We may no longer have to walk around with cash bulging in our wallets. It is predicted that in the near future digital wallets will end up replacing other types of payments. Money will no longer be made of notes and coins but will be digitalized. If older generations are more or less wary of this payment revolution younger generations are keener than ever to adopt this new technology especially as it has become a very secure and convenient means of payment.
What is a digital wallet?
What is a digital wallet?
Digital wallets are electronic devices that allow electronic transactions such as buying online or using a smartphone to effect payment at a store. They are also referred to as e-wallets. When a digital wallet is used on smartphones, it is known as a mobile wallet. Most digital wallet services are accessible through applications on your device. E-wallets are gradually becoming a way of life and they are expected to be the most sought-after type of payment in the future.
What does an E-wallet contain?
A digital wallet consists of two main components: software and information. The software part stores personal information and is responsible for providing security and encryption of the data. On the other hand, the information component is a database of user inputted information. It may include shipping address, billing address and other valuable information. This is a convenient and hassle-free feature as customers do not have to enter sensitive information and submit it via wireless communication when they shop online.
The first digital wallet was introduced in the 1990s
The first digital wallet emerged in the 1990s when PayPal was used as a software so that eBay clients could store their cards on the system for payments. It nevertheless remained practically stagnant as consumers concerned about the security were wary of embracing this new technology. Others simply were not even aware of this system.
The latest digital wallet revolution occurred when Apple Pay was launched in 2014. Samsung Starbucks and many more followed with this innovative mode of payment. Today the digital wallet has become mainstream with about 37 million Americans using mobile payments. It is foreseen that in 2017 more than a third of younger generations will be using this system. Countries like Norway Denmark Turkey and Israel are where digital wallets are mostly used. Australia Canada and India are following close behind.
Millennials are behind the future boom
Millennials (those born between 1982 and 2005) represent the largest demographic component in the United States. By 2025, they are expected to generate almost half of the total income in the country, gaining the title of being the “financial force of tomorrow”. According to statistics, 86 percent of this generation own a smartphone and may be inclined to opt for online payments. Out of this proportion, 33 percent even consider that they will not be needing a bank within the next five years. The digital wallet is indeed a very convenient tool for the Millennials, allowing them to check their e-statement, make transactions and set recurring payments easily as well.
Reasons urging Millennials to embrace digital wallets
Digital wallets are attractively convenient and flexible to Millennials in this hectic everyday life. Transactions are hassle-free and executed rapidly. It has been equally established that this generation likes to monitor their spending on a regular basis. As such, using digital wallets offers them the ease of tracking their money quickly, from anywhere. Fortunately, with digital wallets, there is no need to carry loads of cash and physical cards and consumers do not have to remember multiple PINs and passwords.
Furthermore, digital wallets offer annexed services and special offers to customers who can choose from the best deals and enjoy the benefits. Simple engagement features like reminding clients of upcoming expiry dates and events, or notifying them of bonuses are much appreciated. More important features include storing of boarding passes, tickets and even ID cards which carries a lot of weight with consumers. Digital wallets equally offer the convenience of lending, paying back and splitting bills among friends.
The digital wallet is the engine of mobile commerce
Commerce is going online and mobile. Indeed, the development of the Internet and the arrival of e-commerce triggered the digitalization in the payment processes. As smartphones became the dominant internet access tool, merchants and online sellers were compelled to embrace the new form of payment. Without a digital wallet, consumers would have to enter a great deal of information while being constrained by the screen size of their smartphones. According to economists, the simpler mobile buying becomes, the more mobile commerce will grow. This is because consumers are demanding easy, straightforward and hassle-free buying experiences like those of Airbnb, Trunk Club, Uber and Yplan.
The adoption rate of digital wallets is significantly slow
Despite a lot of attention and interest, research shows that the adoption rate of digital wallets among consumers is significantly slow. This is because the adoption of this particular payment system depends on various factors. Consumers’ choice and willingness play a major role.
Security concerns act as a major barrier
Security is the main factor that contributes to the low adoption of these services. According to economists, the lack of security and consumer trust affect consumer adoption of digital payment systems. Even though more and more consumers are interested in a simpler and more convenient form of payment, they are skeptical when it comes to adopting the e-wallets. In a recent study by Citi Retail Services, 45% of the respondents revealed that they are more concerned about the security of payments than the convenience they provide.
The interesting fact is that consumers’ security concerns are related to both the actual digital wallet system and the companies behind them. Thefts, loss of access, low mobile battery or technical problems are some of the key concerns that consumers express. Instead, they want confidentiality, authentication, data integrity and non-repudiation when making payments over the Internet. However, Wharton marketing professor, David Reibstein says that people had similar concerns when credit cards were first introduced. Ultimately they became a widely accepted form of payment. That’s why he insists on being positive and on believing that digital wallets too will be embraced by consumers in the near future.
Most users are not well-versed with the system
Another factor that is obstructing the adoption of digital payment systems is the lack of knowledge and awareness. Many consumers claim that they weren’t even aware of the existence of such payment methods. On the other hand, complexity in the use of various payment systems has contributed to the low adoption rate. The Citi Retail Services survey reveals that people could be convinced to adopt digital wallets if they were educated on their benefits.
The practicality behind digital wallets is still questionable
The digital wallet is supposed to be the most convenient means of payment. Indeed, digital wallets are commended for their convenience over physical and other traditional forms of payment. However, their functionality and practicality are questionable. Even though they offer a wide range of benefits such as storing credit and cards, they are still not recognized as a valid form of government-issued identification in the U.S. Consequently, digital wallet users have to carry random cards and other papers as well.
Cybercrime is a major challenge
One of the major challenges that mobile payment systems face is cybercrime. While the Internet provides us with a wealth of knowledge and benefits, it is also vulnerable to cyber-attacks. This is one of the main reasons that deter consumers from adopting digital wallet payment methods. The most common threats that affect digital wallet systems are viruses, worms and Trojan horses. Thankfully there is a solution to these cyber-attacks – Secure Socket Layer (SSL) and Secure Electronic Transaction. On the one hand, SSL is a computer networking protocol that ensures trust between the online purchaser and the end user. It provides an authentication of buyer and merchant. The system has the capacity to identify the purchasers using digital signatures, fingerprints and password. On the other hand, SET ensures that transmissions and digitized financial transactions are carried out in full confidentiality.
Merchants need to customize their digital payment systems
It is inevitable for digital wallets to become the main form of payment in the near future. With advanced technology that supports mobile transactions and makes them transparent, consumers are beginning to trust these mobile payment systems. Nevertheless, merchants have a major role to play so as to maintain the trust of consumers. Every business is unique. So their methods of payments should be different as well. Merchants must analyze their customers’ needs and customize their digital payment systems accordingly. Companies are expected to identify customer behavior towards digital payment methods in order to improve their buying experiences.
The value factor for customers must be enhanced
In order to encourage people to adopt the digital wallet system, the myths around security concerns should be reduced and mitigated. More efforts should be done to make people trust the new system. Educate people on the benefits and convenience of using digital wallets. With the right solutions, people’s fear can be removed and they will happily embrace the cashless society.
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