Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
Screenshot: Apple

Your wallet’s about more than money, and Apple knows it

Screenshots of Apple Wallet showing driver’s license

Hello and welcome to Protocol | Fintech! This Tuesday: Why the driver's license is key for Apple's digital wallet, Stripe is powering Twitter's Super Follows, and Indian banks are creating a new financial data system.

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The Big Story

While credit and debit cards may be the most used pieces of plastic in your physical wallet, the most critical one is your driver's license. You need it to drive or get on a domestic U.S. flight.

Apple knows this, which is why it has been pushing hard to get state driver's licenses to work in Apple Wallet.

So it's significant that two states, Arizona and Georgia, will soon allow residents to use driver's licenses or state IDs in Apple Wallet for iPhone and Apple Watch. And the TSA will allow certain airport security checkpoints to use the device-stored IDs to check in on flights.

Apple's on a mission to ditch the physical wallet. The quest goes back nearly a decade, to the introduction of Apple Passbook on iPhones in 2012. Apple made its ambitions plainer three years later when it renamed the app Wallet.

  • Apple has already digitized not just credit cards, but also airline boarding passes, student IDs, event tickets and subway passes. You can even put your proof of COVID-19 vaccination in your Apple Wallet.
  • It's no secret why Apple wants to keep the iPhone and related services at the center of its customers' digital lives. And it's hard to think of anything more central than an official government ID.

Take it as another reminder that hardware is not enough in today's device market. Apple needs to own services.

  • To do that it needs to own key everyday uses. Google has Gmail; Facebook has your friends; Apple wants your identity.
  • Digital identity isn't a new idea. Arizona, one of Apple's state pioneers, already has a mobile ID app.
  • But Apple has shown it can popularize an idea that's already out on the market. If digital IDs are to be accepted for everything from getting a drink at a bar to getting a loan from a bank, Apple's imprimatur could make a vital difference.
  • Android should eventually have a version of this — Android 11 has an Identity Credential API — but the more fragmented nature of Google's mobile operating system will complicate a rollout.

Identity is so money. The driver's license isn't a payment card, but it's still a key piece of Apple's fintech strategy.

  • Nothing has boosted Apple Pay adoption like the a-ha moment when someone first forgets their wallet and finds they can pay for something on their phone. A digital driver's license will create more moments like that. That's good for Apple Pay, too.
  • That opens the door to layer on many other financial services. Apple is already rumored to be planning a "buy now, pay later" product with Goldman Sachs. Other forms of credit or payment could surely follow.

Security and privacy questions abound. Critics naturally want more details about how the digital driver's license works and how secure it is.

  • Apple says users won't need to "unlock, show or hand over" the device to show the ID, and it and participating states won't know when a digital ID is being presented.
  • But the company will need to share far more details to assuage concerns.

How much life do physical wallets have left? With 50 states and nearly 440 airports with TSA screening, it's unlikely physical driver's licenses will disappear overnight. Apple Pay's acceptance isn't universal either. But bit by bit, Apple is chipping away at the need to carry anything but a phone.

— Tomio Geron

A MESSAGE FROM CHECKOUT.COM

Over the last two years, many retailers have seen the benefit of investing in new, flexible payments. Despite the low-hanging fruit this opportunity presents, our research shows 60% of ecommerce merchants globally do not feel they receive enough payment insight to allow them to innovate their models. So how can businesses turn their ships around before it's too late?

Learn more

Overheard

  • "Crypto is the new shadow bank. It provides many of the same services, but without the consumer protections or financial stability that back up the traditional system. It's like spinning straw into gold."Sen. Elizabeth Warren on crypto.
  • "These new building blocks that are being built within the fintech ecosystem — we don't know yet how they're going to be assembled — is going to challenge the notion of how banking is actually manufactured and delivered across every single component of banking, and there are a lot of them."Frank Rotman of QED Investors, on the next generation of fintech.
  • "Many high-growth industries may be benefiting from consumer preferences shifting to digital goods like buying apps on a phone, new volume shifting from check to card, as well as the proliferation of e-commerce spending on services like online grocery shopping." —A Strawhecker Group report that found a 21% growth in consumer credit and debit card spending in July compared to the year-ago period.
  • "Just bought my first ETH! Let's do this." Reese Witherspoon on Twitter.

Need to Know

  • Stripe is powering Twitter "Super Follows" features. The feature enables users to pay for exclusive subscription content on the service.
  • The FTC fined Capital One's CEO. Richard Fairbank received 100,000 Capital One shares in 2018 and didn't properly report them, the FTC said.
  • Eight Indian banks are rolling out a new financial data system. The Account Aggregator system would help banks, with users' consent, better understand their customers.
  • Funding Circle is rolling out "buy now, pay later" financing. The business financing company said it will allow small businesses to "spread any U.K. invoice or supplier payment over three months."

Making Moves

  • Miles Jennings is now general counsel at Andreessen Horowitz. The longtime Latham & Watkins attorney has joined the Silicon Valley venture capital firm.
  • Menda Sims has joined Stax. The former FIS executive is now the Florida-based payments software company's chief payments officer.

This Week

  • The SEC is having its Investor Advisory Committee virtual meeting on Sept. 9 — which is open to public viewing. The agenda includes investor protections in the new online trading world and SPACs.
  • Also on Sept 9: Affirm, which just announced a major Amazon deal, will report quarterly earnings.

Future of Voice

From speakers to phones to cars, voice control has quickly become ubiquitous. How can the entertainment industry craft new voice-powered experiences, what kind of new business models are emerging in a voice-first world and how will voice control evolve in a world with multiple assistants?

On Sept. 9 at 12 p.m. PT / 3 p.m. ET, Protocol's Janko Roettgers will gather a panel of experts from across the industry to discuss what's next for voice. RSVP here to save your spot.

Deal Flow

Data Point

$302 million

That's the full value of the Doge NFT, based on sales of fractional shares of the meme-famous Shiba Inu image.

Thanks for reading — see you Friday.
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