.
"It is an issue of privacy concerns," Mr. Musto said. Consumers ask themselves, he said, " 'I am supposed to take all that sensitive information and put it in one place? If someone cracks that, I am in for it.' " Moreover, he pointed out, many popular Web sites, such as Amazon.com and Barnes & Noble.com, remember shopper information, giving regular shoppers less incentive to use a wallet.
Another hindrance to wallet adoption, Mr. Musto said, was that issuers did not spend much money promoting the digital form-fillers. "There is not that much done to tell consumers that this technology is out there, but how much money do you make off this?" he said. "It is hard to spend a lot to market it."
