5 trends driving growth of digital wallets

June 24, 2019 9:46 AM

Merchant holdouts are finally warming to the likes of Apple Pay, years after the mobile wallet's launch. Competitive offerings have also flourished from mobile operating systems and phone providers like Google and Samsung, alternative payments providers such as China’s Alipay and even the enablement of P2P wallet providers such as Venmo to be used in apps such as Uber.

The major change Apple Pay brought was widespread industry support from financial institutions to allow their cards to be used in a third-party app, as well as using Apple's clout to get merchants to install NFC readers that would accept mobile wallets in-stores. As mobile wallet usage has grown, along with increased smartphone penetration levels, more use cases are coming to market, such as bill pay and transit fare.

Digital wallet adoption, be it online with a PC or through a smartphone, is primed for takeoff due to the high penetration rates of smartphones and laptops. Almost nine in ten U.S. households own a smartphone, making it the second-most owned technology device after television sets. According to the Consumer Technology Association (CTA), 87% of U.S. households own a smartphone. The data is from the CTA’s Annual Consumer Technology Ownership and Market Potential Study which surveyed 2,016 U.S. adults between February 22 and March 5, 2018.

The CTA predicts that smartphone ownership will match that of televisions within the next five years. It also noted that smart speakers such as Amazon Echo and Google Home have nearly tripled in household penetration in 2018, to 22%, when compared to its 2017 findings.

This rapid penetration should come as no surprise as the Federal Communications Commission noted in its 20th Mobile Wireless Competition Report that individual consumer smartphone ownership nearly doubled in a five year span, from 42% in 2011 to 81% in 2016. The same FCC report also cited data from the Centers for Disease Control and Prevention that in December 2016, about 50.8% of U.S. households had wireless-only phones, up from 41% in December 2013.

When it comes to using a digital wallet for recurring payments, most consumers see a higher relevancy for use with online subscriptions, e.g., Netflix, than they do traditional subscriptions such as a gym membership — with the exception of U.S. consumers.

According to a newly released study by GoCardless, a global recurring payments technology provider, which surveyed 12,785 consumers in 10 different countries, only 22% of Americans would most likely use a digital wallet to pay for recurring payments for an online subscription – a much lower amount than Spanish consumers who rang in at 39% and Australian and French consumers who both were at 34%.

One major challenge in driving digital wallet adoption in the U.S. is the strong preference for using credit cards – a phenomenon that isn’t quite as strong in places such as Germany. However, in online channels there few options, with the exception of debit cards. GoCardless examined the 30 largest subscription-based websites in the U.S. and found that all offered the ability to use credit and debit cards for payment, while 53% offered PayPal, and 6% accepted other forms of payment. None of the subscription websites offered ACH Bank Debit as an option.

The most important factors driving mobile wallet usage have a lot to do with how fast a consumer can pay and how convenient it is to use — the top two drivers behind mobile wallet use. According to a recent SpeedPay Pulse report, 55% of American adults surveyed in its quarterly report stated that they value the speed a mobile wallet offers to pay a bill.

ACI recently acquired SpeedPay from Western Union for $750 million to bolster its bill pay business, which will be merged with ACI’s UP bill payment platforms. On the day when ACI closed the transaction for SpeedPay it also announced that it acquired Walletron, a mobile wallet technology platform, from Western Union.

Convenience was the second highest rated factor in the SpeedPay survey, right behind speed, that could entice a consumer to choose to pay a bill with a mobile wallet. This could be a big game changer for ACI to drive further mobile wallet usage. Walletron is currently used by six million consumers in 100 countries and ACI, through its network and partners, manages more than 12 billion bills. Walletron had already been working with ACI prior to the acquisition.

Mobile wallets are gaining traction with 24% of consumers using them on a daily basis. Based on data from a recent SpeedPay Pulse report another 40% use mobile wallets weekly or multiple times per week. While often media attention is focused on mobile wallets being used in-stores at the point of sale, the reality is that mobile wallets are also used to make mobile web and in-app purchases.

The growth of contactless cards and mobile wallets being used for mass transit is highlighting the speed and convenience that these technologies offer over paper tickets and cash. Mastercard sees Apple Pay being a major catalyst for mass transit payments.

In fact, in the New York transit system’s (MTA’s) new open loop contactless OMNY payments system, which is currently in pilot, has seen initial consumer usage running at three times the forecasted amount. According to the Gothamist, the MTA had projected that between 6,800 and 13,500 riders would use the OMNY contactless service per week, but just in the first three days alone almost 39,000 riders have used the service.

Most banks and credit unions are not giving incentives for their customers/members to sign up for a mobile wallet or to use it. According to a Federal Reserve Bank of Boston survey of 450 financial institutions, 71% reported that they did not offer or plan to offer an incentive to their customers to sign up and use a mobile wallet.

The most common incentives offered by financial institutions, at 13% each, were a reward to enroll in a mobile wallet and then to provide a reward redemption for a mobile POS transaction. Since financial institutions were able to check all the incentives offered in the survey, it is likely that there is some overlap in some organizations offering both.

The reluctance by financial institutions to incentivise their customers to sign up and use mobile wallets is understandable given the newness of the technology. Yet for institutions that offer their own wallets, it’s short-sighted given that consumers will eventually sign up for a wallet and it may not be from their bank, opting for a third party such as Apple or Google instead.

An example of the pressure mobile wallets bring to the market, this year Target relinquished its hold-out status against mobile wallets, having hoped to have a retailer-only wallet. It will now accept Apple Pay, Google Pay and Samsung Pay as well as the rush of contactless cards that will soon be coming to market courtesy of several large card issuers such as Chase, Wells Fargo, and Bank of America.