Digital wallets are poised to transform the payments landscape far beyond just technology. They will reshape how we interact, how and when we pay for products and experiences, but most importantly, they will enable a new breed of transactions driven from contextual activities. But let’s start with what digital wallets are since the term has been used with various interpretations.
Look inside your own leather wallet: you have cash, but you more than likely also have credit cards, loyalty cards, your driver license, ID, receipts, and punch cards. Your wallet has been and is your very personal companion in a world of physical interactions. A digital wallet essentially contains the same items but technology, financial regulations, and various other reasons have inhibited a true digital wallet combining all these things.
Today’s digital wallets come in different shapes but offer only one or a few of the functions compared to your traditional wallet:
1. There are wallets holding digital cash (PayPal),
2. some digitize debit/credit card information (ApplePay) to facilitate point-of-sale transactions,
3. other wallets provide access to your existing bank account.
4. And then, there are combo wallets, like my Starbucks app, which serves as a digital prepaid account and contains my "star" balance reminding me of my extensive coffee consumption.
So, what’s the problem?
Most wallets are geographically restricted and are designed to cater to specific cases, such as point-of-sale transactions, remittance, or they are linked with certain e-commerce sites, such as Amazon. As a result, we will soon be using a plethora of wallets, each catering to specific use cases and coming with separate terms and restrictions. In most cases, these wallets increase convenience in some areas but don’t fundamentally change the nature of transactions. There is nothing revolutionary about these wallets!
Connected devices, bots, AR/VR, and a variety of global platforms call for a new breed of digital wallets with a focus on Tomorrow’s use.
We don’t know how digital wallets will evolve but the future is beginning to look like one that will feature the digital wallet front and center in our digital economy. Digital wallets have struggled to take off in the Western world but here is what we know about digital wallets in other parts of the world:
In Africa, digital wallets supersede physical cash, leapfrog card payments and aim to be part of an international ecosystem. The African consumer market is regarded as the next investment frontier with a population of over a billion. In 35 years, half of the world population will live in Africa, a continent with a large unbanked population. There is a lot of hype about banking the unbanked but digital wallets don’t require a bank account. M-Pesa, which was launched almost ten years ago in Kenya, has shown the transformative potential of mobile money. Today, over 40% of the country’s GDP flows through M-Pesa, the e-Verison of the Kenyan Shilling.
In China there is Alipay, the world’s most popular online payment method. The Chinese PayPal equivalent accounts for 44% of global eWallet spend. The success of Alipay can be attributed to the fact that it was introduced when mobile adoption in China was booming. The payment method has become a ‘lifestyle’ choice embedded into daily life interactions and activities.
Another example is Tencent’s WeChat wallet. WeChat, the Chinese messenger boasting over 800m users, has pioneered “gamified” transactions by bringing the Chinese tradition of giving cash-filled red envelopes into the smartphone age. WeChat users went crazy over Chinese New Year and sent over 8 billion digital red envelops to their friends. That is 8 billion P2P transactions with an average value of US$1.35 within a few hours to underline an emotion.
Consumers in China use Alipay and WeChat when booking a taxi, paying in a restaurant, or chatting to friends. By contrast, Western consumers are more likely to open their browser to buy goods and use a purpose-built app for money transfer.
India has Paytm, the Indian version of Alipay. Originally launched as a site for mobile phone top-ups, it soon pivoted to become a digital wallet with its own e-commerce site. Paytm is already the largest mobile wallet in India with over 120 million users, but this only the beginning: this month the government of India abolished Rs 500 and Rs 1000 notes that were in circulation, a move aimed at curbing black money and corruption. The announcement led to a surge in digital wallet adoption and usage. This will further fuel Paytm’s move to become a market place. The company wants to hit half a million registered sellers by the end of this year.
While North American and European payments markets remain fragmented and digital wallet operators are burning millions of dollars to marginally improving convenience, wallet operators in emerging markets are already redefining the payments landscape and are way ahead of the West in blazing forward with a new breed of transactions beyond traditional use cases.