Smartphone usage has increased tremendously, in particular, the number of payments executed via smartphones. According to statistics, both the number of users engaging in this kind of payments as well as the transaction values have increased considerably.
The latest predictions estimate that digital wallets may become a $2.5 trillion industry this year. The total value of all digital transactions displayed an increase of close to 25 per cent compared to the previous year. It is further forecast that the value of transactions will continue to grow steadily in the near future.
We spotted a dramatic increase in numbers of people picking mobile wallets to manage their financial transactions. In 2019, as many as 901 million people globally used this payment method.
According to the Statista website, it is expected that the number of people using mobile wallets to manage their payments will reach 1.5 billion in 2021, which would represent a healthy increase of more than 10 per cent year on year. By 2023, the total number of people using digital wallets globally is expected to reach the 1.7 billion mark.
World leaders in contactless payments
It is well-known that the most common services for a wide range of digital payments are Apple’s Apple Pay, and the Google Digital Wallet, while WeChat Pay and AliPay lead the market, according to Statista. The world leader in ewallet use is China, and Asian countries dominate the digital wallet market.
China is projected to generate almost 50 per cent of the global mobile payments by 2023. Western countries are lagging behind and the reason is very simple. Most residents still prefer cash, credit or debit cards. The second largest online payments market globally is the United States, yet it is only approximately one third of China’s $1.3 trillion. Nevertheless the US market continues to grow steadily.
The European digital wallet industry
The growth of the digital payments industry in Europe was phenomenal during the Coronavirus pandemic and the industry will continue to grow steadily. The third largest digital wallet market globally and the leader in Europe is the UK with close to $100 billion in 2021.
Germany is the second-largest European digital payments market with the transaction value in 2021 close to US$178 billion, while France comes third as digital payments are set to continue growing.
In addition to this, Spain and Italy also recorded significant growth in digital payments and consequently the value of the online financial transactions in these countries has risen by 32.3 per cent and 32.7 per cent year over year to $65.8 billion and $66.7 billion in 2021, respectively.
It is evident that adoption and use of digital wallets increased dramatically during the pandemic which in turn posed a credible threat to credit card companies and traditional banks. Nowadays merchants are seamlessly streamlining the payment process while strong consumer resistance pertaining to certain privacy concerns gradually fades away. Consequently, the digital wallet market is predicted to at least double by 2025.
A recent study from Juniper Research established that total digital wallets spending may exceed $10 trillion in 2025, which is a pretty significant jump from $5.5 trillion in 2020. It furthermore stated that this unbelievable growth in spending of more than 80 per cent will mostly be fueled by the enormous adoption of digital payments during the Coronavirus pandemic.
Contactless payment vs cash
A digital wallet is a pretty attractive feature in this Covid pandemic world which predominantly prefers contactless payments, instead of traditional hand-to-hand cash transactions and card readers.
According to the Global Payments Report 2021, released by Worldpay from FIS, ‘digital wallet payments are exceeding card use at the point-of-sale (POS), and contactless in-store payments via mobile wallet worldwide exceeded in-store cash payments for the first time in 2020’.
The report also mentioned that use of cash for payments fell 10 per cent, accounting for just 20 per cent of all in-person payments worldwide and is down 42 per cent since 2019. In a very significant development, in Australia, France, Norway, Sweden, and the UK, in-store cash payments fell by at least 50 per cent in 2020.
What is very significant is that even traditional cash-based economies such Germany and Japan also recorded an upsurge in contactless payments and what is even more significant it happened in the older shoppers’ group which is usually far more reluctant to adopt digital novelties.
Digital wallets vs plastic money
Before the Corona pandemic, it was pretty standard to hand over a credit card to a cashier and simply sign with a store’s pen or alternatively just swipe a card and enter a PIN code. Contactless payment processes are looking more attractive and are considered a far safer option and these types of payments are surging dramatically.
Further research from Experian highlights the rise of digital wallets. They concluded that 60 per cent of new consumers now use a mobile wallet to make a wide range of digital payments.Of course, these products come with a wide range of identity checks - touch ID, passcodes or even biometric face scans. Digital wallets have already significantly disrupted the long established ‘balance of power’ within the financial industry, influencing everything from banking to payments. On the other hand it is hard to believe that they will eradicate use of cards, as in the US and Western world cards have a very long history.
It is obvious that digital wallets are always ready to go and can be used elegantly and safely. In other words, there is no need for any form of a ‘contactless credit card’.
The classic credit card shall continue to find a place in consumers’ wallets, yet their influence and use will gradually fade away. An example of that is what PayPal is doing: they process payments directly from a client’s bank account and consequently effectively undermine and take over the role of traditional credit card providers.
What about consumers’ data?
It goes without saying that for banks and merchants, use of digital wallets may present both a threat and an opportunity. The essential issue here is actually who gets the customer information from the digital wallet?
In their report Juniper Research stated that to know where, how, with whom and finally how much customers spend is a very precious commodity. Therefore, we may expect a certain ‘war over data’.
Banks cannot stop big tech giants from gaining footholds in the mobile payment space. It is, however, hard to believe that banks will let big tech loosening their grip on consumers because that may lead to big tech entities simply ‘stealing’ relationships and outsmarting banks.
Digital wallet extra benefits
There are many ways in which a digital wallet can be utilized, and in a safe way. For example, Disney has developed a MagicMobile service to replace its MagicBand. A new service conveniently adds a digital pass to Apple Wallet that can be scanned or used via Near Field Communication chips (NFC) on the iPhone or Apple Watch.
New features include linking PhotoPass to the app then also being able to unlock hotel rooms via it. The same logic could easily be applied for any airline or train tickets that can be housed inside one’s digital wallet, and in turn that feature also allows users to receive push notifications of gate changes or departure delays.
Digital wallets perfectly manage all our debit and credit cards, boarding passes and much more without further complicating our lives. Another important feature is that digital wallets are far more difficult to steal and use than cash or physical credit cards.
Consumers’ privacy, security concerns and digital payments
It is well-known that payment apps must share some personal data with third-parties, for instance with banks or fraud-monitoring services. But it can also be exploited for commercial purposes.
Of course, sharing data with third parties may easily expose users’ data in ways they at least may not appreciate, to put it mildly. Thorin Klosowski with the New York Times carefully examined the security and privacy policies for many payments platforms to particularly assess and ascertain ways in which transaction data could be ‘misused’ or simply used for marketing. In Thorin’s analysis, he strongly recommends that users who are concerned about transaction privacy should simply stick to Google or Apple.
The future
The digital wallet may be a hub for one’s digital vaccine passport or a very secure, digital driver's license or ID card stored on your smartphone. Due to applications such as Apple’s new CarKey, the smartphone elegantly replaces keys and wallets and the trend continues.
It is not hard to imagine that in the near future, they will further replace the important documents, such as passports, that we still have to carry, and that soon it will be possible to travel the world with nothing more than your smartphone. And some luggage, of course.
Disclaimer: The information, view and opinions provided in this article are being provided solely for educational, promotional and informational purposes and should not be construed as investment, tax or legal advice.