What Technologies are Driving the Digital Wallet Trend?

By Alex Clere
The advance of technology is providing us with new ways to pay. So what are digital wallets, how do they work and what will their future look like?

The world of finance is full of confusing jargon but sometimes, happily, you stumble across a word or phrase that almost defines itself – like digital wallets. Put simply, digital wallets allow consumers to store and spend funds digitally. This could be real money, linked to a payment card, or something else like loyalty points or discount coupons.

Digital wallets are becoming an increasingly central component to the way we pay and transfer funds – so how are they being used, what technologies are driving them and what can we expect to see in the coming years?

What are digital wallets?

Digital wallets differ from simply paying online because they allow the consumer to save payment information for later by adding a debit card into the app. When it’s time to pay, the user can do it straight from their app by holding their smartphone to a card reader without needing to remember or re-enter their payment credentials.

But digital wallets also do much more than just paying bills. As their name suggests, they can accommodate anything a traditional wallet can – from resort passes to boarding cards, movie tickets to loyalty vouchers. The exponential growth of this technology in recent years has allowed consumers to leave their clunky leather wallets at home, accelerating the move towards cashless payment.

As digital wallets have become more integrated into our smart devices, companies like Apple, Samsung and Google – which provide the operating systems for those devices – have become some of the biggest players in digital wallets. Retailers like Alibaba and Walmart have also got involved while payment platforms such as Paypal, Venmo and Cash App, which offer digital wallets to their customers, have grown into some of the biggest financial enterprises in the world.

Aside from their convenience at the checkout, digital wallets have the potential to solve a cross-border banking problem that was traditionally disjointed and difficult to navigate.

Laurent Descout, CEO and founder at payments platform Neo, explains: “When working with traditional banks, opening an international bank account is a difficult, long and painful process – and the transactions themselves can add further days.   

“Fintechs are enabling businesses to set up their own international account with a multi-currency IBAN in their organisation’s name. Virtual wallets then ease the process for making same day payments. Businesses can use them to organise funds and store multiple currencies, ready for executing rapid payments or a currency exchange.”

What technologies are driving digital wallets?

Digital wallets start with a digital core, which can be thought of as the building blocks for digital transformation within banking. In essence, the phrase ‘digital core’ refers to the platforms and applications that an institution uses to transform itself into a digital business. From there, it can make use of open APIs to integrate with digital wallets and payment platforms, allowing them to bring front-end benefits to consumers.

John Mitchell, co-founder and CEO of Episode Six, says: “With these technologies, the world’s leading developers are able to create services and applications that communicate and integrate in a simpler manner. It's these technologies that are driving change in the market and creating solutions for better customer-friendly applications.  

“While open APIs are helping to drive innovation today, we can expect to see more from smart ledgers and wallet management systems in the future.

“Smart ledgers, or blockchain, will transform the way people and organisations handle their digital wallets. By offering a way to record, store and transfer alternative digital assets, the smart ledger will introduce a whole new world to digital wallets. Combining this with easily adaptable, API-accessible wallet management systems, customers will experience a better-integrated digital payment model all within one single platform.”

Indeed, the rise of cryptocurrencies is one of the most hotly tipped frontiers in the application of digital wallets. Trading in these non-tangible currencies has increased steadily over the last 10 years – Bitcoin for example has risen from $1 in 2011 to more than $42,000 today. And there’s still evidence to suggest that crypto is ripe for future growth.

“What’s different today is the extent of institutional interest, coupled with very strong demand across the wealth management franchise,” wrote Mathew McDermott, Global Head of Digital Assets at Goldman Sachs, in a report published by the company last May. “The product offering is broader as people are looking beyond Bitcoin at the potential of the underlying blockchain infrastructure to transform the way markets behave. This has sparked interest in

other kinds of cryptocurrencies… whose value proposition revolves more around what else can be done on blockchains.”

What does the future look like for digital wallets?

According to UK-based Juniper Research, the number of unique digital wallet users is predicted to grow from 2.6 billion to 4.4 billion by 2025. Markets such as the UK and US will lag behind China and India in terms of digital wallet adoption, with China and India expected to account for nearly 70% of digital wallet transactions.

John Mitchell, from payment tech provider Episode Six, continues: “Digital wallets have been most successful in regions where card penetration has been low but mobile phone use is high. In regions such as Southeast Asia, consumers have gone straight from cash to mobile wallets and as a result digital wallet providers have done well.

“Where we’ll see digital wallets evolve in the future will be around the types of assets stored. 

The world is already rapidly adopting alternative forms of digital currency, cryptocurrency being the most in-demand. Future digital wallets will not only store and allow for payment transactions but will also provide on-demand and seamless access to these alternative digital assets. Better yet, apart from storing these funds, they will offer the ability to complete financial transactions using these varying payment sources.”


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