How digital wallets are reshaping the payments landscape (2024)
Digital wallets have grown in popularity as consumers have become accustomed to the convenience and flexibility of contactless payments. Forbes recently reported that 53% of consumers now use digital wallets more often than traditional payment methods.
Despite their growing popularity, many billers don’t offer digital wallet payments. This has created a gap between consumer preferences and the payment experience their billers offer.
PayNearMe recently conducted a consumer survey to determine how important convenience and hyper-personalization are to consumers during the loan payment process. The research revealed that borrowers are increasingly gravitating toward digital wallets as a loan payment option, while their tolerance for friction is decreasing.
What we learned confirms a clear preference: consumers want to pay bills with wallets, and billers are missing an opportunity to attract and retain customers.
An important part of making payment easier for consumers—ultimately driving on-time payments—is offering the payment types they use in other areas of their lives. Today, that includes digital wallets. In the aforementioned consumer survey, when asked which alternative payment methods are important to them when paying loans online 44% of respondents said Venmo, 55% said PayPal and 43% said Cash App Pay.
These digital wallets have seen remarkable growth in preference since a previous report published by PayNearMe in 2021. Since then, survey respondents noted significant increases in preference for “the big three” as a loan payment option:
Venmo (27% in 2021 - a 63% increase)
PayPal (43% in 2021 – a 26% increase)
Cash App (22% in 2021 – a 95% increase)
This increase highlights a strong shift toward these platforms, indicating a competitive landscape where digital wallets are becoming integral to how people manage payments.
Generational adoption of digital wallets
The survey also revealed a clear trend of increasing desire for alternative payments across all age groups. Most notably was an increased preference for digital wallets as a payment option for the 45-60 year old age range from the 2021 report.
The data clearly defies the stereotype that digital wallets are predominantly used by younger consumers. This should serve as an incentive to billers to appeal to all of their customers by offering the payment types they desire.
Income diversification
Digital wallets can also promote financial inclusion and are popular with unbanked consumers. In fact, 64% of unbanked individuals use mobile wallets to make bill payments, and nearly 8% of Americans consider PayPal as their primary checking account.
That said, the desire for alternative payment methods expands beyond the unbanked and is also prominent across various income levels, with higher adoption rates generally seen in higher income brackets. For example, respondents with an income between $150,000 and $174,999 prefer Venmo (71%), PayPal (77%) and Cash App (66%). This diversification suggests that comfort with digital payments transcends economic status, making it a universal trend.
Overall, what we’re seeing is that digital wallets have become pervasive across age and income ranges and are an important way to empower customers to self-serve and make on-time payments.
The business impact of meeting consumer payment preferences
For billers, there are several business benefits to incorporating digital wallets into their payment stack. Beyond simply meeting consumer preferences, offering digital wallets allows billers to:
Tap into additional consumer funding sources that may be stored in the wallet.
Increase acceptance rates by accessing funds that are available immediately and often considered “good funds.”
Increase security and lower user input errors with the built-in pre-authorization and pre-authentication that’s built into the mobile wallet payment process.
Reduce delinquency by opening more payment options to help customers pay on-time.
Offer more inclusive options for unbanked and underbanked individuals.
The survey also revealed that when consumers are unhappy with the loan payment experience—which includes payment choice—they respond in a big way. Of those surveyed, 79% would be likely to use the same lender if they have an exceptional loan repayment experience. Meanwhile, 82% said they would jump to another lender in the future if they had a poor loan repayment experience.
Move into the future
It’s clear consumers have high expectations when it comes to their payment experience, and businesses risk losing customers altogether if they aren’t rising to meet those expectations.
Legacy platforms aren’t going to meet the needs of billers who want to dynamically add payment types and channels as consumer preferences evolve. To stay competitive and relevant, billers should consider partnering with a payments platform provider that enables them to accept all major forms of payment including popular digital wallets such as Cash App, PayPal, Venmo, Apple Pay and Google Pay.
To review the full, data-packed consumer research report, click here to download your copy.
With a digital wallet, consumers no longer need to carry around a bulky wallet filled with cards and cash. Instead, they can store all their payment information securely on their smartphone or other device. This not only streamlines the payment process but also reduces the risk of loss or theft.
New PayTech ecosystems are developing that can securely store, manage and leverage consumer and merchant data generated through payment transactions – representing radical data monetization opportunities and unique customer offerings.
Looking ahead to how the future of payments will evolve
Connected commerce is driving the digital economy. New payments propositions are helping connect merchants and consumers directly, in the most efficient way, leading to faster, cheaper and safer payments methods.
The obvious advantages of digital wallets or mobile wallets—seamless purchasing, virtual ticket storage, decluttering, and lightening the load of a physical wallet—are easy to understand.
The payments landscape is made up of a combination of entities which interact with each of these during the payment transaction process. All of these entities play specific roles in the payment processing cycle. Users have ever-increasing ways to pay.
Operational Efficiency: Fintech solutions often automate and streamline processes, reducing manual work and minimizing errors. This leads to increased operational efficiency and cost savings for banks. Financial Inclusion: Fintechs are adept at creating solutions that cater to underserved populations.
Benefits of digital transformation in the finance sector
Improved operational efficiency and revenue generation: Deploying the right set of digital transformation tools streamlines operational processes by automating manual tasks and integrating data.
Some notable trends include the rise of Central Banks Digital Currencies (CBDCs), increased usage of digital wallets, the growth of cross-border payments, and the acceptance of cryptocurrencies.
You use your device's camera and the wallet's scanning system to initiate payment. Near field communication (NFC): NFC is a technology that allows two smart devices to connect and transfer information using electromagnetic signals. It requires two devices to be close to each other to connect.
Seven areas are changing today's payments landscape: open banking, real-time payments rails (RTP), buy now, pay later (BPNL), digital wallets and super apps, embedded payments, digital currencies and cross-border payments.
In comparison to traditional cash and card payments, digital wallets provide several advantages, including convenience, speed, and security. However, there are risks to transferring money to a digital wallet, such as security and fraud, technical issues, limited acceptance, and hidden fees.
Digital wallets have grown in popularity as consumers have become accustomed to the convenience and flexibility of contactless payments. Forbes recently reported that 53% of consumers now use digital wallets more often than traditional payment methods.
When using a digital wallet for payments, transaction data may be tracked, leading to privacy concerns about the security of personal information stored digitally. The idea that third parties could track and analyze your financial behavior is a significant privacy concern for many users.
To facilitate smooth and secure payment experiences, a new player has emerged in the financial landscape: the payment facilitator. Acting as an intermediary between merchants and payment processors, payment facilitators have revolutionized the way businesses accept and manage payments.
The advent of technologies like real-time analytics, artificial intelligence (AI), and blockchain has significantly impacted the fintech sector, particularly in payment methods. These technologies streamline transactions and introduce unprecedented security, efficiency, and transparency levels.
He adds: “The future of payment technologies is ostensibly anchored on three pivotal axes: cryptocurrency, artificial intelligence (AI), and blockchain. “Cryptocurrencies, spearheaded by bitcoin, are progressively being recognised as a legitimate alternative to traditional currencies,” Wood says.
The growth of the payments sector is driving expansion of the acquiring market, enabling new entrants and innovation. Total revenues in the acquiring industry are expected to grow at a CAGR of 8.7% in the next few years, exceeding $160 billion by 2026, according to BCG.
Fintech 3.0 (2008-2014): The age of fintech startups
The financial crisis of 2008 paved the way for innovative startups to challenge traditional institutions. This era saw: The rise of mobile banking: Smartphones and mobile apps allow users to check balances, transfer funds, and even pay bills on the go.
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Introduction: My name is Msgr. Benton Quitzon, I am a comfortable, charming, thankful, happy, adventurous, handsome, precious person who loves writing and wants to share my knowledge and understanding with you.
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