Digital wallets are a game-changer for many consumers and companies — and their adoption is rapidly growing.
Holding credit cards, bank accounts, cash and even cryptocurrencies, digital wallets are generally used for making digital payments and accessing other financial services beyond purchasing goods and services. E-wallets, on the other hand, are a type of digital wallet, akin to a digital version of a billfold or purse, and are generally used to make purchases using apps on a smartphone or other portable device.
Each is a key component in the digital payments ecosystem, where global transactions are forecast to nearly quintuple from 2016’s $480 billion to a projected $2.3 trillion in 2027, according to Capgemini. The consultancy puts the 2023 market at an estimated $1.3 trillion.
A new era of consumer — and B2B — payments
Not surprisingly, some of the biggest companies in the mobile phone business have also created e-wallets: Apple, Google (Android) and Samsung. The services store credit and debit card information that consumers can access in person or online. PayPal, Venmo and other e-wallets can hold sovereign and cryptocurrencies and be used for direct payments to individuals or other entities.
Bank of America explains: “The key to these payments is tokenization, whereby the user’s card or bank details are retained by them, and only an alias or token is shared with merchants. This facilitates a growing number of uses in the physical world, where multiple cards can be activated by the tap of a phone or in e-commerce through integration with almost any digital payment process.”
Digital wallet adoption surged during the pandemic, and analysts expect rapid growth to continue. In fact, Juniper Research predicts more than half the world’s population will be using digital wallets in two years. The report forecasts more than 5.2 billion people will use e-wallets in 2026, up from just 3.4 billion in 2022 — a huge growth of 53%.
Digital wallet adoption around the world
Mobile wallets are now used for much more than basic transactions. They carry everything from airline boarding passes to concert tickets to retailer loyalty cards. According to Golin, quick-service restaurant brands in China, including Starbucks, have so-called “mini-apps” that operate within Alipay and other payment platforms. They reach consumers at the point of sale while collecting data about the user that can be used for future marketing.
As Juniper notes, “super apps” will help drive growth in emerging markets still considered “cash heavy.” These apps feature many uses and integrate digital payments alongside services including wealth management and ecommerce, with examples such as WeChat. Super apps can also include financial services traditionally targeted to wealthy clients of financial institutions, including credit, lending, insurance and FX payments options.
The Asia Pacific region is registering mass adoption of digital wallets and is forecast to lead global growth of digital payments at a rate of almost 20% by 2027, according to Capgemini. That contrasts with just 6.5% growth in North America and 10.7% in Europe, with overall annual global growth in digital payments of 15% by 2027.
New opportunities in FX payments with digital wallets
Digital wallets can be more inclusive than legacy banks in many markets, especially in countries where women have not always had access to or direct control over their finances.
Meanwhile, for industries that use large numbers of independent contractors, digital wallets present a convenient way to pay people directly with fewer intermediaries. Insurance, healthcare, assisted living and all forms of media and entertainment are already actively using digital wallets for quick and easy paydays, according to Bank of America.
If employees are getting paid credits into their digital wallets, then the potential for using the platforms for B2B payments “should not be underestimated,” says Bank of America’s report. The lack of interest paid out for “cash” in a digital wallet is one hurdle for some companies. However, the report notes PayPal and others are finding workarounds “affording the benefits of alias payments simplicity with straight-through processing to a traditional bank account.”
This integration with bank accounts combined with greater familiarity and trust in digital wallets may further fuel adoption and increase the appeal of tokenization. The bank report says, “tokenization of supplier data can reduce both fraud and the administration burden of vendor master data.”
Eventually, B2B digital payments may include intelligent routing and reconciliation of alias-based payments that work like virtual accounts — bringing the characteristics of streamlined consumer finance to the realm of global trade.
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