Digital wallets are comprised of software that runs on an electronic device enabling customers to quickly purchase items online on their computers or at a store using their smartphones. Because a person’s checking and savings accounts can be linked to a digital wallet, a customer may, for example, tap a phone against a compatible register at the supermarket to instantly pay for groceries. Since digital wallets can also hold a driver’s license, health cards and gift cards, they can be used to authenticate the holder’s credentials. A digital wallet could therefore verify the age of a person attempting to buy alcohol and then provide the payment information to actually make the purchase.
This technology has slowly gained in popularity over the last few years. Indeed, a 2013 North American Technographics Financial Services Survey showed that 26% of adults were interested in in-store mobile payment options using digital wallets, a figure that had grown 9% since the same study was performed in 2011.
What does this mean for you and your bank account?
The expansion of different digital wallet platforms has forced big banks, credit unions and community banks to seriously consider their relationship with this new technology. Already, a number of well-known banks have partnered with existing digital wallet platforms, thereby providing customers both with their services and digital wallet technology. Chase and Wells Fargo, for instance, have each opted to work with Isis, the joint venture between AT&T Mobility, T-Mobile USA and Verizon Wireless.
If your bank has yet to team up with a digital wallet provider, chances are good that they may do so in the future. Competition is high in the space, and there exists a growing number of potential partners with good experience developing digital wallets, such as Isis, PayPal, Square and MasterCard.
Is the digital wallet explosion just around the corner?
It’s important to realize that it will take time for digital wallets to become fully integrated into our daily lives. Though optimistic about the future of the digital wallet, Chris Gardner – a founder of Paydiant, which has partnered with FIS to offer wallet products to financial institutions – believes we won’t enter the digital wallet era overnight.
“We have always expected a slow pace of adoption,” he admits. “Be patient. Digital wallets will happen. Credit cards weren’t adopted overnight, it took years. Expect the same with digital wallets.”
A 2013 comScore digital wallet study showed that no provider besides PayPal has higher than a 50% awareness rate. What’s more, of the 71% of respondents who had heard of PayPal, only 48% actually used the service. Andrea Jacobs, comScore payments practice leader, thinks that “Low awareness, [a lack of] understanding of benefits, and [a lack of] availability among retailers are among the key barriers to adoption of digital wallets.”
So, while customers intrigued by digital wallets have plenty of providers to choose from, customers pleased with the current state of financial affairs will not exactly be forced to change the way they save or spend money. It’s worth keeping in mind that credit cards didn’t totally replace cash, and so we shouldn’t expect digital wallets to become the only accepted way of paying for a product or service.
When paired with the slow rate of adoption of digital wallets, the fact that big banks are ready and willing to form partnerships with digital wallet providers suggests that digital wallets will not render banks obsolete. Instead, many banks and credit unions are poised to integrate digital wallets into their current services and help make in-store and online transactions quicker and more secure for their customers.
Mobile wallet image via Shutterstock