Digital wallets have been around for years now, but the technology is only just beginning to catch on with wider audiences. The number of transactions made around the world using digital wallet technology grows every year as more people embrace it. Read on to find out more about them and whether they suit your needs.
What’s a Digital Wallet?
Digital wallets are services that allow users to perform various tasks. Most associate digital wallets with enabling convenient payment. The wallet holds payment methods—such as credit cards—which you can use without having the physical cards on hand. They can also store other items a physical wallet normally does, such as your driver’s license and other ID documents, gift cards, tickets for entertainment (e.g., movies, concerts, sporting events), and those for transportation like metro or subway passes. Many digital wallets are not only more convenient than the traditional physical versions, but they can also provide greater security.
How Digital Wallets Work
Digital wallets primarily live on smartphones as apps but also come as physical devices or applications on a personal computer. Most digital wallets in use today function as mobile apps for smartphones. Used this way, they are nimble and portable making them far more desirable than other versions. Before downloading a digital wallet app and entering sensitive financial information, however, do your due diligence and confirm that the wallet provider is a reliable provider.
Most often, a point-of-sale (POS) system compatible with your digital wallet is required for you to use it. A POS system is the card reader that card holders swipe or insert their cards with chips into to complete a transaction. Most merchants have symbols of the various payment methods they accept displayed at the POS.
- If the symbol for your wallet is displayed, just bring your smartphone close to the terminal.
- Wallets and POS systems communicate with each other using near-field communication (NFC) technology. NFC is a set of communications protocols for communication between two electronic devices over a distance of four centimeters or less.
- Completing a transaction requires the user to tap a button in the app or use a password.
- Holding the phone over the POS terminal until the transaction is complete.
Common Features in Digital Wallets
Many available digital wallets share a host of common features. These include:
- Varied merchant payment processors. Digital wallets allow merchants to accept payment through various methods, usually relying on credit and debit cards. Other technologies, such as QR codes and contactless NFC also permit the transfer of funds.
- Easy registration and login. Creating accounts is easy and most often at no charge with most digital wallets on the market. The process consists of some simple steps:
- Download and install the app.
- Signing up using an email address or mobile number.
- Confirming your credential using a one-time password (OTP).
- Linking the wallet to an ID.
- Adding cards or money to the wallet.
- Chatbot support. Deploying chatbot software enables merchants to have contact with their customers 24/7 while giving customers an avenue to ask questions about their digital wallets. Having this sort of support bolsters the merchant's customer service support. When questions arise that are too complicated for the chatbot, customers can create a ticket within the chat to escalate the issue to human support.
- Simple bill payment processing. Digital wallets are brilliant solutions for making convenient payments. Everything from a mobile phone bill, to utilities, to purchasing tickets for travel or entertainment can be purchased with a wallet which often allow setting up an autopayment option.
- User-friendly. Digital wallets are user-friendly with dashboards that allow users to track all their payments and manage activity. Users can check balances, transfer money between accounts, add money to the wallet, and access reports of their finances. Wallets even enable monthly spend limits.
Types of Digital Wallets
NFC-based wallet. Near-field communication, or NFC, allows the wireless transfer of data between smartphones, tablets, laptops, and other devices over short distances. NFC is regarded as an upgrade over existing RFID technology and is expected to grow to be worth nearly $50 billion by 20241. NFC technology powers the Apple Pay digital wallet. NFC wallets enjoy better security because they transfer card information utilizing the NFC technology which helps reduce the possibility of unauthorized access to data. .
Cryptocurrency wallet. Crypto wallets store the keys—public and private—for cryptocurrency transactions. The keys are the passwords used to access the coins used by cryptocurrencies like Bitcoin and Ethereum. Crypto wallets can be hardware which often resemble a USB stick, or they can be mobile applications used on smartphones. There are over 70 million2 of these wallets in use today.
Foreign remittance. This type of wallet (aka, worldwide settlement) allows people working in a foreign country to send money back home. In many developing nations, foreign remittances constitute a significant portion of their GDP. The sheer volume of money transfers spurred the development of these wallets to provide those using them with added convenience while helping to lower the risk of loss and incurring international surcharges.
Virtual card. Virtual cards allow transactions without revealing credit card numbers to merchants by using a unique account number to mask the actual ones. Consumers can restrict the use of these virtual cards to a single vendor.
Biometric wallets. These wallets employ biometrics to use them. This helps reduce the risk of fraud and/or extortion attempts. They can hold various forms of credentials such as credit cards, driver’s licenses, personal medical records, and passports among others.
AI wallets. These types of wallets exceed the limits of those whose primary function is payment solutions and banking assistance. Using a sophisticated admin panel, they empower their users to accomplish many complex tasks, such as management of finances. Using chatbots, AI wallets provide faster service on payment resolution. The high-powered AI software also help reduce fraudulent transactions.
Why Businesses Should Use Digital Wallets
Digital wallets are fantastic for consumers, but they are a boon for businesses as well. There are several reasons why accepting them is favorable for merchants.
Gratifying customer experiences. The easier a business makes it for customers to purchase goods and services, the more they will. Mobile transactions continue to grow in number and frequency each year. Digital wallets provide a frictionless transaction and, therefore, a user-friendly customer experience.
Streamlined transactions. No one enjoys grabbing their wallet and having to fish out a card anymore. In fact, many prefer not to have to carry around the ‘Costanza wallet’ at all and want things as streamlined as possible. With a digital wallet, their wallet is already on their smartphone obviating the inconvenience of having to dig anything out or carry it around in the first place. A quick wave of their mobile device at a POS and the transaction is complete.
When shopping on native apps, digital wallets are often set as a payment method. They can still use their plastic if they prefer but giving customers options that add to their convenience is always good. Furthermore, digital wallets enable faster cash flows and provide payment processors with funds within three business days.
Utilize loyalty programs. 70 percent of customers favor using a loyalty card on their mobile devices. 75 percent are motivated to enroll in a loyalty program if they can get their rewards added to the mobile loyalty cards on their devices. Not offering this feature reduces a surefire way to garner higher customer engagement.
Two-way tracking for expenses. Digital wallets capture an enormous amount of data with regards to the spending habits and shopping tendencies of their users. Businesses can drill down into this data to gain a better understanding of their customers’ behavior and to better cater to their needs. This comes without the necessity to spend capital on expensive POS equipment and these digital methods are also far less expensive than using paper and ink.
Cut down on fraud/data compromise. Using digital wallets that employ AI software can help businesses not only prevent fraud and theft but can also help track it down efficiently when it does occur.
What Digital Wallets are Available?
There are a bevy of digital wallets on the market now as they have grown in popularity in recent years. You’ve no doubt heard of some of them; perhaps you even use one or more of them already.
- Google Pay
- Apple Pay
This does not even scratch the surface if you include the plethora of digital wallets associated with the cryptocurrency ecosystem.
Digital Wallets are the Future
Digital wallets are in use by many people today even before the term ‘digital wallet’ entered the parlance of our times. Their proliferation is only starting and will approach ubiquity as our lives become more digitized.
Prior to the pandemic, handing cards over to a cashier, or handling cash for that matter, didn’t bother most people. With the pandemic, the option to wave a mobile device over a POS and using a contactless payment mechanism has increased in popularity. In 2020, the spend through digital wallets was $5.5 trillion. By the year 2025, this number will exceed $10 trillion3. This is a growth rate of 83 percent spurred on by the adoption of contactless payments during the pandemic. With the revelation of convenience in a highly secure manner, the adoption of digital wallets is assured.