Digital wallets are one of the hottest fintech trends, and their use is on the rise. What is a digital wallet, how does a digital wallet work, and why are they so popular? We reveal why e-wallets are dominating the global electronic payment scene.
Fintech trends indicate the dawn of the cashless society
The dramatic rise in smartphone use and our increasing dependence on digital payments are two reasons why the “cashless society” is now closer than ever.
Now there is a third spoke in the wheel of this ongoing debate – a global shift in e-commerce payments that is seeing digital wallets dominate the market.
Digital wallet use will account for more than 50% of all global payment transactions by 2025, according to a report by electronic funds transfer system Worldpay.
Mobile wallets’ share of global point of sale transactions has already hit more than US $13.3 trillion, the same report found – a sum likely to increase significantly.
Here is everything you need to know about the rise of the digital wallet.
Our guide to the hottest fintech trends: the boom in digital wallets
What is a digital wallet?
A digital wallet, also known as a mobile or electronic wallet, is an app that stores a user’s financial information, such as payment details and passwords, on their phone.
This app can be loaded with a user’s debit card, credit card and bank account details, for example, and be used to buy goods directly in stores or online.
Digital wallet users only need their phone to make a payment, rather than having to carry around or locate traditional bank cards or count out sums of cash.
These apps also track a user’s spending and other financial transactions.
Mobile wallets are highly secure, and can store other information too – such as coupons and gift cards, IDs and driving licenses, hotel reservations, and travel and event tickets.
They can even store a user’s car key.
Why are digital wallets so popular?
The global pandemic triggered a decline in the use of cash and a jump in the popularity of digital wallets, but this is not the only reason they’re now among fintech trends.
Another secret to their success is the rise of the “super app” whereby a single app offers its customers a wide variety of different products and services.
Colombian app Rappi started as a food, grocery and pharmacy delivery service, for example, but now offers an ecosystem of goods and services across South America that includes financial products, and travel, concert and hotel bookings, among others.
Super app users have become increasingly reliant on digital wallets for making payments, particularly the branded wallets that are attached to the apps they use.
Amazon, Mercado Libre and Alibaba have all launched branded digital wallets – Amazon Pay, Mercado Pago and Alipay – which are beginning to dominate the market.
What are the advantages of digital wallets?
Speed, simplicity and convenience are the reasons customers give for preferring to use digital wallets over traditional payment methods.
Consumers are also storing more diverse payment information in their e-wallets. Initially, most held credit and debit card details, but this trend is evolving.
More than a third of e-wallets now store current account data, particularly in parts of the world where bank card use is infrequent, according to the Worldpay report.
This may explain why the boom in digital wallets is not restricted to a particular geographic region, but is unfolding worldwide.
The Asia-Pacific region, Latin America, the Middle East and Africa, Europe, and North America are all witnessing an expansion in digital wallets’ share of e-commerce value.
How does a digital wallet work?
Digital wallets are easy to use in both online and ‘real world’ purchases.
During in-store transactions, electronic wallets utilize a mobile device’s wireless capabilities, such as WiFi or Bluetooth, to connect and transmit data.
Some wallets use near-field communication, connecting and transferring information through electromagnetic signals when devices are held within 3-4 inches of each other.
Digital wallet users can also hold their phones over a point-of-sale handset and use magnetic secure transmission to beep an encrypted field. This method is similar to the tech used in magnetic card readers.
One of the most common techniques is to scan and use a QR code – a quick and easy way to ensure digital wallet payments are sent to the right place.
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What is the best digital wallet?
The boom in digital wallet use has led to a boom in offerings, with several big players already competing to dominate the market.
Apple Pay, Google Pay, the Samsung Wallet and the PayPal digital wallet are some of the best-known names, but up-and-coming stars Dwolla, Venmo, Zelle and the Cash App are making a splash too.
Venmo is one of the most popular. It has more than 83 million users and facilitates online payments, transfers between users and payments in participating stores.
Fintech trends suggest digital wallets are here to stay
Digital wallets are one of the hottest fintech trends and their popularity shows no signs of slowing, with users hooked on their ease, convenience and simplicity.
Contact Ceiba and find out how your business can take advantage of world-beating fintech solutions today.
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Sources
https://worldpay.globalpaymentsreport.com/en
https://www.investopedia.com/terms/d/digital-wallet.asp
https://reademergent.com/c/rappi-latams-super-app
https://www.techtarget.com/whatis/feature/Top-digital-wallet-companies
