Welcome to the era of the digital wallet.
Not sure what that is? In short, it’s technology that allows
you the convenience of conducting transactions on your smartphone, computer or
tablet without a physical card. When making an online purchase, for example,
instead of typing in all the digits of your credit card, plus the expiration
date and security code, you can access the card number through your digital
wallet and make the transaction almost instantly. Or if you’re conducting
business in person, you just scan your phone in front of a reader for payment
without any contact.
During the COVID-19 pandemic, digital wallets have become
even more popular, according to a recent survey from Chase that looked at
consumers’ relationship with cash, savings and digital banking tools one year
after the start of the pandemic. The survey found 47% of respondents started or
continued to use contactless payment options in 2021 to avoid physical
interactions amid the pandemic. Additionally, 73% of respondents said
contactless payments were a more convenient form of payment.
“More and more consumers are expecting these digital
options, and banks and fintechs will continue to supply them in order to stay
competitive,” said Jerry Craft, a veteran of the credit card industry who now
is the CEO of Corserv, which empowers banks and fintechs with payment programs.
“In the industry we are seeing ‘card holder’ change into ‘account holder’ as we
move more toward a physical cardless world.”
What Are Examples of a Digital Wallet?
A digital wallet is, more or less, an electronic
reproduction of the wallet in your pocket — without the cash. It holds your
credit card information, and it gives you access to your to store loyalty cards
and even your airline and other tickets. An advantage is you don’t have to
carry a variety of cards and documents and risk losing them, plus your payments
Even if you haven’t dipped into digital wallets, you’ve
undoubtedly seen the signs for them when checking out at a store or even your
bank’s ATM. They include Apple Pay, Google Pay and Samsung Pay straight from
your smartphones, Fitbit Pay from your Fitbit and Garmin Pay from your
smartwatch. Money transfer services PayPal and Venmo also qualify as digital
While credit card accounts aren’t going to go away, we’re
trending away from carrying actual cards.
“Digital wallets are here to stay. Apple, Google, PayPal,
Goldman Sachs are investing billions of dollars to make conventional credit and
debit cards obsolete. We already see this trend gaining traction in India,”
said Nilesh Mehta, the founder and CEO of Independence Bridge Consulting in
Philadelphia. “It’s not that technology has gotten much better over the past 10
years, it’s that these companies have been able to consolidate many popular
features into a single device — think digital cameras and the iPod. The average
American has several credit cards which are becoming a liability because they
often lose them. Even banks are recognizing Americans enjoy the convenience
these technologies have brought them and providing consumers with the option to
use their credits on mobile apps is one of them.”
Will Credit Cards Become Obsolete?
That’s unlikely since people still need access to credit to
pay for goods and services in many instances.
“Today most mobile wallet functions are tethered to a credit
card or bank account, so there is little risk of them replacing credit cards in
the current form,” said John Cabell, director of banking and payments at J.D.
Power, a leading consumer intelligence firm. “And in fact, J.D. Power research
shows that tethering a credit card to a mobile wallet increases satisfaction
with the mobile experience.”
Of greater risk to the conventional credit down the road are
the emerging payment platforms that can replace credit card usage. Among them
are “buy now, pay later” services that retailers are introducing. Target
announced Oct. 6 that it was adding the option through a partnership with
Affirm and Sezzle to allow customers to extend the payments on certain
purchases in lieu of using credit cards. Other retailers, including Walmart and
Amazon, allow for similar payments.
“These services bypass the need for a credit card and
provide an alternate method of making a payment. In fact, nearly half of
customers using buy now, pay later installment loan services express they would
have used a credit card for the transaction as a second choice,” Cabell said.
“As these payment methods rise in popularity, so does the threat to credit
Advantages and Disadvantages
The benefits of digital wallets revolve around convenience
and flexibility, said Len Covello, the chief technology officer at Engage
People, a global loyalty program.
“Having access to all payment options in a single digital
wallet makes it easier for consumers to pay with their preferred method during
any given transaction,” he said. “For example, through digital wallets,
consumers can manage all of their loyalty points across various loyalty
programs, and in some cases, spend those loyalty points at whichever retailer
A disadvantage? Not all consumers, particularly older ones,
feel comfortable quite yet with the technology and are having to catch up with
the help of grandchildren, for instance. But the pandemic seems to have spurred
greater interest in paying in ways other than cash for seniors.
Consumers 65 and older paid by cash 26% of the time in 2020,
down 7 percentage points from 2019, according to the Federal Reserve’s Diary of
Consumer Payment Choice Study. Cash was still the preferred method of payment
for the age group.
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