Cash is No Longer King: Why the Rise of Digital Wallets will Shift the Payment Landscape

  • Fernando Zandona, Chief Technology and Product Officer at Mambu

  • 02.12.2022 04:30 pm
  • undisclosed

For as long as we can remember cash has always played a prominent role in society. The process of making transactions for goods and services with physical money has been the norm for much of our lifetimes.

But the rise of technology has opened doors to a multitude of innovative ways to not only make payments but to eliminate the need to carry a physical wallet. We see this in the form of digital wallets, which store all of a consumer's payment information securely and compactly on a mobile device.

Digital wallets are financial applications that allow you to store funds, make transactions, and track payment histories on devices like phones and tablets. The surge in their usage is huge. Statistics from a recent Mambu report show the value of payments using digital wallets is projected to increase from its 2020 value of $5.5tn to over $10tn in 2025.

Companies are starting to leverage digital wallets to grow their customer base, customer loyalty and enter new market segments. With digital wallets contributing to the rise of embedded finance, will this shift the payment landscape?

The benefits of digital wallets for consumers and businesses

There is no doubt the explosive growth of digital wallets in the last decade reflects the value they offer. The most obvious benefit of storing credit cards, cash, or debit cards on a mobile device is the newfound convenience. Customers can now have a simplified shopping experience without the need to carry wallets, large amounts of cash, or reward cards in their pockets.

But the benefits go beyond convenience and a better user experience. We’re also seeing how effective digital wallets are in promoting financial inclusion worldwide.

In 2017, the World Bank reported that nearly 1.7 billion people are unbanked globally. While many live in countries with less developed financial infrastructure, most unbanked consumers in these regions will have access to a mobile phone.

This means we’re just scratching the surface of the addressable market and digital wallets are already helping to provide previously underserved markets with access to financial services. Over time, this can only help to produce additional products that can serve the unbanked and help to resolve complex issues like building credit scores for loan approvals and remittances.

From a business perspective, digital wallets have helped enhance sales by boosting customer acquisition. Our latest report identified that digital wallets improve the customer experience by streamlining the checkout process and reducing friction at the buy button.

Companies also have easy access to valuable real-time data on their customers’ shopping habits. This will enable them to develop better services and facilitate targeted campaigns while producing more accurate budgets and sales forecasting.

Why cloud-native core platforms are best placed to create digital wallets

The advantages of setting up a digital wallet are crystal clear. However, this doesn’t necessarily mean that all companies are best suited to venture into this realm of digital payments. Not only do you need the underlying opportunity to exist, but you need the technical capabilities to create the digital wallet.

The success of a digital wallet depends on several variables. Firstly, the purpose needs to be relevant with a value proposition that makes sense. A retailer, with a large existing customer base, is a prime example of an organisation that could benefit from developing its own digital wallet - as the technology would help it to effectively grow and retain its customer base. 

Organisations must carefully consider the complexities of integrating these functions within their offering, however. The process of developing your own solution from scratch can often prove arduous, and firms risk blowing their project budget significantly.

If the objective of creating a digital wallet aligns with your goals and ambitions, then you could reap the rewards by partnering with a SaaS platform instead. Buying from a partner enables faster speed to the market by removing the need for local hardware, reducing deployment time significantly. Also, integrated third-party solutions can future-proof business and lower the total cost of ownership.

What financial services can do to adapt to the changing demands of payment

Traditional banks continue to try to find ways to navigate and adapt to the changing demands of finance as technology continues to flourish. Traditional banks could easily collaborate with these tech players to help them evolve with the times but more needs to be done to retain existing customers and attract new ones.

Specifically, incumbent players need to become more customer-centric and maximise their assets to show that they are putting their customers first at every stage of the user journey. This means anticipating customer requirements while offering the products and services to deliver on those needs.

The value case of digital wallets goes far beyond just financial transactions as ‘another way to pay’. It’s about convenience, ease of use - and has become an indispensable part of life for many. As financial institutions aim to enhance the customer experience, they will need to bear this in mind, ensuring they focus on developing the tech and the skills necessary to meet changing consumer expectations.

Final thoughts…

The future certainly looks bright for the use of digital wallets. There were 2.6 billion digital wallet users globally in 2020, and this figure is set to reach 4.4 billion in 2025. Companies have been able to create a competitive edge with this simple, yet impactful technology.

As new use cases for digital wallets continue to be deployed across an array of industries, now has never been a better time to see if it’s an investment that matches your goals and could help solidify customer relationships in the long term.

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