The new digital reality is rapidly and irrevocably changing our lives. The impact of digital technology on civilization can only be compared with the appearance of fire when it became clear from the first spark that the world would never be the same. A similar thing happens again when people can study, work, relax, shop and manage their finances with the help of nanotechnology. The last two years have shown that we are gradually abandoning another obsolete thing – a leather wallet with paper money, preferring an electronic counterpart. What prompted users to make such a decision, and what awaits digital payments soon?
What is a digital wallet?
Surely you are already accustomed to the convenient and fast contactless payment procedure for goods in the store. Even though it greatly speeds up and facilitates payments, you must remember PIN codes and carry all bank and discount cards with you.
A digital wallet allows you to place all physical money and documents in a mobile application. You need to install such a program on a smartphone or PC, save all the details of payment cards to the wallet, and pay for any services directly in the store or online. In the same way, you can store your passport, tickets, boarding passes, hotel room keys, gift certificates and coupons, and so on.
In addition, digital wallet applications provide users with special benefits: rewards, discounts, and cashback on certain payments and utilities. This is another good reason why users pay attention to the digital counterparts of a traditional wallet.
There are a lot of companies that deal with digital wallets: Due, ApplePay, Google Pay, Samsung Pay, PayPal, Venmo, AliPay, and so on. For example, with the pre-existing Google Wallet service, users could “store” cash on their phones. With the help of short-range wireless communication, the owners of devices paid for purchases in any organization that cooperated with this payment system. If a company was not a Google Wallet partner, users could get a physical wallet card linked to Bank of Google.
In 2018, Google merged the two main payment streams – Android Pay and Google Wallet – into a single service called Google Pay. The combined system has the same features and allows you to view your purchase history and receive bonuses and personal offers.
A digital wallet is also commonly referred to as a crypto wallet and wallet for storing electronic money. In this article, we will talk about digital wallets for the money that you may have on a plastic bank card or account.
Why are digital wallets popular in the world?
Over the past five years of the evolution of electronic wallets, the number of digital payments has almost doubled. In 2020 alone, the world’s population made 779 billion digital payments. Statista predicts that this number will increase by another 13% in the coming years.
Coronavirus gave impetus to the accelerated growth of electronic payments because, during quarantine and self-isolation, people tried to avoid public places and pay online. Digital payments increased even in cash-first countries and even among older shoppers. People are so accustomed to these conveniences that by 2025, according to experts from Mordor Intelligence, cash will be replaced by digital wallets.
According to experts, the most popular mobile applications for electronic payments have an audience of 39 million to more than 1 billion users per day. With the Baby Boomers gradually retiring and being replaced by more tech-savvy Generation Z, it is expected that there will be even more digital wallet owners.
Unfortunately, not all countries are involved in the global digitalization of payments yet. The maximum coverage is observed in China, where about 47% of the population uses smartphone payments. Residents of Norway, Great Britain, Japan, Australia, Columbia, the USA, Singapore, and Canada are interested in digital wallets. Austria closes the top ten, where 16% of the population prefers e-wallets.
However, sooner or later, other countries will adopt electronic wallets. The only question is the time and technical literacy of people. What else can you expect from digital wallets besides the rise in popularity?
A look into the digital wallet: technology trends for the next couple of years
Since 2020 (the cyber pandemic year), people have become wary of online payments. At that time, only the UAE recorded an increase in online fraud by at least 250%. The FBI saw that people were 400 times more likely to complain about hacks. In 2022, the situation is slightly simpler: in the first quarter, 18 million data leaks were recorded. However, security remains a top priority and one of the biggest reasons people fear trusting digital wallets.
Biometric authentication is a technology that minimizes the threat to privacy. After all, verification and recognition of data about a person occur due to their unique biological characteristics: fingerprints, retinas or irises, voices, faces, and the like.
Initially, the smartphone owner sets these characteristics so that the system determines that the data matches in the future. Only then will it allow a user to perform the necessary actions: unlock the phone, pay for goods using a digital wallet, open the door of a rented car, and so on. For example, all new Apple smartphones have long used Face ID – an infrared 3D facial recognition system – instead of Touch ID.
Biometric authentication guarantees a more reliable verification of the identity of users most easily and understandably, which, at the same time, is not available to fraudsters. People trust this technology, which is why Gartner is confident that by 2023, identity verification points will replace authentication platforms in more than 50% of large corporations.
From cards to QR codes
Previously, a bank account number could be found by a combination of unique numbers written on the card. Since this approach was unsafe, it was replaced by the more reliable international EMV standard, which provides for the presence of a chip and codes on the card.
A chip can run applications and exchange commands with POS terminals, and when paying, the owner must specify a PIN. The information on the chip is protected, and it is technically more difficult to steal it than from a magnetic strip. But this technology has its drawbacks because EMV cards also have a magnetic strip, information from which fraudsters can copy using special devices – skimmers.
QR codes promise to make our lives easier and safer. Stored on a smartphone, this unique 2D pattern is enough to show another person to scan and, for example, transfer money. It contains much more data than a barcode and can be read on-screen and on paper. In addition, information can be read from a QR code, even if damaged.
When buyers scan a code, they transfer the money to the seller’s bank account. The code can be displayed at the checkout in physical stores to allow customers to pay for items without physical wallets. Customers need to open an application, point the phone camera at the “black and white” square, scan it in a couple of seconds, and go home happy with their purchases. Android users often opt for the NeoReader or QR Reader program, while iPhone owners prefer the Camera app.
A user must also open a program and scan a code when paying online. Since the payment details are already stored in the system, a transaction will be quickly processed and approved.
A QR code is a promising technology. It is safe, inexpensive, convenient, and can be easily used to pay for goods, travel, utilities, food, etc. This technology will fundamentally change how retail outlets work with a QR code. A seller does not need electricity or an Internet connection; they only need a buyer with a smartphone.
The emergence of mobile points of sale
Digital wallets could revolutionize how brick-and-mortar stores operate by eliminating the need to purchase expensive hardware. Experts predict the spread of mobile cash registers – mPOS. This smartphone or tablet is used instead of a cash register or an electronic cash terminal to pay for goods or services.
A standard POS terminal includes a desktop computer, cash drawer, receipt printer, credit card machine, and scanner. An mPOS dispenses with this bulky hardware. A mobile checkout only needs a network connection, a bank card reader, and a transaction app. Users can download the POS app and connect the reader to their smartphone.
mPOS technology will make trading more mobile, allowing you to accept payments on the go from anywhere with an Internet connection. Juniper Research predicted a great future for it, estimating that by 2023 the number of mobile transactions will triple compared to 2018 and amount to 87 billion.
Payment with smart speakers
Smart home assistants in the form of ordinary speakers can not only communicate with their owners, turn on music or report the weather forecast. Experts believe that smart speakers will revolutionize the financial sector. More and more users trust these devices to order food at home or call a taxi. Moreover, people are starting to shop online for household items, groceries, and even clothes.
This fact is confirmed by the figures given by the consulting company OC&C Strategy Consultants. It has recorded rapid growth in voice payments and predicts that its volume will be $40 billion by the end of 2022. So far, only 28% of the population trusts online voice transfers, so the rest are unsure how safe this procedure is.
Even despite this barrier, the future of smart speakers looks promising. Statista calculated that more than 4.2 billion digital voice assistants are used on devices worldwide, and by 2024 this number will double.
This point follows from the previous one. Since people are concerned about the reliability of online payments, it is necessary to provide them with top-class security.
Banks own billions of customer data: contact information, personal information, payment details, etc. This information must be able to be protected so that fraudsters do not have the opportunity to use it for their purposes.
To do this as efficiently as possible, financial institutions have come to rely on the help of AI and machine learning technologies. Such a security system can detect suspicious transactions in real-time and report them to the bank account holder. The warning may come in the form of an SMS notification from the bank asking if the user made the payment. Thus, a financial company will respond to illegal actions in time and prevent a serious accident when not only the client’s money but also the company’s reputation is at stake.
Various banks are already interested in AI and ML and plan to invest billions of dollars in these technologies. Automated protection systems based on AI and ML are gradually becoming the standard in the fight against cybercriminals.
Michael Kaplan, Chief Revenue Officer and General Manager of PayNearMe, explained people’s caution about digital wallets. He said some of us are already paying for groceries or shopping online with our Google or Apple Pay accounts. When consumers start paying bills through a digital wallet, they fully appreciate its tremendous ease and the time savings it gives them. The specialist is sure that all fintech companies should look for ways to enable digital wallets to take advantage of this important trend.
Great dependence on the cloud
The cloud is the primary means of creating digital wallets. It has built-in security, is capable of scalability, and performs intensive computational processes. The cloud improves digital wallets, and here’s how:
- It provides additional protection.
Although a payer’s personal information is already encrypted in an app, digital wallets hosted in the cloud have additional protection. It is guaranteed by the Payment Card Industry Data Security Standard (PCI DSS), which is used in the financial services industry.
- It speeds up transaction processing.
The speed of payment processing directly affects the convenience of customers. Even though plastic bank cards have significantly accelerated the payment process, they still need time to authenticate and verify on payment devices. With cloud digital wallets, this procedure can be carried out even faster, in a split second.
- A digital wallet is not tied to one device.
The cloud allows you to securely store payment information in a central virtual repository, regardless of the device. You can pay for goods using smartphones, tablets, and smartwatches. If these devices are lost or stolen, an unauthorized person will be unable to use them, thanks to strong biometric authentication.
- It integrates the wallet with a blockchain.
The cloud creates an ideal environment for connecting wallets with new technologies such as blockchain. Singapore Airlines (SIA) has launched a mile-based digital wallet, KrisPay. Program members can earn miles through everyday spending or convert their miles into KrisPay tokens, which can then be spent at multiple retail stores. In this way, the company seeks to increase customer loyalty, attract more users and strengthen its brand awareness.
Digital wallets impact business success
A digital wallet also benefits businesses because customers get what is very important to them – a quick and convenient checkout option. According to a VoCUL survey, this condition is important for 40% of buyers and is important in achieving loyalty to a particular seller.
Online merchants are also positive about the new technology; most are convinced it will not hurt their business. In the US, over 60% of eCommerce merchants have at least one integrated digital wallet option.
A company can achieve business goals faster and increase the bottom line by offering digital wallet options at the checkout. Participants in the same VoCUL survey said that adopting this technology helps speed up the checkout process and increase the number of visits. HotelTonight, for example, claims that Google Pay users are 65% more likely to complete a booking process and have a 2x higher conversion rate than card-based shoppers.
Juniper study author Alexandria Sadler emphasized that merchants not only need to base their payment strategies on wallet acceptance to support a targeted market with digital participation. They also need to identify the right target wallets, or they will be burdened with increased costs and limited benefits.
All the above trends play an important role in the transition from paper to digital money. 2020-2022 showed that people are used to paying for goods in a contactless way. A digital wallet securely stores payer information in a compact form. You can easily and quickly pay for goods and transfer money to other countries. With e-wallets, shoppers manage their spending better by getting account information instantly. It can be said that a digital wallet gives people more freedom and businesses more options to grow and improve.