The technology of today allows us, and our devices, to be more connected than ever before. This offers the opportunity for financial software to disrupt the traditional format of Banking in a pervasive and long lasting way. We are specifically talking about the digital wallet and how it is set to become the method of choice over and above cash and debit and credit card payments.
A digital wallet is an electronic device such as your phone that can be used to make transactions. The account credentials are transmitted to the merchant using near field communication (NFC) in exactly the same way you would tap your debit card to make a contactless payment. This can also include other useful information such as your identity and date of birth.
The payments market is huge, with Accenture estimating that cash and card payments made globally each year total US$13 Trillion. Contactless payments have seen a huge growth rate of 300% each year within Europe.
So what is it about digital wallets that make them so attractive?
As the debit card and credit card reduced the need for people to carry cash, the digital wallet removes the need for people to carry many different debit and credit cards. Taking Apple Pay as an example, the app sits on the device and links to the individual’s accounts, removing the need to physically carry the payment cards.
- Ease of use
It is really quick and easy to use when paying for items in a store. It is close to instantaneous. It is also far easier to make in app purchases. Many apps also provide holistic reporting so that you can see what has been spent and when from the wallet, across all accounts.
Imagine you are carrying a few contactless debit cards in your wallet and it is stolen; that could mean the loss of hundreds of pounds. Digital wallets are on devices typically sat behind passcodes. In the case of Apple technology, you can also change the settings to require touch recognition for a transaction to take place.
Digital wallets are undoubtedly deemed to be the future of payments with the likes of Google, PayPal, and many of the Banks making investments in the technology. However, there remain some barriers to adoption that are worth noting:
- Consumer resistance
It is certainly true that there is a very large cohort of tech savvy consumers who understand the benefits of digital wallets and want to be involved in the payments revolution. However, many consumers remain distrustful of financial technology, particularly since the financial crisis, and the number of tech issues that the Banks have fallen foul to. As with the adoption of most things, the resistant customers will make the transition but far more slowly than the early adopters who will pave the way.
- International immobility
For those that travel often they may struggle to use a digital wallet as many services are country specific.
- Unsupportive merchants
There are still many merchants, particularly the smaller ones, who do not support digital wallet payments. Again, this will surely shift as more and more consumers demand that service.
All of the considered barriers will erode as the technology evolves, and through the passage of time, more and more consumers and merchants will get on board. It is difficult to imagine given the evidence how digital wallets will not overtake physical payment methods in the next few years.