Let’s talk digital wallets

A digital wallet, sometimes referred to as an e-wallet, is a payment method which allows you to make electronic transactions in store or online. Wallets are stored on your smartphone or device and unlock a whole world of functionality, including a history of transactions and the ability to store loyalty cards and discounts, boarding or transit passes and event tickets. 
 

In European markets, digital wallets are almost entirely powered by transactions made with payment cards through traditional scheme or card brand acceptance networks, like Visa and Mastercard. These are Card Based Wallets.
 

Across the rest of the world, particularly where consumers may not have a bank account but do own a smartphone, wallets have been developed outside of the payment scheme-built ecosystems, with transactions funded directly from a bank account, by cash or by bulk disbursement. These are Stored Value Wallets. 
 

There are four main different types of digital wallets. 
 

1. Closed wallet

A closed wallet is usually created by a single business selling products and services directly to customers. Users can store funds to make transactions only with the issuer of the wallet. Any money from cancellations, returns, or refunds is returned to the wallet. A good example of this is Amazon Pay.
 

2. Semi-closed wallet

These wallets allow users to make transactions at participating businesses and locations. Although the places you can use them is restricted, you can usually make purchases online and offline. Businesses need to enter into agreement with the wallet issuer in order to accept this type of payment. In India, Paytm is a popular semi-closed wallet with over 450 million registered users³.
 

3. Open wallet

These are the best-known type of digital wallet, enabling users to manage and keep track of payments online. They’re built as easy-to-use online web applications that can be downloaded onto any device or browser with an internet connection. 

An open wallet is compatible across platforms, enabling the user to access their transactions anytime from anywhere in the world. Usually, open wallets are issued by banks or institutions partnered with banks and they access funds directly through a bank account or a payment card – think Apple Pay and Google Pay.
 

4. Crypto wallets

Crypto wallets are uniquely used to store your cryptocurrency passwords in one place. Unlike digital wallets, they don’t actually hold any currency, but instead give you the tools to access and manage all your currencies, send and receive money and even shop at stores that accept crypto. While many crypto wallets are digital, some come as a piece of physical hardware, similar to a USB stick. 

To start with, they’re incredibly easy to use. Instead of needing a payment card to hand, you can transact using an identifier – this might be a password, a biometric check or the device you’re using. This convenience means transactions move and complete quickly, often without the need for an additional authentication step like a PIN or in-app approval, making digital wallets valued by consumers and businesses alike.
 

They’re also very secure, encrypting all data and using layers of authentication to make sure the user is who they claim to be. Regular wallet use means issuers can build up data and track patterns of user behaviour, helping to inform and further arm tools that combat fraud. 
 

Usually there’s no incremental cost to using a digital wallet, and with businesses now embracing the technology, adoption has increased enormously. Adoption drives more adoption and of course, COVID-19 and the boom in contactless and eCommerce transactions has accelerated the wallet habit among all consumer demographics, especially younger age groups.

For businesses that accept digital wallets, there are lots of tangible benefits. Incremental authentication steps mean consumers can transact above the contactless limit, bringing the speed and convenience of contactless to larger ticket items, helping with queue management and improving customer experience.

Because they tend to use existing contactless terminals to process face-to-face transactions, there’s no need for businesses to invest in new and costly hardware to accept wallets in store. The buying process is so intuitive that staff training is simplified. 

When it comes to eCommerce, many businesses find that digital wallet acceptance is already built into their gateway or platform, so there’s often minimal cost or integration required. 
 

As part of an online shopping experience, wallet transactions usually don’t require consumers to provide additional authentication, so consumers are more likely to complete their purchases. Overall, digital wallets speed up transactions and have a positive impact on sales conversion and cart abandonment. 

There are plenty of digital wallets to choose from and the decision about which is right to use comes down to what’s being purchased, where it’s being purchased from, and the type of device being used. 
 

For iOS users, Apple Pay is often the go-to while Google Pay makes sense for anyone with an Android device. PayPal has been around for longer and is accepted widely online. And there are many local wallets which target domestic audiences in specific countries. 

In developed markets, our spend volumes are dominated by a small number of digital wallet providers, so let’s break down the major players.
 

Apple Pay

The Apple Wallet app is installed on all new iPhones and iPads and can be used with iPhone 6 or later models. Beyond payments, the wallet can store all kinds of loyalty apps, tickets and passes. You’re able to load most bank payment cards into your Apple Wallet and review recent transactions for each card.  

Payments made with Apple Pay use near-field communication (NFC) enabled terminals for in-store transactions (i.e., you just need to hold them close to each other) and can navigate contactless transit networks.  All data is encrypted, and authentication uses either Apple’s Touch ID or Face ID, even when your phone is locked, so you benefit from powerful security without slowing down your purchase. 

Apple Pay also features on many eCommerce checkouts and is especially popular with businesses looking to encourage in-app purchases. 
 

Google Pay

The Google Pay app is installed as standard on recent Android devices, so all users need to do is load their payment card details or link their bank account. The app can also store loyalty apps, tickets and passes. 

For in-store purchases, Google Pay uses NFC technology so you can pay using a fingerprint or password to unlock your device, before holding it to the card reader. This technology also works when you’re in transit, using a bus, tram, or underground train network.

Card information is always encrypted so transactions are secure and for eCommerce or in-app transactions, Google Pay (or G Pay) is now a regular option at checkout.  
 

Samsung Pay

If you use a Samsung device, you can install the Samsung Pay app onto most Galaxy phones and Samsung wearables. Bank cards can be uploaded to the app, but not all banks participate so it’s worth checking that yours does.  

You can use Samsung Pay for in-store transactions, through NFC or Magnetic Secure Transmission (MST) enabled contactless terminals and to tap in and out of transit networks.
 

PayPal 

PayPal is arguably where wallets began, as the default payment option for eBay. Today, PayPal is widely accepted online although ambitions to become an everyday in-store payment choice, primarily using QR technology, haven’t yet been realised.

Users link card or bank account details to fund purchases made through their PayPal wallet, so their details are protected and never shared with the businesses taking payment. In recent years, PayPal has started to offer credit at the point of purchase and to encourage bank transfer over payment-card funding, perhaps looking to provide a differentiator from other wallet providers.  

The major schemes, like Visa and Mastercard, are watching this space carefully. As long as credit and debit cards remain the funding mechanism for wallet transactions, then there is little risk and much upside, through increased transaction volume, for the schemes. 
 

When it comes to chargebacks, authorisation or fraud, because payment cards are still processed in most transactions, normal scheme rules apply. Greater risk for the schemes could arrive when wallets start to prioritise other funding options, for example encouraging direct bank transfer over card payments.
 

Online, wallets can quickly reach acceptance scale through integration with the main eCommerce platforms, payment service providers and gateways. A single integration can open up thousands of businesses, with minimal cost and effort. 
 

Having a seamless integration with the major wallets, especially Apple Pay and Google Pay, has become an important selling point for those providing payment solutions within the eCommerce ecosystem. 
 

“Incorporating digital wallets into your online checkout is a no-brainer for any business in the modern age,” according to Deepti Akkali, Head of eCommerce Commercialisation at Elavon Europe. “Adding them as payment options is usually light touch, and as part of an eCommerce solution from Elavon they can be a low-cost and pain-free way to improve your customers’ shopping experience and your online sales performance.”

The role of mobile devices in digital payments is pivotal for emerging markets where scheme acceptance networks are limited, and where many consumers don’t hold a bank account or card, however smartphone ownership is exceptionally high. 

In these environments, access to spending tools, loyalty and money transfer is inevitably centred on smartphones, so it’s not surprising that experts believe digital wallets will be critical in growing digital and financial inclusion. 

The types of wallets available are growing, with reports suggesting that the number of mobile wallet platforms transacting more than $1 billion annually is expected to jump 27% to 69 platforms4 by 2025.  In high-growth markets like India, where large segments of the population don’t have a bank account, individuals already use an average of 3.5 mobile wallets per person⁴.
 

And in 2016, when the Indian government wiped out 86%5 of its cash through demonetisation, this became a catalyst for mobile wallet adoption with India’s biggest wallet, Paytm, nearly doubling from 140 million to 270 million users in around a year.