By Anil Malhotra, CMO of Bango
Mobile phone payments are nothing new. The first mobile phone payment to a merchant can be traced back to 1997, when Coca Cola set up vending machines that allowed users to pay via text. A mobile money transfer system called M-Pesa was launched in Kenya in 2007, and in 2011 Google launched the world’s first mobile wallet. Since then, mobile payments have grown faster than any other payment method, with mobile network operators billing over a trillion dollars to more than 5 billion people every year.
Now, with a reported 54% decline in the number of cash transactions in the UK from 2010 to 2020 and mobile phones predicted to become the second most common payment method after debit cards by 2022, it looks like the future will see traditional wallets cast aside in favour of digital ones.
Why have digital wallets become so popular?
Access and convenience. Digital wallets make payments easy, storing multiple payment methods in one digital home that’s quick to access and use via your phone, smartwatch or tablet. They even allow users to turn cash into electronic money that can be spent on-line or instore.
Digital wallet users will never again have to have an awkward ‘I’ve forgotten my wallet’ conversation. No wallet? No problem. Just tap and go. The device will even give you an instant notification of how much money you’ve spent in the transaction and you can link your loyalty schemes to your digital wallet so that any points, stamps and rewards are automatically calculated.
In the increasingly competitive world of online payments, wallets digital wallets also foster greater financial inclusion. Although some digital wallets such as Apple Pay or Samsung only act as a vessel for existing funds — like a physical wallet — there is a growing number of e-wallets that allow users to generate balance through “cash conversion”.
Users can go to a shop, an ATM or kiosk and deposit cash that will then become electronic money available in their wallets. This feature increases the amount of people who can use a digital wallet and therefore adds to the increasing global popularity of mobile phone payments. For this reason, there is a raft of wallets that have gained government support across regions such as SE Asia, Africa and Latin America.
The effect of the pandemic
The coronavirus pandemic had an effect on the increasing popularity of mobile phone payments last year.
In April 2020 the contactless payment limit in the UK was raised from £30 to £45, with users and businesses alike encouraged to prioritise contactless card and digital wallet payments over cash to stop unnecessary contact with surfaces and reduce the spread of the virus. This dramatically accelerated the steady trend towards non-physical payments.
In some markets, Bango measured an increase of over 50% between April 2020 and January 2021 in the value of payments charged to wallets. This is expected to continue, with many retailers are still refusing to accept cash payments.
But despite the increasing popularity of digital wallets, some remain wary of mobile phone payments.
How safe are digital wallets?
Like any new payment method – for example contactless card payments – one of the nagging questions is whether digital wallets are safe. The short answer is, yes, they are. As safe as any financial transaction can be.
Digital wallets are secured by the password and/or face ID requirements of the smart device they live on, giving users control and peace of mind that their payment information is safe. Key payment identification data is also commonly tokenized, meaning that personal identifiable information and financial identities can be hidden.
They are safe at the point of sale too, with the UK treasury reporting that there was no significant rise in reported fraud when the limit was raised from £30 to £45. As a result, in the UK the contactless payment limit has now been increased even further to £100.
How can merchants benefit from the rise of digital wallets?
The increase in use of digital wallets is good news for merchants. More demand means merchants can justify investing in the technologies that enables digital wallet and mobile payments, technologies that ultimately saves them money.
Wallets offer lower processing costs than other methods, such as carrier billed payments using airtime and even card processing in many cases. They also offer fewer limits on transaction values and frequency.
According to a recent survey 37% of merchants are currently supporting mobile payments at the point of sale, with payments companies like Bango helping them offer mobile payments capabilities on a global scale. And when it comes to growth aided by digital wallets, scalability is key.
Most large merchants operate in more than one country as standard, but with different financial processes, regulation, laws and of course varying types of digital wallets, merchants need to work with companies that can unify and centralise payments.
A unified approach to global digital payments enables merchants and payment partners to innovate and differentiate quickly, helping them stay competitive in the online market and of course grow their business.
Digital wallets also benefit merchants by leaving a digital footprint of sorts. Using commerce platforms like Bango, businesses can analyse wallet users’ payment choices and have a clear insight into what they are interested in buying. This information can be used to target marketing activities through purchase behavior targeting and provides opportunities for merchants to incentivize the use of wallet payments by linking to special offers for your product.
Ultimately, digital wallets are a focused way to acquire customers as well as transact payments. And with digital wallet spending estimated to exceed $10 trillion by 2025, merchants who aren’t supporting mobile payments need to catch-up soon or risk loss of business as a result of not giving customers the easy payment experience they expect.
