Finance
Are virtual wallets the future of payments?
Global Banking & Finance Review®
Company
Tareq Shaheen, PDM Director, Payment Solutions at Eastnets
Tareq Shaheen, PDM Director, Payment Solutions at Eastnets
With the ‘wallet wars’ being waged over recent months, there has been much talk of virtual wallets becoming a vital part of the payments system. Whether a digital wallet (which links to a payment card) or an eWallet (which uses funds deposited into it), the popularity of virtual wallets is clear.
This has been captured in a report from Juniper Research that predicts 60 per cent of the global population will use digital wallets by 2026.
But as the payments system landscape grows, do virtual wallets have what it takes to emerge as a dominant player? Will they be shaping the future of payments or are they destined to fade away as a passing trend?
A report from Facts & Factors places the global value of mobile payments at $607.9 billion by 2030, growing at a CAGR of 35.5 per cent between 2023 and 2030. But not all data houses agree with this number.
For example, data compiled by GlobalData surpasses the Facts & Factors predictions, with expectations that the Indian market alone will be worth over $5 trillion by 2027. Despite this disparity, the one thing all analysts have in common is that the use of virtual wallets will surge in the next few years.
The enthusiasm for virtual wallets is palpable, with a myriad of benefits driving their widespread adoption. They’re gaining ground, offering customers convenience, improved customer experiences, and a flourishing eCommerce and eRetail landscape.
Deloitte’s latest findings reveal that almost every developed country has over 90 per cent smartphone penetration, each with the potential to hold a virtual payment wallet.
However, except for China, currently less than 15 per cent of people in these countries use a smartphone to make a payment because of negative perceptions about security and lack of benefits. Nevertheless, this untapped potential indicates that once these concerns are addressed, virtual wallets could become mainstream and widely adopted, revolutionizing the way we make payments.
As this financial revolution unfolds, some regions are racing ahead while others are taking their time to join the wave.
China
In the bustling world of mobile payments, China has emerged as a trailblazer, with Alipay and WeChat Pay dominating the market. For scale, WeChat alone boasts a jaw-dropping 1.67 billion monthly active users.
Southeast Asia
A series of McKinsey interviews with field experts in Southeast Asia noted extensive opportunities for payments using virtual wallets. The region has around 60 per cent of citizens being unbanked and only about 17 per cent of transactions being cashless.
Africa
In Kenya, the digital payments wallet M-Pesa has been a success, opening up payment rails for the unbanked. As of 2021, M-Pesa had over 50 million users (and rising) across Africa.
Middle East
A Research and Markets survey revealed an exciting future for digital wallets in the Middle East and Africa. According to respondents, digital wallets are set to become the preferred payment method by 2025.
USA
According to YouGov, 60 per cent of American adults in the USA used mobile payment wallets in 2021; the most popular payment apps were Apple Pay, Amazon Pay, Google Pay, and PayPal.
As major tech players push for widespread adoption of virtual wallets, we can expect the public’s acceptance of these payment methods to grow. With user-friendly systems from giants like Apple and Google, consumers are getting comfortable with these convenient options. Moreover, as more businesses, including Netflix and public transportation, embrace mobile payments, the use of virtual wallets is becoming a norm.
Apple, known for its elegant designs, is making waves in the virtual wallet space with its popular Apple Pay. It has become a central figure in the eCommerce payment landscape, with 85 per cent of US merchants accepting it. Though in-store transactions using Apple Pay were slow to take off initially, this is changing.
While Apple Pay had 535.8 million users in 2022 – still far behind WeChat – its potential to dominate the payments sector outside of AsiaPac is undeniable. As the digital wallet revolution continues, Apple is on track to become a powerhouse in the global payment landscape.
According to a 2022 report from ACI Worldwide, Prime Time for Real Time, more than half of global consumers now hold and use a mobile wallet, with some analysts suggesting that the virtual wallets’ usefulness has reached its limit. Despite these concerns, the tide seems to be turning in favour of digital wallets, as their ease of use in payments becomes a more significant factor.
In addition, there is a strategic perspective for banks to compete with Big Tech in the virtual wallet space. Rather than focusing solely on payments, banks should prioritise identity and expand the ecosystem around their wallet. By doing so, virtual wallets could transform payments, linking them intrinsically to the user’s identity and potentially playing a part in Know Your Customer (KYC) and Customer Due Diligence (CDD) processes.
As virtual wallets become more popular, consumer trust will begin to develop – but this trust can only be sustained with robust security measures across real-time and instantaneous payment rails. Anti-fraud measures become paramount in protecting users’ sensitive information and financial transactions.
While virtual wallets and mobile payments look set to become an intrinsic, and perhaps even ubiquitous part of the payments ecosystem, the rise in their adoption also draws the attention of cybercriminals. No matter the type of wallet used, security is essential.
As with any digital payment method, virtual wallets are susceptible to exploitation by cybercriminals, who may employ fraudulent tactics to steal funds or sensitive data. To safeguard users and the payments ecosystem, transactional, real-time fraud checks must become a vital part of the virtual wallet experience.
Regardless of where the payment journey begins or ends, implementing stringent security measures will be crucial to ensuring the safety and confidence of consumers in this transformative payment technology.
A digital wallet is a software application that allows users to store and manage their payment information and passwords for various payment methods and websites.
Mobile payments refer to transactions made through a mobile device, allowing users to pay for goods and services using their smartphones or tablets.
E-commerce is the buying and selling of goods and services over the internet, which has significantly increased with the rise of digital wallets.
Financial technology, or fintech, refers to the use of technology to provide financial services, improving efficiency and accessibility in banking and payments.
Payment methods are the various ways in which consumers can pay for goods and services, including cash, credit cards, digital wallets, and mobile payments.
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