Coin: The First Great E-Wallet?

by on Dec 04, 2013

In recent weeks consumers have been abuzz about Coin, the next big payment service out of San Francisco. Coin aims to eliminate the bulk ofCoin_Logo plastic cards in consumers’ wallets by consolidating up to eight of them into one credit card sized device.

The device, which is expected to be released in the summer of 2014, had a significant presale. The company sold $50,000 worth of the devices in just 40 minutes, reinforcing the growing demand for e-wallet technology. The remarkable pre-sale can be attributed in large part to Coin’s engaging social marketing campaign highlighted by the video below:

The Evolution of the E-Wallet

The notion of eliminating plastic credit cards by consolidating them onto a singular device is not new. Company’s such as Google, Isis, Square (Pay with Square), and Level Up have been attempting to merge the wallet with the smartphone for the past few years. However, almost all of their attempts have been fruitless because of a singular issue: the lack of merchant adoption.

In order for all of the aforementioned electronic wallets to be accepted, the merchant would have been required to install a new (and in some cases costly) point of sale system. Additionally, consumers would need the correct smartphone capabilities (such as near-field-communication or geo-location).

Coin: The Knight in Shining Armor?

Coin is now seen by many as the most ideal e-wallet solution because merchants do not need to buy and install a POS system to accommodate the Coin device and consumers can use Coin paired with an iPhone or Android. However, critics cite three big issues with Coin:

#1 It’s Been Done Before and Failed
Other startups have attempted to make a reprogrammable magnetic stripe card before. iCache Geode was a similar product that garnered a lot of media attention upon its release. The company’s offering was an iPhone case that digitally stored multiple credit cards and contained a single reprogrammable card that slipped into the back of the case. It acted very similarly to Coin, however the user would select which card the reprogrammable card would act as via a mobile phone. Coin allows the user to push a button on the device to switch through the linked cards.

iCache Geode also had more functionalities than Coin including a reprogrammable smart ink barcode on the back of the case that would display barcodes for gym memberships, rewards, etc. iCache Geode was expected to be released in the summer of 2012. Unfortunately, the product never came to market as the release of the iPhone 5 stymied the company as their device had been developed for the shorter iPhone 4. The story of iCache Geode highlights a key problem for small startups: their products are often at the mercy of the platforms developed by larger corporations.

#2 The $100 Question
Coin is currently being sold for $50 per device. Come mid-December, when the pre-sale ends, the price will rise back up to $100. Coin states within their FAQs page that the device is expected to last two years, after which the battery will likely die. This price point could hurt mass adoption as It rivals the cost of a smartphone. Additionally, while the makers of Coin claim that the device is “built with some durability and flexibility”, it is essentially replacing a plastic product that will often break due to use over time. Will Coin devices show the durability necessary to validate the $100 price point? Only time will tell.

#3 Will Coin Gain Acceptance among Card Issuers and Payment Networks?
There has been ongoing speculation regarding Coin’s security features, particularly the possibility that the device could be used as a commercial card skimmer. Coin quickly answered those questions by announcing that the device will have built-in features that reject cards that do not match the owner of the device and a printed name and signature for cashiers to read.

Naturally, many security concerns still exist. It is apparent that Coin plans on storing sensitive payment information within its servers and is attempting to become certified for PCI DSS standards for storing and transmitting card data. It seems highly unlikely that banks and card issuers will be keen on a small startup in San Francisco holding billions of dollars worth of payment information within its servers while they continue to assume all of the risk. In the end, issuers and networks must sign off on Coin to be used on their networks and the company has not yet gained that approval.

Closing Thoughts

Coin is without question one of the more exciting entries in the ongoing e-wallet battle. The device is user-friendly and does not face any of the merchant adoption issues that plagued Google and other developers in the space. However, Coin faces many challenges of its own as it seeks widespread adoption from consumers and acceptance from the financial community. Their biggest challenge lies in convincing major financial institutions and payment networks to allow a startup company to be the holder of their customers’ account information while they assume all of the risk. In the end, it seems more likely for financial institutions to work together to develop a similar product that eliminates bulky wallets while also giving them the power to personally safeguard sensitive account data.