Digital wallets are currently one of the digital payment methods preferred by users. They had already been on the rise for the last few years, and the post-pandemic world brought them to the top. Consequently, they went from being just another payment option to an essential one for consumers who demand convenience and speed.
According to a study conducted by GSMA in 2022 on the state of the mobile money industry, mobile wallets mobilized more than $1 trillion in transactions during 2021. It implies a 31% increase over 2020.
At the same time, the number of mobile money accounts registered globally reached 1.35 billion, 18.1% more than the previous year, and the volume of interpersonal transactions grew to more than 1.5 million per hour. Shocking.
Predictions forecast that this growth in mobile money will be sustained over time and that of the entire digital payments industry. In this upturn, emerging markets will play a key role. Incredibly because access to traditional financial services is often complicated for people, new technologies are the way to facilitate this.
According to Boku’s 2021 mobile wallet report, by 2025, half of the world’s population will be using them.
In the fintech ecosystem, digital wallets are constantly evolving, seeking to offer more and more benefits to users and merchants.
Everything suggests that mobile wallets are the future of commerce. Do you know why? In this article, you will find the answer.
What is a digital wallet, and how does it work?
A digital wallet is a mobile application (virtual wallet) that can be accessed from any mobile device. Its great advantage is that it allows you to carry out multiple financial transactions without needing a bank account.
Digital wallets are helpful for:
- Transferring money.
- Receiving money (from a bank account or another virtual wallet).
- Making purchases in stores and online without handling cash.
- Paying bills and services.
- Collecting sales.
What they do, and this is why they are chosen, is to simplify financial transactions.
The three types of digital wallets that exist today are:
- Closed-loop wallets allow, by linking them to a credit or debit card, to recharge a spending account associated with specific merchants. They are used to make payments in stores and online purchases on different platforms. Examples of these wallets are AmazonPay, AliPay, and GrabPay.
- Open-loop wallets work by linking the mobile phone with the user’s credit and debit cards and allowing payments via NFC-enabled terminals. Among the most popular are PayPal, Google Pay, and Apple Pay.
- Semi-closed-loop wallets allow virtual funds and purchases between accounts in the same network of wallets (usually regional in scale). Here we find Mobikwik and Paytm.
Market trends in digital wallets
Digital wallets are used in commerce in all forms, including online sales. In an ever-growing fintech market, mobile wallets show clear trends that will shape their evolution.
According to the Boku mentioned above, mobile wallet users will reach 4.8 billion by 2025 (vs. 2.8 billion in 2020). And Juniper Research estimates that the value of digital wallet transactions will surpass $12 trillion in 2026, well up from $7.5 trillion in 2022.
At the same time, mobile money providers aim to continue to diversify their services in the short term, and by 2025 it is expected that 60% of e-commerce will be conducted via mobile devices (Source: FIS, Global Payments Report 2022).
The Latin American scenario
In Latin America, according to the Global Payments Report 2022 conducted by FIS, users of e-wallets are attracted to global brands such as PayPal, Apple Pay, and Google Pay, as well as the region’s leading e-wallets, Mercado Pago and RappiPay, along with local options such as Yape and Tunki in Peru.
Mexican consumers are the most significant users of digital wallets and are projected to account for 36% of all transactions by 2025. At the same time, it is estimated that an average annual growth of 19% in e-commerce for the same period.
In the e-commerce field, digital wallet payments continue to gain prominence, with cash and credit cards the big decliners (which today are already linked to mobile wallets).
However, credit cards will continue to play an active and dominant role in the region. Except in Mexico, it is expected that 2024 mobile wallets will become the leading means of payment for online purchases by 2024, displacing conventional credit cards.
Western Europe and the United States
Projections for the U.S. predict that users will move to mobile wallets and away from old payment methods. IT will cause mobile proximity spending per user to nearly double to USD 7827 by 2026.
And in e-commerce, digital wallets will dominate payments by 2025 and 1 in 3 payments will be made by this means.
As for cash, it is estimated that it will still be in force in 2025, but its global influence will be almost microscopic.
Projections 2025 of Payment Methods
Advantages of digital wallets for commerce
The advantages digital wallets bring to commerce are many and outstanding for users and merchants. These are the most remarkable ones.
Advantages of digital wallets for users
More and more people are turning to electronic wallets every day. Why? Here are some of the reasons for this movement:
- They provide greater security than credit and debit cards by implementing passwords and encrypting personal information.
- More speed.
- Simple to use.
- Easy to manage.
- They allow you to pay and send money with a few clicks.
- They store several cards, and the user can choose the one they prefer when paying.
- They centralize payment information in a single application without entering data for each purchase.
- Generate an automatic and uninterrupted checkout process.
- Facilitate purchases on small screens such as cell phones.
Advantages of digital wallets for merchants
As far as merchants are concerned, these are the main advantages that virtual wallets offer to their businesses:
- Increased market reach.
- Better offer of payment methods.
- More potential customers.
- Lower costs.
- Payment management optimization.
- Greater control of financial operations.
- Greater security by having to handle less physical money.
Benefits of digital wallets for e-commerce
And if we focus on e-commerce, these are the advantages that they generate and that are making them a favorite among consumers:
- Reduce checkout interruptions and simplifies the checkout process, optimizing the user experience.
- Improve the conversion rate (as a consequence of the previous point).
- Decrease shopping cart abandonment.
- Offer a greater variety of payment methods.
- Guarantee greater security through the use of tokens.
The best digital wallets on the market
The digital wallet market is growing steadily, but users have their favorites. This is a detail of the most chosen by region and country:
Digital wallets: a significant driver of financial inclusion
Electronic wallets have a vital role to play in global financial inclusion.
First, because they are much more accessible. Unlike traditional financial services, which, in addition to the bureaucracy involved in accessing them, have many entry requirements that fintech have eliminated.
Digital wallets only require downloading the application and completing a simple online form (no address or proof of income is usually required), and you are ready to start trading.
Second, they are much less expensive than bank accounts because they have fewer intermediaries in their value chain. This is not the case with traditional banks, which also have varied costs, such as maintenance and minimum deposits.
For these reasons, digital wallets are essential for the unbanked, representing around 1.7 billion people worldwide. If we consider that 1.1 billion of these adults own mobile phones, these are their gateway to financial services.
One of the main reasons it is important to promote financial inclusion is that it favors the equitable growth of societies. It inevitably translates into a better quality of life for people.
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