Massive uptake of digital wallet payment systems being driven by Covid-19
- Usage up by 83 per cent since the pandemic began
- Sector to be worth over US$10 TRILLION a year by 2025
- Secure and contactless apps and services booming
- Consumers prefer open wallets, merchants want to "own" customers by hooking them into closed wallets
The global pandemic is forcing massive changes on the ways we all live, work, interact and shop. Last year total spend via so-called "digital wallets" topped US$5.5 trillion but since then the adoption of digital payments has rocketed by 83 per cent over the past benighted year and estimates are that the total spend from the digital wallets sector, where payment details are stored and accessed via a single application, will be over $10 trillion within four years. So says Juniper Research in a new report, "Transforming the way we pay. Digital Wallets: Key Opportunities, Vendor Analysis and Market Forecasts 2021-2025.
Faced with successive lockdowns, closed shopping centres and heavily curtailed ability to move around except in the most limited of local environments, digital wallets have, perforce, become increasingly popular, especially since many of that shops and retail outlets that are allowed to remain open will no longer accept cash in payment for goods and services rendered. In these exceptional circumstances secure and convenient contactless and remote payment apps and services have come to the fore. Indeed, the Juniper research forecasts that by 2025, contactless and eCommerce payments will account for 50 per cent of total wallet spend, up from the 36 per cent recorded in 2020.
However, this rapid increase in in the availability of digital wallets availability and the massive growth of their uptake by consumers has cause a problem for the merchants who accept them, For example, the integration of multiple wallets is both expensive and technically challenging for merchants and they need to consider carefully which particular wallet (or perhaps two or three wallets) they will use and those they will not accept. Alexandria Sadler, the co-author of the Juniper research said, "Merchants must base their payment strategies around wallet acceptance in order to support a digitally-engaged addressable market, but must also judge the right wallets to target, or they will be lumbered with increased costs and limited benefits."
Where smartphones are concerned, contactless services are becoming both more common and more popular with Juniper forecasting that some 34 per cent of smart handsets and other small devices will be handling contactless payments by 2025. last year that figure was 11 per cent. However, integrating wallets enabled for contactless transactions within routine, fast and easy checkout processes will be vital for mass acceptance and uptake by consumers.
"From my cold, dead hand." Closed wallet merchants want to own the consumer to the bitter end
Digital wallets have been around for some years now and, when first introduced were regarded with some with suspicion and circumspection. Consumers were worried about the security of the new services and and uptake was slow. In the beginning, digital wallets provided only for simplified ways to manage simple eCommerce and P2P (person-to-person) payments. But the big, wealthy tech companies including Apple, Google and PayPal persisted and, over time, were able to carve a strong presence in payments and retail ecosystems with Google being the first to introduce its mobile "Wallet"service 2011.
Then, a year later, in 2012 Apple introduced its non-mobile "Passbook" service for items such as aircraft boarding passes, tickets and coupons and in 2014 followed that up with Apple Pay which has grown in global popularity ever since. Initially introduced in the US, Apple Pay spread to the UK and then China and it is the Asian markets in particular where wallet services and apps have really taken over with Alipay and WeChat Pay now dominating much of Asia.
In its report, Juniper Research defines digital wallets as "a software-based system that securely stores user’s payment information and passwords for many payment methods and websites in one location." Digital wallets are attractive to consumers for their convenience and ease-of-use because individuals don't need any longer to carry a bulky physical wallet or purse remember multiple passwords and PINs.
What's more, and increasingly important is the ability to make payments online without having repeatedly to fill in payment details every time a purchase is made. Digital wallets also provide unbanked populations in developing nations to participate more fully in the global financial system. Meanwhile, for the companies providing digital wallets and associated services, they not only get to make money from transactions but also harvest massive amounts of monetisable data from millions upon millions of individual consumers and make even more money from that.
There are two predominant types of digital wallets: closed and open. Generally, closed wallets connect directly to individual merchants such as coffee shop chains. They work well where consumer loyalty is concerned as they 'give' reduced price coupons and special offers to regular users. But they are, by definition, limited in scope and popularity because customers have to download, manage and periodically update a payment app for each vendor they favour.=
Meanwhile, open wallets such as Apple Pay, PayPal and Google Pay are centred around a single central platform that permits users to pay any retailer or service provider and does away with the complexity and sheer nuisance or having to manage a selection of different apps for different vendors. Open wallets are very popular with consumers but much less so with retailers because the convenience and flexibility of open wallets dilutes customer loyalty and brand value and works against the ongoing harvesting of the valuable data of individual that hooking them into a that being hooked in closed wallet app confers.
It prevents merchants from "owning" the customer and they will fight to maintain their lucrative status quo. That's why, as the Juniper Research report points out, "acceptance of open wallets amongst merchants will take several years to reach high levels and the convenience to end users will take a while to be fully realised. While OEM Pays have become relatively established, they are still not yet widespread in eCommerce. Until then, the digital wallet market will remain fragmented".
In other words, like it or not, (and increasing numbers of consumers don't), closed wallets such as those provided by Starbucks and Walmart etc., will be with us for quite some time yet as they continue to milk signed-up adherents them for (literally) all they are worth in terms of buying patterns and payment histories.
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