AAgainst the background of increasing mobile payment activity, the digital wallet is increasing. What exactly is a digital or mobile wallet? It’s pretty much exactly what it sounds like, a digital-format wallet that sits on your mobile device rather than in physical form in your purse or pocket. This is a particularly attractive feature in this pandemic world where contactless payments are increasingly preferred rather than dealing with dirty card readers.
Digital wallets are an attractive alternative because honestly most of us would be comfortable without a wallet as long as we could still buy things. However, being without a phone or portable is emotionally synonymous with nightmares about forgetting to put on pants before going out in public. Or if you prefer a more current analogy that is as scary as showing up in a store only to find you left your mask at home. Urgh!
There are two main types of digital wallets: closed and open, which we are not talking about Scrooge McDuck against Richie rich. Closed wallets usually connect directly to a specific retailer – think Starbucks’ (SBUX) or Walmarts (WMT) App. They are limited in scope for the consumer, but because of the exclusive relationship between the consumer and the company, they are useful for offering special discounts or loyalty benefits. Open Wallets are based on a central platform that allows users to pay any retailer compatible with the platform using any compatible payment method Apple numbers ((AAPL) or Google numbers ((Aco). While they are significantly more functional for the consumer, they provide retailers with less information about their customers than closed wallets can.
Digital wallets allow you to manage all of your credit and debit cards, membership cards, boarding passes, and more without adding to your life. And let’s face it, after those locks, extra bulk is the last thing most of us need. A digital wallet can also reduce fraud as they are more difficult to steal and use than a physical card or cash. In 2018, the global mobile wallet market was estimated at around $ 755.6 billion, according to Statista.
In the past year billions of people were forced to change the way they live, work and shop. As a result, the acceptance of mobile wallets according to a current report from ACI Worldwide (ACIW) rose to a historic high of 46% in 2020, down from 40.6% in 2019 and just 18.9% in 2018. Countries like Brazil, Mexico and Malaysia, where many have historically been heavily reliant on cash , have become some of the fastest users of mobile wallets. Total mobile wallet transactions were $ 102.7 billion in 2020 and are projected to reach $ 2.58 trillion by 2025, according to ACI Worldwide.
According to the Global Payments Report 2021Digital wallet payments published by Worldpay by FIS exceed card usage at the point of sale (POS), and in-store contactless payments through mobile wallets worldwide exceeded in-store cash payments for the first time in 2020. Usage Payments decreased 10%, which is only 20% of all personal payments worldwide, and has decreased 42% since 2019. In Australia, France, Norway, Sweden and the United Kingdom, in-store cash payments fell by at least 50% in 2020.
The number of contactless payments for digital wallets at the POS is growing faster than the number of payments with a physical card. By 2024, the Global Payments Report predicts that cash will be used for less than 10% of in-store transactions in the US and less than 13% globally. Digital wallets are expected to account for a third of in-store payments globally. Given that around $ 18 trillion was still being spent on cash and checks around the world as of 2020, there are many more wallet shares for digital purses. A survey by EY of 129 financial service providers at the SIBOS conference (96%) unanimously found that cash will be replaced by digital payment methods by the end of the next decade. 59% believe that mobile payments are the most common.
This technology is not only useful at the point of sale, as it turns out that these digital wallets are not only great for getting an emergency pint of ice cream when you forget your wallet, but God forbid, never your phone! Ecommerce transactions based on digital wallets grew 7% in 2020 and are expected to account for more than 50% of all global ecommerce payments by 2024, according to the report.
While countries in Asia, particularly China, are currently showing the highest levels of adoption for digital wallets, the U.S. mobile payments market is the second largest, with transactions valued at $ 465.1 billion, and is expected to expand, according to a new report from Finaria 49 growing According to data from Statista, China is projected to hit $ 1.3 trillion this year and generate half of all mobile payments by 2023.
The ways in which a digital wallet can be used are wide-ranging and go well beyond just a more secure way of storing payment types. For example, Disney has developed a MagicMobile service to replace its MagicBand. This new service adds a digital passport to Apple Wallet that can be scanned or used via Near Field Communication Chips (NFC) on the iPhone or Apple Watch. New features include linking PhotoPass to the app or unlocking hotel rooms through the app. The same applies to flight or train tickets that can be stored in the digital wallet. This also allows users to receive push notifications of gate changes or delays.
Companies like Hertz (HTZGQ) allow you to download a reservation confirmation to your mobile wallet. Health insurance companies like Blue Shield of California offer their customers the option to carry a digital version of their membership card in their mobile wallets, and many airlines around the world allow their passengers to download mobile boarding passes into the wallets. And like us recently discussedthe digital wallet would be the likely hub for the digital vaccination certificate. The only point many of us are waiting for is a secure digital driver’s license or ID card stored on your smartphone. With smartphones increasingly replacing our wallets and keys thanks to applications like Apple’s new Car Key feature, driver’s license and international travelers, passports are some of the last remaining digital holdovers.
What does it all mean for investors? Wallets work either via NFC chips or by scanning a QWERTY code. As usage increases, more retailers need chips that are available from companies such as retailers Broadcom (AVGO), NXP semiconductors (NXPI), and Qualcomm (QCOM). Among the companies that have digital payments as a core part of their business are PayPal (PYPL) and Square (SQ), But we also tend to involve companies like Mastercard (MA) and Visa (V.) as well as other companies whose networks process these payments.
If only they could keep us from losing our phones on the couch …
The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.