Mobile Wallet Technology: Warming up For the Battle Royale

Shah Gilani

The mobile wallet movement is inevitable. But so are the bumps in the road.

If there's anything that's going to delay the mobile wallet's future on a global scale rivaling, well, telephony itself, it's going to be because there are so many players and stakeholders tilling the same soil to sow what they hope to reap.

The fact that so many giants and would-be giants are trying to make their networks and systems-in-development the standard mobile wallet platform ensures a battle royale.

The development race will be just that, a race.

But, in the end there will only be a few competitors and everyone else will cease chasing the Holy Grail and fall in under one or another network.

But, because we're investors seeking an edge and know that by the time the end-game is resolved the big money will have been made, we are looking for a "heads-up" on where to place our bets early.

A Mobile Wallet Heads-Up: This Will Be Critical

The answer to that will be evident by watching whose systems and networks offer the best interoperability.

It won't be just about who owns the rails that tomorrow's locomotives will run on. If there are a lot of different sets of tracks headed towards the same destination, what will matter will be how many trains travel each track and pay what tolls .

The way to gauge who is laying the most attractive tracks will be visible in terms of which systems offer the most intersections from which dead-end travelers can reverse course and join the mainstream path to everyone's desired destination.

That's where interoperability will be critical.

Who will build their systems and networks to best and most easily allow parallel ecosystems to merge, or converge, onto a set of easily accessible shared tracks.

The shakeout will result in some spectacular losses.

So, it's better to be on the right side early on than to take your lumps and invest what's left in the final contestants, all of whom will continue to fight for dominance for years to come, if not forever.

But, it's not just the end-game winners we're seeking, though they will emerge and we will be invested there long before the finish line is in sight.

There's money to be made investing in the backbone companies building the back-office interconnectivity, the infrastructure behind the scenes that has to exist for what's out front to actually work.

Many, in fact most, rails upon which the future is in-process of being built upon are legacy systems. In other words, core systems are old and in need of more than just a makeover.

Tech makeovers result in systems being updated via "middleware wrappers" that work well to "upgrade" systems. But upgrades amount to peripheral integration without core changes.

Eventually, the pitfalls of legacy architectures become too deep to patch, modify, extend and further enable core platforms.

What follows is what's known as "rip and replace."

That's when an upgrade isn't a change on the outside, it's a step- by- step process designed to replace the entire architecture of an entire ecosystem.

Both patchwork and rip and replace are big moneymakers for tech companies doing the work and for companies who end up with the latest and greatest high-speed tracks.

Some of the companies that provide the grease for rails and operate the infrastructure tracks behind the scenes, like Fiserv Inc.(Nasdaq: FISV) , Fidelity National Information Services Inc (Nasdaq: FIS), Infosys Ltd. (Nasdaq: INFY), IBM (NYSE: IBM) and several other important tech companies, will make a lot of money patching and eventually ripping out and replacing legacy systems.

Long before any train pulls into any final destination station, the track workers, and all the folks selling "picks and shovels" to the miners of mobile wallet gold will make tons of money and be great investments.

Security Issues Abound in Mobile Wallets

As excited as we all are about the mobile wallet's future, you can be sure there are plenty of unsavory characters equally as excited about getting their hands on what's going to be in those wallets.

Credit card fraud is already epidemic. But, crooks aren't just stealing purses to get hold of plastic cards, they're increasingly employing more and more sophisticated electronic tools to get what they want.

Hackers are breaking into computers through unsecured Wi-Fi hotspots to steal vital information. Fraudsters are "spoofing" or mimicking a user's IP (Internet protocol) address to take, intercept and manipulate user information and access secure data.

Cookies, sent to unsuspecting users by myriad means, are used for "sidejacking" that sends a plain text file from a Web server to the "client" incorporating session-related data, to be recognized later or to enable re-logging onto your computer by the interloper.

Then there's "firesheep" which hides like a wolf in the middle of your social media sheep gathering and lets the crook stay logged on as you once you think you've logged out.

Security is an ongoing threat now and will get worse as the mobile wallet future unfolds.

But, there's money to be made, not just by the crooks, but on security services companies and software companies offering the latest safety features for cracks in our walls now and cyber and mobile threats in the future.

Making money on these companies will require more than just a little diligence.

Investors will have to stay ahead of fast moving threats and cyber-crooks by monitoring consulting companies and security research firms that make it their business to know where holes are and who can fix them, if they don't design fixes themselves.

Some of the top firms on the security and threat monitoring side publish research and conduct private assessments for major infrastructure development customers and networks.

A few of the top firms are: ThreatMetrix, 403 Labs LLC, and CyberSource Corp . There are others and in due course I hope to be able to offer you investment opportunities based on their research and recommendations.

Good Old New Regulations

Regulation will affect every aspect of digital commerce, especially the mobile wallet space.

While banks will be pushing for non-bank intermediaries to be regulated as banks, non-bank money transmitting companies will be trying to escape the long arms of various regulatory bodies.

Facebook (Nasdaq: FB) , which sells "Facebook credits" used mostly as digital currency by game-players on the social networking site, has already been forced to register and become licensed by several state money-transmitter licensing bureaus.

Money transmitters, like payroll companies, have to be licensed by every state where they offer their services. At present, money-transmitter licensing is merely a registration process with few restrictions and even fewer hurdles to actually acquire.

But, as mobile wallet commerce becomes more widespread and cyber threats increase, regulators will be called upon to govern service providers to ensure the public's protection and the safety of cyber-credit extension, payment schemes and the myriad financial services aspects inherent in the mobile wallet world.

Not only will state regulators want to oversee industry players, but the federal government will have to reformulate broad protections to maybe extend FDIC coverage when firms hold "money" or "credits" that may end up being considered "deposits".

And, since the mobile wallet's future is already and increasingly a global phenomenon, international commerce oversight bodies and potentially central banks could demand a hand in controlling what will eventually be a massive "shadow cyber banking system."

Again, it will be important to know who is organizing their business lines to be readily compliant, in other words design in compliance features now, with what will be required in the future.

Firms and systems that are not deemed easily convertible to inevitable regulatory regimes that will be imposed on the industry, will suffer rapid losses in terms of both confidence and usage by customers.

There's no stopping the future. We are already out of the gate and on the track in a long race that will re shape every aspect of our lives.

Investors will be afforded innumerable opportunities to profit on the globalization of everything "e", as in e-commerce, e-payments, in an e-world.

And everything will e-ventually be e-vailable at the tip of your fingers in your mobile wallet. And if you stick with me we'll all be making money on the mobile wallet future.

This report has been your wake up call.

The only question now is whether or not you'll answer it.

Shah Gilani

About the Author

Browse Shah's articles | View Shah's research services

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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