Fueled by the pandemic, the use of contactless mobile apps boomed in 2020, with in-store mobile payment usage up 29% last year, based on a report
by eMarketer. The pandemic pushed consumers to swap out cash and credit cards for the presumably safer mobile payments option at point-of-sale. According to the report, 92.3 million consumers age 14 or older used proximity-based payments at least once during a six-month period in 2020. That figure is expected to increase to 101.2 million in 2021, and digital wallets are anticipated to be used by half of all smartphone users by 2025.
These statistics indicate that digital wallets may be entering a growth phase. Based on a survey
by recentfinder.com, 150 million American adults have tried a digital wallet, with 98 million Americans stating that digital wallets offer convenience over traditional payment methods. Now may be the time to create your digital wallet strategy.
The Case for Mobile Payments
There is no doubt that mobile payments are faster. According an article
by ReadWrite, the typical card transaction takes 15 seconds to complete, while a mobile payment transaction takes only 6 seconds. This makes mobile payments a more efficient payment method, one that is quickly becoming a payment preference for digital users.
Retailers who were slow to adopt mobile payments were finally forced on board by the pandemic. The National Retail Federation and Forrester
found a 69% increase in no-touch payments in 2020, and 67% of retailers in America now offer some form of contactless payment. Retailers have also gained efficiencies during the checkout process, with consumers completing the checkout process in less time, often with an increase in spending. As payment providers, credit unions benefit from additional revenue from this spending increase.
Are Digital Wallets and Mobile Payment Apps the Same Thing?
Mobile payment apps enable a purchase at a single retailer by tying a payment method to that app. Perhaps the most famous use case, and one of the first in the country, was the Starbucks app. Digital wallets, on the other hand, enable multiple cards, including credit and debit, to be stored in one convenient payment method. Apple Pay, Google Pay, Samsung Pay, PayPal, and even Amazon (more on that in a minute) are the standard wallets in usage. Consumers have an average of four
credit cards, which creates a challenge for financial institutions to keep their card or account top of wallet as the preferred payment method.
Are Proximity-Based Payments the Next Use Case for Digital Wallets?
It probably comes as no surprise that Amazon is taking digital wallets and contactless payments to the next level with proximity-based payments. With Amazon's purchase of Whole Foods in 2017, they moved into the world of physical retail. Amazon quickly began studying areas where efficiencies could be gained during the checkout process. To conduct this research, Amazon created the Amazon Go stores. During the shopping process, Amazon uses a combination of technologies to constantly update items in the cart, creating a real-time receipt. Once the customer has completed their shopping, the items in their cart are charged to their payment source(s) on file with Amazon. Amazon has its own wallet (included in the Amazon app) using the same card-on-file model as the other digital wallets. Other large retailers (Costco comes to mind) are likely to adopt similar technologies in the future. Creating and implementing a digital wallet strategy now ensures that you are future payments proof as these new merchants come on board.
Non-Cash Payments. No Plastic Required.
Card payments were already on the rise before COVID. Consumers' desire to use contactless payments accelerated that usage. With consumers owning an average of four credit cards, a convenient digital method to store these was inevitable. Digital wallets enable smartphone users to have multiple payment methods available at the point of sale, with an increased projected growth of both smartphone owners and digital wallets. Financial institutions need to develop strategies to encourage their payment methods' inclusion and primary usage within the wallet. As proximity-based checkout technology becomes more advanced and prevalent, mobile wallets will become necessary for all payments providers. It is no longer a matter of which card the consumer reaches for the most, but rather which card is the preferred payment method in their digital wallet. In the digital payments race, you always want to have the first position.