By Anil Malhotra, Chief Marketing Officer at Bango.
Cash payments continue to be squeezed out in a new wave of digitisation, with the rise of mobile phone payments set to rival and then succeed credit cards as the central means of payment in the digital age.
We’ve been paying via mobile for some time, with the first transactions going back to 1997 when Coca-Cola introduced vending machines allowing customers to pay by text. Later in 2007 the branchless banking service M-Pesa was launched in Kenya, and then Google platformed mobile payments by launching the first mass-market digital wallet in 2011 – all leading to an era where the physical wallet is increasingly left behind.
From 2010-2020, cash payments declined by 54% in the UK, while mobile payments are predicted to become a preferred payment method, second only to debit cards, by 2022. Currently, mobile networks bill over a trillion dollars to more than five billion users a year.
What are the benefits of digital wallets?
While some services like Apple Pay and Samsung function as a vessel for existing payment methods – like a physical wallet – there’s a growing collection of digital wallets that allow users to generate balance through “cash conversion”. Customers can go to shops, kiosks or ATMs to deposit cash that becomes usable electronic money in their wallets.
This ability to convert cash into electronic money that’s spendable online or in-store helps to foster greater financial inclusion, meaning more people (many of whom may not have been eligible for a traditional bank account) can partake in digital payments. The uptake of this style of digital wallet is particularly noteworthy in Southeast Asia, Africa, and Latin America where regional governments have supported these services.
On a more practical level, all digital wallets –whether they have cash conversion capabilities or not– are easily accessible and convenient for consumers. They store multiple payment methods in one digital solution and can be accessed via a range of devices including phones, but also smartwatches and tablets.
Forgetting your wallet is no longer an issue, customers can just tap and go, then their device will give an instant notification detailing the amount spent. You can even link loyalty schemes, so points and rewards are calculated automatically when checking out.
As a newer payment method, digital wallets have been met with some skepticism along with contactless payments regarding safety, but these concerns are largely unwarranted.
Digital wallets cannot be accessed without a password and/or face ID requirements of the smart device they live on, meaning users have control over how their payment information is stored. Tokenisation also means that personal identifiable information and financial identities can be hidden.
In fact, The UK treasury reported there was no major increase in reported fraud when the contactless payment limit was raised from £30 to £45, leading to an increase in the contactless limit to £100.
In summary, digital payments are as safe as any transaction. As an electronic service, digital wallets feature multiple points of authentication through user and network verification methods, so some could even argue they are safer than contactless enabled bank cards or cash. Cash and cards by comparison are easily stolen and used with fewer points of identification and security.
So, it’s clear consumers and governments are readily adopting digital wallets, but what about merchants and the financial sector?
The growing interest in digital wallets is proof that financial services are becoming increasingly digitised, with these services following on from the introduction of online and app banking.
Financial institutions are already beginning to embrace this change, with a range of banks introducing virtual cards to business customers. These virtual cards are stored in digital wallets, where details including the 16-digit card number, CVV code, and date of expiry are kept safe.
Tech giant Apple is even launching its own digital credit card in collaboration with financial behemoth, Goldman Sachs.
Can merchants profit from the update in digital wallets usage?
Given the proliferation of digital wallets, merchants will be able to justify investment in technologies that will enable digital and mobile payments – and ultimately capture more customers and save money.
Wallets offer lower processing costs than other methods, such as carrier billed payments using airtime and even card processing. They also offer fewer limits on transaction values and frequency.
According to a survey conducted earlier this year, 37% of merchants currently support mobile payments at the point of sale, with payments companies like Bango helping them offer online mobile payments on a global scale.
While large merchants have operations in more than one country as standard, differing financial processes, regulations, laws, and different digital wallets, all require merchants to work with companies that unify and centralise payments.
Using commerce platforms like Bango enables payment choices to be analysed, providing valuable insights into what consumers are interested in buying. This information can be used to enable purchase behavior targeting, a market segmentation strategy allowing merchants to incentivise wallet payments by linking to special offers.
Digital wallets are set to become a global, standard payment method, with spending estimated to exceed $10 trillion by 2025. With financial institutions already embracing this change, merchants who aren’t offering mobile payments will need to catch up or risk loss of business by not offering customers the payment experience they expect.
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