Digital wallets — part one: what are they?
All you ever wanted to know about digital wallets but were afraid to ask.
So, what is a digital wallet?
Here’s the best to think about it. You have a physical wallet, or a purse right, in which you keep your cards and cash. A digital wallet is just a digital version of that.
And it’s not just for payments.
You can of course use it to pay for goods, but you can store and retrieve all manner of digital items such as plane, or theatre tickets. In fact, you can store so many things on a digital wallet, that it is becoming indispensable.
Governments are also using them to allow people to store ID cards, passports and drivers’ licences.
The key advantage for all of us is that the digital wallet is an application that runs on mobile devices, mostly people’s smartphones. So rather than going out and having your physical wallet stuffed with all the things you need in life, a wallet on your phones means everything is storied and easily retrievable on the one device you carry everywhere with you.
And they are being used widely across the globe.
The idea of cashless societies has driven this trend, as did the pandemic, which meant people looked for a more impersonal way of paying for their goods.
Stories of Covid being passed by bank notes did cash very few favours.
The market forecasts show continuing huge growth. Technology intelligence firm ABI Research recently predicted that the worldwide mobile digital wallet market will increase from a circulation from 3.5 billion now, to over 5.6 billion by 2027.
That’s almost a doubling in use over the next five years.
Sam Gazeley, Digital Payment Technologies Analyst at ABI, said: “Underbanked regions such as the Middle East, Africa, and Latin America will experience the strongest growth in mobile wallets. These regions present an opportunity to access banking services through a wallet or mobile money services, further driven by having mobile infrastructure readily available rather than banking infrastructure.”
Note the words “…rather than banking infrastructure.” Digital wallets are not the playthings of the banks. Indeed, the biggest players in the market are Apple and Samsung, for obvious reasons.
Thanks to the fintech platforms who deliver Banking-as-a-Service (BaaS) solutions, any company can now offer their customers a branded digital wallet. The brands are now in the driving seat, not the banks.
This is why, in the ABI research report, Sam Gazeley said this: “Compelling mobile wallet solutions will cover the need for enhanced functionalities and user experience.”
The key to the future of the digital wallet is enhanced customer experience and their user journey.
BaaS might be the enabler, but it’s the move towards embedded finance that makes this space so exciting and why the digital wallet is going to play a huge role in the future.
As a final point and to put this all of this in context, another research house estimates that the global digital payment market is estimated to reach USD361.30 billion by 2030. Bear in mind that in 2021, the digital payment market was valued at USD88.1 billion. The figures come from Grand View Research.
The era of the digital wallet is upon us.