Digital Wallet Usage on the Rise?
PayPal recently announced that Citi and Chase banking customers will be able to make purchases with loyalty points at millions of online and mobile merchants in 2018 thanks to an expanded strategic partnership between the financial services brands.
Additionally, Chase Pay, which is Chase’s mobile payments solution, will be integrated with PayPal Wallet while PayPal’s Braintree will also add Chase Pay as a payment method for merchants.
PayPal already has a similar partnership with Android Pay app developed by Google.
This type of change signals the understanding that digital wallets may be the norm in the near future, so these financial services companies are doing what they can now to start encouraging consumers and businesses to use them. It is also a competitive step on PayPal’s part as it realizes that it may be losing some market share. The market share is headed to digital wallet providers like ApplePay who is now dominating in-store digital wallet payments.
For consumers, banks, merchants, and the security environment, these types of changes are profound. The changes could further accelerate the adoption of digital wallets as the preferred way to pay for goods and services online and in-person.
Before exploring the impact, let’s first consider the current state of digital wallet usage.
The Statistics on Digital Wallet Usage
The National Merchants Association quoted statistics from CardNotPresent.com. It was reported that digital wallets will account for $1.35 trillion in spend worldwide in 2017, which is 32 percent more than last year.
Digital wallet leaders include Alipay and WeChat in the Asia-Pacific Market while North America, Europe, and other parts of the world use ApplePay and PayPal.
Further statistics from finder.com stated Americans are increasingly relying on digital wallets as a payment form. This payment form includes 43 percent who stated they used it to send or reeve money in 2016 while 31 percent used their digital wallets at least once a month.
Overall, 57 percent — or more than 60 million Americans — use a digital wallet more than any other means of transferring money.
The site’s survey on digital wallet use also revealed some interesting facts about who and how they are used:
- The more income and education you acquire, the more likely you are to use and spend more with a digital wallet. Students are the biggest digital wallet users (63%). After that comes workers (57%), the self-employed (49%) and homemakers (39%).
- Six-figure earners are also twice as likely to use a digital wallet compared to those making $50,000 a year (30%).
- Men use digital wallets more often than women and are three times more likely to use their digital wallets every day.
- Millennials (ages 18-34) use digital wallets the most (64%) followed by Gen X who are those 35-54 years of age (40%). and Baby Boomers (17%) who are 55 and older.
- Another finding was that the more children a consumer had, the more likely they were to use a digital wallet.
- On a demographic level related to ethnicity, Asian Americans (68%) most often use digital wallets followed by Hispanic consumers (55%), and African Americans (53%).
The Impact on Consumers
The movement toward more strategic partnerships like that recently formed by PayPal with issuing banks is likely to make it an even more attractive proposition to have a digital wallet. This is because they will be able to see how their various financial relationships can work together to save them time and money with all types of transactions.
Consumers are slowly catching on to the benefits as recent research from Fiserv noted. Certain aspects of a digital wallet are more attractive to consumers and are the basis for more deciding this payment method is worth trying.
That includes the ability to “turn off” credit or debit cards in case they suspect fraud, the ability to withdraw cash without needing their physical card, and payments to someone else in real time.
All of these features add convenience, which is at the heart of today’s ideal customer experience.
How Banks and Merchants are Affected
Banks and merchants are also pleased with these partnerships because it means assistance with creating the seamless experience consumers want to have wherever they decide to shop or pay their bills.
The greater the options consumers have with combining the various types of payment types they like to use within one location. Their digital wallet means that they will perceive a higher satisfaction with their purchase experience with online and offline retailers.
Both banks and retailers may also see an increase in brand loyalty if they help facilitate these experiences through offering and accepting digital wallets.
A JPMorgan Chase study also revealed more insights about the use of digital wallets. For example, it found that one in three Americans say they would use digital wallets if mobile wallets were accepted at more locations. The strategic partnerships like PayPal is forming certainly open up the potential for wider adoption by merchants.
What Does it Mean for Transaction Security?
The Chase survey also revealed that more people have not adopted digital wallets due to the perceived security risk. It found that almost half (46%) of those who have not used digital wallets cited security concerns.
However, with the advent of partnerships like PayPal has developed, this is an opportunity for banks and fintech companies to work closely together on solutions that reduce security risk as well as educate consumers about how secure their transactions are with digital wallets compared to using plastic cards for their online and offline payments.
It’s these types of partnerships that lead to more product features, greater awareness of the benefits, tighter security to ease concerns, which then result in wider adoption.
Digital wallets are advancing slowly and have yet to reach the tipping point. However, the statistics compiled all point toward sustained growth for digital wallet usage.
John Rampton is an entrepreneur, investor, online marketing guru and startup enthusiast. He is founder of the online payments company Due. John is best known as an entrepreneur and connector. He was recently named #3 on Top 50 Online Influencers in the World by Entrepreneur Magazine and blogging expert by Time.