The issues are similar to those swirling around account aggregation services (see "Aggregation Aggravation", October 2000).

Citigroup recently announced that it tapped the services of Obongo, a Redwood City, CA-based software company, to create the Citibank Toolbar. Theoretically, the toolbar takes us one step closer to a utopian one-click shopping experience. The 18-month-old Obongo, which describes itself as a pre-IPO firm, will store user names and passwords, credit card numbers and bank account information on its own computers.

"It's a mad scramble," says Avivah Litan, an analyst at GartnerGroup, referring to the steadily increasing number of bank-branded e-wallets. Litan says a Gartner survey conducted earlier this year indicates that only 12% of Internet shoppers have been using electronic wallets.

The consulting firm expects that figure to rise to over 40% by the end of 2000. "E-wallets are definitely going to happen," Litan says.

And banks are looking to make it happen now. Citigroup is the first financial services company to form a partnership with Obongo, but it is not alone in teaming up with very young, not terribly well-capitalized companies. Bank One Corp., for example, has joined forces with Instabuy, a service of Cybercash. The service was introduced in August of 1998.

Brodia appears to be leading the pack in providing a bank-branded version of its digital wallet services. The San Francisco-based software company has inked partnerships with Capital One Financial Corp., MBNA Corp., Providian Financial Corp., Wells Fargo & Co., Chase Manhattan Corp. and Mastercard.

"We are at a point where banks are seeing the value of our services," says Marc Metcalf, president of Brodia and a former vice president at Chase. Metcalf says that Brodia provides an almost immediate and effective way for a bank to extend its presence onto the Internet. "We are making a great deal of sense to our partners," he says.

In an online study by Gomez.com, 60% of respondents found the concept of e-wallets appealing. And that means there's a huge gap between those who'd like to use an e-wallet and those who actually use one. Analysts say e-wallets must gain the trust of reluctant online consumers.

When e-wallets are offered by an unfamiliar technology company, consumers tend to be less eager to jump at them, says Paul Jamieson, senior analyst for banking payments services at Gomez.com.

But juxtaposed with a trusted name like Citibank, budding e-consumers might be more comfortable storing personal finance information with an e-wallet. "Consumers see their banks' name on an e-wallet and say, 'I will try it if my bank is offering it. I trust them and I trust their credibility,'" he says.

Jamieson believes that the trend of financial services institutions pairing up with young technology companies is a "win-win" situation. In the union between Citi and Obongo, Jamieson says the tech company makes three important gains: built-in credibility, brand recognition and distribution. The e-wallet becomes a "trusted third party," allowing consumers to forget that their personal information is nestled on a foreign software company's servers.

But Litan asserts that "there is a risk for banks." Digital wallet companies are not subject to the same regulations as a bank, but they hold account information and participate in electronic fund transfers, she notes.

If a digital wallet company's server is penetrated and account information is revealed, the bank could be held responsible. Federal Reserve Regulation E appears to require a bank to compensate a customer for any losses that may occur in such cases.

And under the agreements with vendors such as Obongo and Brodia, personal information is stored--not with a bank--but with the vendor. "Is the wallet vendor then considered a bank?" asks Litan. She, as well as the Federal Reserve, which is currently examining the issue, say the matter remains unclear.

But one thing is clear: Financial services firms are trying to evolve at net-speed and must rely on outside, unproven resources to do so, at least to be in time for the holidays.


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