Let me ask you a question. As a consumer, how often do you think about your bank?

Do you think about it when you draw your wallet to pick a card for your payment at a store? Do you think about it when you pay your utility bills or have you setup an automatic direct debit instruction?  Do you think about it when you are paying  online at Amazon/eBay?

Chances are that you answer “No” to all the above questions. If so, banks have to work hard, really very hard, to run a successful wallet system.

Before we analyze further, let us look at the consumer’s interests and the bank’s interests to see if they align. Let us also add a third party wallet (say Google wallet) to see their interests.

Consumers’ (Wallet users) interests

1. Use an instrument that may probably get a discount from the merchant.

2. Use a credit card only when I need a “credit” or when I need card protection benefits. Else use my debit card if that gets a discount.

3. Use the best available card in the wallet – that has low APR, great rewards, enough credit, that occurs no to low fees.

4. Search for any deals/coupons/offers and accordingly select the right instrument/card.

Bank’s (Issuer) interests

1. Use an instrument that gets high margin.  (Read – avoid debit card)

2. Use credit card all the time, so the margins are high.

3. Merchant should not give a discount based on the instrument used to pay. (Can’t enforce it  now though! )

4. Use the card that has the highest APR, low rewards, and probably over the limit. Anything that attracts additional fee.

5. Since some of the Card Linked Offers are co-funded by the banks (for example BankAmeriDeals where I suspect BoA is co-funding along with the merchants),  use those offers only if it results in more revenues to the bank.

Third party wallet provider’s interests

1. Find the best card to use, so consumers trust the wallet provider. Suggest alternate payments (prepaid, digital money, loyalty points, closed loop cards) if that makes sense.

2. Find all possible discounts, so the consumers stickiness increases.

3. Track and automatically assist to LOCATE, EVALUATE and NEGOTIATE the best deal.

4. Monetize the “transaction data” and the fee from merchants “for bringing them additional customers”.

Looking at some of the above points, we see that there are conflicts between what the consumer wants and what the bank wants. Moreover banks don’t understand the Merchant-consumer commerce dynamics as well as Google, Paypal aka eBay.

As long as the third party providers don’t intend to make money off the transaction and the instrument but plan to charge based on the value they bring to the merchant and from intend to monetize the transaction data, they are the best ones to build the wallet!

What about the payment networks interests – Visa, MC, AMEX, Discover?  Let me know!