Digital Wallets: What Are They and Why You Should Offer Them
Digital wallets first entered the financial scene in the late '90s, but it wasn't until smartphones became a ubiquitous part of everyday life that they truly took off. The latest estimates say that over half of all consumers in the United States will use a digital wallet in 2024. Meanwhile, projections show that global adoption will surpass 5.2 billion users by the end of 2026.
It's not hard to see why digital wallets are so popular. They're the way of the future, offering convenience, security and flexibility in money management. In this blog, we'll explore the many benefits of digital wallets and show why your business should offer them to customers.
What is a Digital Wallet
A digital wallet is an application that provides quick, secure, and easy access to financial products and services directly from a smart device. While digital wallets can live on tablets and computers, they offer the most benefits when stored on smartphones. With a digital wallet, users can store card information, hold funds, pay for products or services, send funds to others, and more.
Modern digital wallets eliminate the need to carry physical cards, putting those same capabilities on a smartphone while benefiting from additional security and features.
How do They Work
A well-built digital wallet takes full advantage of a smartphone's capabilities, making physical wallets nearly obsolete for many users. The concept is simple. After creating an account and downloading the wallet to your smartphone, you can store payment information directly on the software. Capabilities vary, but most wallets allow you to load credit or debit card information. Some also act as a cash wallet, letting you store funds on a separate ledger.
Advanced encryption technology ensures security once data is safe in a digital wallet. The only way to access the information and authorize a transaction is to unlock your device through a passcode, fingerprint biometrics, or facial recognition. But how do you use this secure vault to pay for goods and services?
Making purchases on an e-commerce site or app is a breeze. Because payment information is safe in the wallet, users can quickly authorize payments without manually entering card numbers or billing information. It's quick and secure, hastening the checkout process.
For in-person transactions, digital wallets utilize smart device technology to facilitate payments, transmitting payment information from the device to the point of sale. There are a few ways this happens. One is via a QR code at a register. Scanning the QR code with the device's camera connects it to the POS, allowing users to authorize a transaction. The most common way to use digital wallets in-store is via near-field communication (NFC). It will enable the payment terminal to communicate with the device and exchange payment information, and it's the same technology used in contactless cards. Finally, magnetic secure transmission (MST) uses magnetic waves to transmit data, as swiping a card would.
Everything They Can Do
Digital wallets are highly versatile, transforming how people manage finances, make payments, etc. The core capability of a digital wallet is to store payment information, including debit and credit card numbers. When making a payment, either online or in-store, users can select which card they want to use, authorize it, and complete a transaction.
Many wallets also have separate "cash" accounts, which act as a distinct payment method. Users can fund these accounts, use them as a standard debit cards, and more. They're great for small purchases or sending funds to friends and family.
That's not all. Digital wallets can also store important documents, making them easily accessible from your smartphone while reducing the risk of misplacement. Many wallets will hold onto the following:
• Airline boarding passes
• Concert and event tickets
• Lodging reservations
• Gift cards
• Loyalty cards
• Coupons
• Insurance cards
Types of Wallets Available
There is no shortage of digital wallets available to consumers. Features and capabilities vary, but the following apps offer a quick and seamless way to complete transactions.
PayPal
PayPal was among the first digital wallets and arguably helped popularize the concept. PayPal is one of the most recognizable names in fintech, offering global reach. Many use PayPal to purchase goods and services online, and its adoption in more than 200 countries makes it a great choice for international purchases. With PayPal, users can store debit or credit cards. It's also possible to link PayPal with a bank account directly. Performing a transaction is as easy as logging in with PayPal credentials.
Cash App
Cash App launched in 2013 as an app for peer-to-peer transactions. Those capabilities still exist today, and many use the app to send money to others quickly and easily without exchanging financial information. However, Cash App's offerings have grown significantly in recent years, providing access to many great financial products and services.
Venmo
Venmo is another platform that revolutionized peer-to-peer payments. Its adoption has been so widespread that "Just Venmo Me" has become the art of the modern lexicon! Venmo is the go-to digital wallet for social payments, offering innovative features like split payments, exchange experiences, and more.
Zelle
Zelle is a unique digital wallet app that allows users to send funds to others with only an email address or phone number. Transfers occur through a banking application, but Zelle facilitates the transaction to break down barriers and allow funds to move between banking networks. Thousands of banks in the United States have Zelle integration, making it widely accessible.
Apple Pay
Apple Pay is one of the most popular digital wallets, thanks largely to the popularity of iPhones. Built directly into every iPhone, Apple Pay allows you to store credit cards, debit cards, loyalty rewards, coupons, boarding passes, and more in one easily accessible space. It's easy to set up and widely accepted by merchants everywhere. Optional features, like Apple Cash and Apple Card, expand the wallet's capabilities.
Samsung Pay
Samsung Pay is a digital wallet that is available on Samsung Galaxy devices. Like Apple Pay, it's built into devices and allows users to add card and payment information. Thanks to the technology of Galaxy devices, Samsung Pay has wide acceptance, and users can "tap to pay" at any payment terminal that accepts contactless payments.
Google Pay
Google Pay is a feature-rich wallet available for Android devices. Formerly known as "Google Wallet" and "Android Pay," Google Pay has been widely adopted worldwide. Users can store payment information, make payments in seconds online, and perform in-person transactions without any Internet connection. Like its competitors, Google Pay provides robust security features to keep data safe.
Walmart Pay
Walmart Pay is a relative newcomer to the digital wallet scene. It's available in the free Walmart app and is only usable at Walmart's thousands of retail stores and the Walmart website. With Walmart Pay, shoppers can add debit, credit, and Walmart gift cards. In stores, Walmart Pay facilitates speedy contactless transactions.
Alipay
Alipay is an early entry into the digital wallet scene, launching in China in 2004. It's available in over 70 markets and offers features to increase security, improve the customer experience, and more. Once payment information is stored on Alipay, shoppers can use their app or Alipay credentials to make payments, pay bills, initiate fund transfers, and more.
BigPay
BigPay is a digital wallet available to Singapore, Malaysia, Indonesia and Thailand users. Shoppers can connect their payment information and use the BigPay app to complete transactions. BigPay also has social payment features, bill-splitting tools, bill payment, and more.
Amazon Pay
Amazon Pay is a unique digital wallet that utilizes Amazon's powerful infrastructure to offer convenience, security, and more. Amazon members can store payment information on Amazon Pay and use it to make purchases on third-party websites. The innovative passcode feature also enables users to make payments, send money, and more with select in-person retailers and service providers.
Dwolla
Dwolla is a digital wallet exclusive to businesses. It simplifies how organizations send funds, pay for expenses, and more. Transfers occur through major financial partners like Bank of America, allowing users to send funds through ACH, RTP, or push-to-debit.
Vodafone M-PESA
M-PESA launched in Kenya in 2007. Today, it serves seven African markets, allowing users to send money domestically with only a text. It also has features to pay bills, make in-store payments, send funds overseas, and more. M-PESA also provides access to financial products like loans.
Benefits
Digital wallets are a dime a dozen, but you should consider offering them to your customers or users. This technology provides many advantages for businesses and users alike. Let's explore some of the biggest benefits a digital wallet can provide.
Convenience
First and foremost, we have convenience. For consumers, a digital wallet eliminates the need to carry cards. Access to card information, funds, and payment information lives securely on a smartphone! Users can access what they need in seconds from a single device.
Furthermore, digital wallets make checkout processes easier. Whether online or in-store, simple authorization transmits payment data. That means no typing in card numbers, addresses, etc.
Increase in Transaction Amount
Here's a benefit for merchants. Studies show that the convenience digital wallets provide often translates into more spending. Total transaction amounts can increase by up to 33 percent! People tend to spend more when using digital wallets than traditional alternatives.
Enhanced Security
Financial security is a major concern for consumers and retailers. Digital wallets can help provide peace of mind in many ways, offering multiple layers of protection. Most wallets utilize robust encryption and tokenization to mask card and account numbers. These features limit exposure.
Moreover, wallets require authorization. Advanced biometric technology prevents unwanted payment authorization, even if a device is lost or stolen.
Contactless Payments
Digital wallets truly hit their stride during the pandemic because they allow for contactless payments. When you use a digital wallet, there's no need to touch payment terminals, type in a PIN code, or exchange cards. Making payments is as easy as hovering a device over the contactless terminal, making it a quick, convenient, and germ-free experience.
Lower Transaction Fees
All transactions other than cash incur processing fees. Those fees can be substantial for merchants, costing up to 3.5 percent of a transaction's total plus a possible flat fee. While transaction fees still exist with digital wallet payments, they're often lower because they circumvent traditional card payment rails, which saves businesses money over time.
Data on Spending
Another reason digital wallets are great for consumers and retailers is that they're data-heavy. For users, digital wallets can provide powerful insights into spending habits. This feature makes it easier for people to budget their money and get a bigger picture of their spending. Businesses can also gain insights by seeing what people buy using digital wallets.
Split Bills Easily
Digital wallet apps gained traction when they started offering social payment features like bill-splitting. Instead of forcing one person to pay for an entire transaction at a restaurant, groups can now easily split bills. The feature makes it easier to share costs and eliminates the headache of manual splitting for restaurants and retailers.
Accessibility
Not all consumers have access to the financial services they need, but digital wallets have revolutionized accessibility. These apps give people access to the services and products they need, no matter where they live. Many wallets help underserved communities and those who may not qualify for traditional financial products.
Money Transfers
Transferring money is a cinch with a digital wallet app. In the past, the only way to move funds was to collect sensitive financial and personal data, initiate a transfer with a bank, and wait several days for processing. Now, apps allow you to move money with simple app requests, emails, or text messages. These transfers are often quick, eliminating lengthy wait times and ensuring funds get to recipients fast.
Quicker Checkout
Have you ever considered how long it takes to check out online or in person? The e-commerce checkout process is lengthy, requiring manual financial data input. You must whip out a card in stores, type in a PIN code, etc. Digital wallets speed up checkout processes across the board. In most cases, all it takes is quick biometric authentication and a second of processing.
Rewards
Many digital wallet apps offer rewards for users. For example, restaurants and retailers with dedicated digital wallet apps will give points to consumers who use the app to complete a transaction. Consumers can then redeem those rewards for discounts, freebies, and more.
Get Started With Dots Today
If you want to offer your users or customers a digital wallet, turn to Dots. Dots is a payment platform with many features to revolutionize your approach to sending payments. With Dots, you can easily create a digital wallet with powerful ledger tools, multiple withdrawal options, and more. It's a fantastic solution for affiliate networks, marketplace websites, freelance platforms, telehealth organizations, and more.
Simplify payouts and give recipients the flexibility to get funds on their terms. The Dots API is an innovative solution that can keep everything "in the box" while automating your company's entire approach to payouts. Automate how you send money, reduce the need for manual processing, and more.
Contact the Dots team to schedule your demo and see how a digital wallet can benefit your business.