Digital payments are clearly the wave of the future but people will likely be using familiar folding money for awhile longer.
The digital wallet revolution has not have lived up to its expectations -- yet. According to Gallup, just 13 percent of smartphone owners have a digital wallet app, while the majority of those who do have an app (76 percent), rarely use it.
That may be disheartening for those of us involved in the industry, but there’s always a silver lining.
Business Insider is forecasting that in the U.S. alone mobile payments volume will increase to $503 billion by 2020 and will be used by 56 percent of the consumer population during that year. Meanwhile, Sweden, Singapore, the Netherlands, France, Canada, Belgium and the U.K. are already on their way to becoming cashless societies - with Australia, Brazil, India and much of Africa following suit.
While there are still barriers and limitations, such as security concerns and limited number of compatible vendors, digital wallets, and mobile payments are not only changing how we pay for goods and services, they also have the power to go beyond payments because of how they’re constantly being evolved - which is going to be important for both businesses and customers.
Breaking down digital wallets and mobile payments.
The idea of a digital wallet, which is basically just a digital version of a physical wallet, isn’t new. In fact, David Chaum, an American cryptographer, created digital cash all the way back in 1983. That was the beginning of cryptocurrencies.
Once we entered the '90s, however, things began to accelerate rather quickly. Thanks to the internet and advances in technology, we had the ability to start ordering pizzas online (some claim that happened in 1994 when a customer ordered a pepperoni and mushroom pizza from Pizza Hut) and purchase movie tickets using a phone (Ericsson and Telenor Mobil accomplished this in 1999). We also saw the introduction of PayPal in 1998, which is considered the first digital wallet.
By 2003, mobile devices started picking up momentum, which was followed by developments like the invention of bitcoin in 2008 and the introduction of Google Wallet (2011) and Apple Pay (2014).
Today, however, there’s a lot of confusion surrounding digital wallets and mobile payments since these terms are interchanged so frequently. To be clear, a digital wallet is simply tokenization of data. While digital wallets are often associated with payments, they can be used to issue digital rewards, tickets or boarding passes, room keys, or identification.
Mobile wallets are basically the mobile version of a digital wallet with five types of mobile payments.
Mobile as the point of sale. This is when a merchant uses their mobile device to process payments. Square is one the most well-known examples of this.
The mobile payment platform. In a nutshell, these are the companies like PayPal that allow you to make peer-to-peer payments to your friends or pay a merchant online. These top payment solutions will be the future of payments.
Direct carrier billing. This when you purchase an app or game on your smartphone and the charge is put onto your cell phone bill.
Closed loop payments. These are mobile payment systems built by a company, for example, the Starbucks mobile app.
What’s all the hype surrounding digital wallets and mobile payments?
For customers, digital wallets and mobile payments can replace carrying around a bulky wallet. Besides being a minor hassle, you no longer have to be concerned if you forgot your cash, credit card, or ID at home. All that information is stored on your smartphone. And, unlike your wallet, you probably never leave home without your phone.
Additionally, using digital and mobile payments saves you time. Instead of inserting a card into an EMV terminal, you can just swipe and go. And, when shopping online, you no longer have to race against time to complete a purchase before your session expires, like when buying concert tickets. As long as you have a digital wallet, you can make instantaneous payments online.
Digital wallets also come with customer perks like promotions, cash back rewards, and keeping track of your accounting easier. Most importantly, they’re convenient. You can split a dinner tab with friends, pay bills, and avoid expensive transaction fees when you travel.
For businesses you have access to funds almost immediately, you save money on transaction fees by removing third parties, and you don’t have to invest in an expensive POS system. Additionally, digital and mobile payments provide access to real-time data, helps you maintain a competitive edge, and most importantly, improves the customer experience since you’re providing fast and secure payment methods.
Digital wallets and mobile payments are rapidly evolving in order to enhance the experience for both customers and business owners. That means that they’re going beyond simply transferring funds electronically or swiping your smartphone over a checkout terminal.
For example, major banking institutions that JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and U.S. Bancorp, launched a joint venture called clearXchange. This allows customers to transfer funds instantly to another bank account through their phones. Traditional banks are also creating digital wallet apps that allow you to review your account, establish budgets, receive alert notifications, and transfer fund via social channels like Facebook.
Wearables, such as watches, wristbands, and jackets, are starting to be used to make payments, as is the possibility of tapping into the Internet of Things. In the near future, you’ll be able to preorder your morning cup of coffee at Starbucks while driving since your Starbucks app is connected to your car.
The most buzzed trend, however, is the blockchain. While often associated with cryptocurrencies like bitcoin, the blockchain will make it possible for digital wallets to handle transactions like
Purchasing high-end items, like cars, jewelry, boats.
Mortgage, utility, and educational payments.
Medical payments.
Fundraising and donations.
Real estate closings or transfer of titles.
Payroll.
Like it or not, digital wallets and mobile payments are steering us towards a cashless world where payments can be made quickly, conveniently, and securely with just the tap of a button. However, digital wallets are also moving beyond smartphones and payments. On top of transferring funds, we’ll be able to monitor accounts in real-time and use blockchain technology to make immediate transfers of money to titles.