Since people first began exchanging goods and services, various payment methods have been used, beginning with transactions involving salt and precious metals and progressing to physical money as it is known today: “cash” or fiat money.
Then came the era of banks, with their credit/debit card products, balances, current and savings accounts, and the ability to access online purchases with cards in the e-commerce sector, resulting in significant retail growth. Recurring payments were made possible, so we could start using prepaid services like Netflix, HBO Max, Amazon Prime, etc.
With the arrival of the pandemic came the need to avoid physical interactions, such as passing cash from hand to hand, multiple people touching a plastic card, or giving a pen to sign a receipt for a transaction. The need and use case for digital wallets, online payment methods, and contactless payments has accelerated. This acceleration significantly boosted an ecosystem that had already been growing due to e-commerce activity in previous years, bringing the logic of the digital world to the face-to-face world, which is digital wallets.
What makes digital wallets such a popular method of payment to boost financial services?
- One e-wallet for many services – Consider wallets as mobile applications enabling financial transactions such as payment of services, bills, or collections. They provide accessibility and speed due to the various actions performed on the same device in a single interaction.
- Ease of use / better customer experience – Complete the payment by scanning a QR code or entering a mobile number to send money without leaving home or having a bank account. Banks have become more complex, but digital wallets focus on saving time, creating experiences, and gaining loyalty.
- Cost-effective – Digital wallets eliminate the need for extra steps in digital transactions. Once you’ve loaded money into your wallet, you can use it for multiple transactions. As a result, save the commission cost associated with each payment made through a bank.
- Customer adoption – The ability to access the financial system for those who do not have bank accounts is the primary benefit of these instruments and the primary source of customer adoption.
- Opportunities for decentralized finance – We are seeing an incredible variety of cryptocurrencies and wallets beginning to enter this world, generating business combinations between physical currencies and crypto. Perhaps we can think of wallets as the forerunners of decentralized finance (DeFi).
Digital wallets: a gateway to new business opportunities
Data Bridge Market Research shows that the global digital payment market is expected to reach USD 244.61 billion by 2028, indicating a promising future and exponential growth for digital wallets and financial transaction solutions.
New business ecosystems are emerging across these wallets. Wallets have responded to the rise of buy now, pay later (BNPL), cryptocurrency, and cross-border payments by allowing transactions to occur in these modes.
Recently, we have seen the emergence of “super apps” built on these digital wallet platforms. Apps started with a simple digital payment offering and now serve various products such as vehicle, health or term insurance, bill payments, credit card payments, e-commerce, and so on.
These super apps or digital wallet apps have taken the Southeast Asian payments sector by storm. AliPay and WeChat Pay in China, Paytm, PhonePe, and Google Pay in India, OVO, ShopeePay, and LinkAja in Indonesia, LINE Pay in Japan and Taiwan, Kakao Pay in South Korea, and GrabPay in Malaysia and Singapore are among the market leaders.
Since there is vast potential for digital wallets and payments, companies such as Verimatrix and Sdk.finance offer SDKs, which provide the flexible and scalable software to build a standalone digital wallet or add electronic asset accounting functionality to existing products. Similarly, Sila’s Wallet API connects to any US bank account via an API for in-app payments.
Let’s take a look at some of the ways digital wallets are gaining traction as payment solutions:
- According to a Times of India report, digital wallets will overtake cash as India’s leading point of sale payment method by 2023.
- Argentina is progressing the fastest in developing these ecosystems in Latin America. he reasons range from favorable central bank regulations, such as transfers 3.0 (the indispensable engine of the interoperable QR), to the ease of access to more complex financial instruments, such as mutual funds, with a single click.
- We already have a “virtual” balance in some stores and use that to put together digital experiences in the physical world. For example, people can deposit money into their wallets and then go to the store and pay with that balance (via their mobile device) without using credit or debit cards at Starbucks, bringing the digital and physical worlds together. The company benefits because it has money to generate micro-credits for its clients or income through financial instruments. The clients benefit from the new experience and ease of use.
- You can pay with your wallet and leave cash aside at service stations. In this case, on top of the benefits of the previous example, an attempt is made to reduce the amount of time a car spends in this location, allowing for more sales in less time. For example, Globant recently worked with Agentina-based energy company YPF to reinvent their service experience and connect with their customers in a different way. Through a mobile application, YPF was able to reach their customers in an easy, streamlined and memorable way – allowing them to handle all types of business from scheduling services to paying for gas. Learn more about the game-changing experience we created for YPF in this video.
Digital wallets are here to stay and a challenge that traditional banking business must meet. At Globant, we help financial services and banking institutions leverage digital technology, including digital wallets, to remove barriers and friction that exists in making payments. To learn more about what Globant is doing to help clients in this space, click here.