A digital wallet is a secure software application that stores your banking information and enables you to pay for purchases electronically. Services that provide such software include PayPal, Apple Pay, Google Pay, and Samsung Pay. Digital wallets are supported by near-field communication (NFC), quick response (QR) codes, and other technologies. They can be used with additional forms of electronic payment, such as mobile payment systems, digital coupons, and cryptocurrency.
Digital wallets created by software development companies provide benefits to users, including the ability to use one payment source for many transactions, and the convenience of not having to carry a physical wallet, and sometimes even not having to have an account with a physical bank. However, they also have drawbacks, such as giving up privacy to the providers and being vulnerable to hackers accessing financial information if electronic devices are lost or stolen.
The use of digital wallets has been increasing in recent years, and that trend will likely continue. But it's a shifting landscape that is still working out how to attract and retain users. Here we discuss the scope of digital wallet options available, how consumers are responding, and what to expect next.
A Variety of Options
Digital wallets come in various forms. A platform like PayPal enables users to perform a variety of transactions. You can send money to or receive it from other people or businesses or use it to pay for purchases through merchants who accept it as a payment form. These payment options are typically very easy, involving just one click. Other digital wallets are specific to a certain company, such as Starbucks or Walmart.
Services like Apple Wallet and Google Wallet enable you to store more than just financial data. You can keep things as digital concert tickets or boarding passes there. Others enable users to track and pay bills such as those from utility companies. Zelle is a digital payment network used by many banks solely for the purpose of transferring money between accounts.
Digital wallets use several methods to keep financial information secure, including authentication, data encryption, tokenization, and sandboxing. Younger consumers are more likely to use digital wallets to make purchases or transfer funds, partially because they're comfortable using new technology in general and partially because they're more likely to be unbanked (that is, without a traditional bank account).
Speaking of banks, their contribution to the digital wallet market has been slow, giving way to others, such as large tech companies, to grow in this space.
Consumer Response
Digital wallets have become a preferred method of payment during the COVID-19 pandemic because they can enable no-touch transactions, even at brick-and-mortar locations. Using them is so easy and convenient that those who may not have used them before might continue to do so post-pandemic.
Because they've grown so accustomed to the convenience of one-click payment, consumers who regularly use digital wallets to pay for purchases don't even bother with more cumbersome payment methods. One writer stated, "If I am not offered the option to pay with either Vipps, Apple Pay, or Paypal, there is a high probability that I will be leaving my virtual shopping cart behind."
However, not everyone has gotten on board with using digital wallets. E-Commerce Times stated that some consumers say they don't understand how digital wallets work, are worried about their security level, aren't convinced of their benefits, or don't know which one would best suit their needs.
What's Next
Parts of the world other than the U.S. have adopted digital wallets with greater speed. According to a recent Finextra article, "China is currently the global leader in mobile wallet consumption, with nearly 70% of Chinese consumers using mobile wallets regularly." In Europe, the use of digital payments is widespread and the use of cash has declined. "Global data has predicted Finland, Sweden, and the UK are likely to be some of the countries leading the way to a cashless society," states the Finextra article.
In the U.S., the trend toward increased digital wallet use by consumers is likely to continue, as is an increase in merchants that accept them as payment. In fact, as the expectation grows among consumers, merchants that lag behind will become more likely to lose business for doing so.
The technology itself is set to continue improving to make digital wallet adoption more attractive to those who may be reluctant for various reasons. Artificial intelligence (AI) will help enable voice-based transactions and perform routine payments, such as recurring bills. NFC technology will help increase the availability of contactless transactions. And biometrics such as fingerprints, retinal and facial recognition will be used to ensure data security.
In Summary
Consumers love convenience, and digital wallets offer that as well as many other benefits. While their use hasn't become ubiquitous yet, the market appears to be heading in that direction. As more people start to use electronic payment methods because of the pandemic, or for other reasons, their expectations will be set, and it will be up to merchants to meet them.
