Posted by Bethany Frank on 11 Jul 2016
An estimated 3.3 billion people worldwide use the Internet according to data from Internet World Stats, representing over 45% of the global population. The range of products, services, and information available to consumers online strongly suggests that the future of payments is also digital.
Digital wallets refer to platforms that enable consumers to make payments online. The ecosystem includes digital wallet offerings from banks, mobile payment platforms from technology giants, as well as non-bank omnichannel platforms. Even though the space is quite active with new options emerging all the time, consumers have been slow to alter their payment habits, which are still very much tied to the physical wallet.
For the banking industry, digital wallets present an opportunity to retain relevancy in a world where traditional financial services are becoming obsolete. As the natural executors of most financial activity, it would make sense for banks to dominate the digital payments space as well; however, competition from the technology sector is making that difficult. Sharper focus and operational efficiencies allow the technology rivals to continuously improve platforms, provide better support to their clientele, and respond to market forces quicker.
Despite the challenges, a number of financial institutions including Wells Fargo, PNC Bank, and Barclay’s already offer or plan to offer their customers proprietary digital wallet solutions. Many banks are practicing a multi-platform approach, promoting their own wallet services alongside platforms like Apple Pay and Android Pay –leaving it up to consumers to decide which player ultimately wins control of the digital wallet market.
Among all the digital wallet offerings, technology companies seem to have narrowed the focus to mobile payments in particular. Google has seen more success with Android Pay than with Google Wallet, and both Android Pay and Apple Pay are gaining acceptance in merchant and retailer markets. Apple also recently announced that consumers will soon be able to use Apple Pay to make payments online, allowing it to directly compete with services like PayPal. Driven by its substantial market share, Samsung has also thrown its hat into the ring and managed to establish itself as the most widely-accepted mobile payment platform currently available to consumers.
Neither a financial services firm nor exactly a technology company, Amazon is somewhat of a wild card in the digital payments space. Although it also originally pursued mobile payments, Amazon left that race up to the likes of Apple, Google, and Samsung. With Amazon Payments, it now poses a significant threat to PayPal instead. Through its online marketplace and Prime membership service, Amazon already has a vast network of millions of potential users who could easily adopt Amazon Payments as a natural extension of their online and mobile shopping behavior.
Beyond the hype, however, consumers are still reluctant to fragment their physical wallets. While digital wallets offer comprehensive compatibility with a wide range of credit, debit, and merchant rewards cards, consumers find themselves in need of a physical wallet to carry essential items such as a driver’s license. Until everything from receipts to personal identification documents can also be stored and accessed digitally, both banks and non-bank players will likely find it difficult to convince consumers to make the switch.
The Internet - including with the mobile web - is undoubtedly the next frontier of commerce, prompting many to develop their own wallet services in efforts to claim a piece of the digital payments pie. Recent statistics show consumers are finally beginning to warm up to mobile payments, in particular, possibly suggesting that a player from the tech sector will eventually assume the role of market leader. However, with consumer adoption as low as it stands now, it is too soon to make any assumptions. Stay tuned to our blog for more analysis, and visit our Resource Center for more on payments and innovation.
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