In recent years, many companies have built digital payment solutions for everyday consumer use. Companies such as Apple, Samsung, Google, PayPal, Visa and Microsoft all have introduced digital solutions into the market, and each of these entities were early-movers in the creation of what we all refer to as the “digital wallet.” Now, we must answer the question, “how is the digital wallet truly faring and what is in store for its future?” Is it percolating behind the scenes in anticipation of its upcoming heyday, or will we say a premature goodbye to what we know as the digital wallet?
Digital wallets, designed to allow consumers to make payments without swiping a card during a transaction, offer consumers three main use cases: (1) in-app or online purchases without card entry; (2) physical store payments using a smartphone; and (3) person-to-person payments (P2P). Much of the adoption to date has happened through the in-app or online purchase route and via P2P payments. A recent survey from Experian found that 1 in 10 millennial consumers use a digital wallet for all of their daily purchases. So, while adoption with the millennial demographic is small yet steady, other generations and consumer segments appear to be avoiding using a digital wallet altogether. In this same survey, Experian also found that only 25 percent of consumers had used a mobile app to make a payment.
There are a variety of reasons why some customer segments, including older generations, have avoided using a digital wallet. First, many consumers are comfortable with using a payment card or cash for their daily purchases, then receiving a physical receipt. Along with long-held habits on payment options, consumers fear digital wallets are un-secure. Most are unfamiliar with the tokenization strategies used by many digital wallet solutions and updated digital payments, including those that offer some of the more robust security features built into the applications. In addition to security concerns, consumers are hungry for value and rewards programs. A survey from creditcards.com found that 40 percent of consumers stated that cash-back benefits and rewards were their favorite benefits of their credit card. Currently, there don’t appear to be any mobile wallets that offer the added value of a rewards programs just for mobile wallet use, and that’s a strike against this type of proposition when being compared to other options available.
To increase the use and adoption of the digital wallet, companies need to find new ways to market the applications to address these uncertainties or misconceptions. With consumer expectations at an all-time high for seamless and frictionless experiences, digital wallet providers must focus on four essential tenants to enhance or create their compelling offerings.
Ease-of-use: Older populations may fear using an application due to the idea that using a digital wallet for payment may be complicated. To attract this customer segment, financial institutions must create a wallet that makes it easy to download the application, establish a profile and embed a consumer’s bank or credit card account.
Speed: Consumers of every segment want the ability to complete a payment and move on with their daily lives. Offering a wallet that allows for faster payments and transfers is a strong value proposition for any consumer who’s in search of a new digital wallet (or, for those that want a better digital payment option in general, but aren’t as familiar with how a digital wallet fits into the equation).
Value: This is one of the most important aspects of a consumer’s thought process when they determine what payment method or solution they want to use. The unique definition of value can vary from person to person, but today’s general consumer wants to have a place where they can both store their funds (or other types of value) and know they are getting a return on their investment, be it downloading an application or setting up a profile with a product or service. Whether it is buying a daily cup of coffee through an app or using a product that offers a rewards program, value is ultimately what consumers are in search of and will continue to go back for time and time again.
Security: Given the frequency of fraud at major retailers and in other facets of digital payments, most consumers are concerned about having their personal identity stolen along with funds being unlawfully removed from their accounts. Educating consumers on the advancements of tokenization and fraud prevention could give them the assurance they need to use a wallet without the pervasive fear of security breaches.
The future of digital wallets will be primarily driven by consumer behavior. The four core tenants of ease-of-use, speed, value and security must be the focus of any company looking to build or enhance their digital wallet proposition and create recurring behavior. If consumer usage increases as a result of these focal points, companies will increase their resources and capital investments in new features that could further attract new customers. If this attention to meeting customer needs, developing and marketing digital wallets occurs in the next 5 to 10 years, then digital wallets will evolve into robust, versatile solutions with capabilities that would encourage consumers to use these applications instead of, or in addition to, more traditional payment methods.
The rise of the digital wallet is not a temporary fad for the payments industry. Companies in the broader payments ecosystem will continue to invest in their digital wallets to compel new and current customers to make fast and easy payments, securely transfer money and safely store their funds. This unique alignment in the industry’s efforts to innovate daily consumer transactions while addressing consumer pain points will be the key to wider-spread digital wallet adoption and success.