The Future of Mobile Wallets

We utilize the smartphone for all manner of connected activities like messaging, video calls, shopping, banking, and trading, and one of the long-promised utilities of this digital Swiss Army knife has been the consolidation of one’s wallet and keys. With the rise of mobile wallets and digital banking apps from Square (SQ), PayPal (PYPL) and Apple’s (AAPL), the takeover of the analog wallet has begun. House keys are being assimilated via the Internet of Things applications and car keys are coming thanks in part to Apple’s Car Key application that will be housed inside Apple Wallet.

But identity…

Ah, that is the holy grail in today’s connected society, and if credit, debit, and similar cards are now in digital wallets, why carry around a work ID or driver’s license in physical form? The good news is that these are starting to be folded into the smartphone. But how will identity be protected and verified? That’s a tricky proposition, but for those that like to declutter and be unencumbered, it appears progress is finally being made.

In June at its 2021 Worldwide Developer Conference, Apple showcased several features that are coming with iOS 15, which is expected to be widely available later this year. Tucked inside Apple’s updated Wallet will be the ability to add your corporate access badge. You would also be able to add your driver’s license and state ID to your iPhone Wallet and Apple Watch, and present them securely at Transportation Security Administration (TSA) checkpoints. To enable this, Apple is working with an undisclosed number of states and the TSA.

As we have long noticed, Apple is very skilled at incorporating technology, but Apple was not the first company to tackle this. A quick search of Apple’s App Store as well as the Google Play store for Android-powered smartphones reveals a host of digital ID apps from Yoti, digiID, Blink ID, GlobaliD, IDEMIA, and the Scanner app that is a driver’s scanner as well as the Louisiana Digital Driver’s License app. A number of these apps are looking to digitize identity documents, but a few concerns such as, interoperability, identity verification, and privacy are holding them back from being widely used.

With those concerns in mind, IDEMIA’s Mobile ID allows a person to control their identities by allowing them to share only the information needed for a transaction. For example, if a Mobile ID user needs to prove that they are old enough to buy alcohol, they can select a privacy view that only shows their name and age. No other personal information like date of birth, address, or phone number, is shown. Mobile ID is enabled by a selfie match to verify identity, or by using a self-selected PIN or TouchID/FaceID.

Recently IDEMIA announced it reached a new TSA PreCheck® Application Program milestone with 11 million enrollments to date. Earlier this year, IDEMIA announced it would partner with the Arizona Department of Transportation Motor Vehicle Division (ADOT) to offer a Mobile ID solution that would allow Arizona residents to carry a digital version of their driver’s license or other state-issued ID in an app on their smartphone. With that announcement, Arizona joined Oklahoma and Delaware in deploying Mobile ID solutions from IDEMIA.

One of the differences with Apple compared to IDEMIA is the sheer scale it brings with iOS. iPhone install base passed one billion active devices earlier this year. With that  scale, as well as its focus on user privacy, Apple will be able to drive the tipping point with digital IDs. Based on findings inside Apple’s iOS 15 beta software, the security verification process will rely on validation via user selfie authentication. That process won’t be unique to Apple. Selfie verification system relies on the built-in facial recognition technologies built into the iPhone. Other items in the iOS 15 beta code suggest the identity verification by the Wallet app will be on-device and the IDs will be encrypted and stored on the device itself, not in the cloud. Similar to how Apple treats credit cards used in Apple Pay, this should assuage user concerns over cyberattacks and stolen identity-related concerns.

Lest one think Apple will be the only player with scale in town when it comes to digital IDs, back in 2019, Google (GOOGL) announced it would be bringing digital ID cards to Android as a key part of its digital wallet. In early 2020, Google shared its OS roadmap for Android devices to store identity credentials, but as some have pointed out, the company has made little progress in the last year with some attributing that to concerns over privacy standards and user trust.

For now, we’ll have to wait for more details on Apple’s efforts to work with states, especially those like Louisiana and Oklahoma that already have a system for digital IDs. If Apple is successful in making its digital ID app the “defacto standard” for iPhone users, it would be another feather in its smartphone cap. At a minimum, if Apple’s digital ID efforts are even modestly successful, it will likely spur competing efforts as well as repeat what we’ve seen before when Apple embedded features into iOS – industry consolidation in the fragmented app industry. 

While we wait for more details to emerge and dream of giving our physical wallet the heave-ho, we have to think wallet makers are getting a tad nervous, much the way watchmakers were when mobile phone and smartwatch adoption began to take off.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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