You’ve likely heard the news: the use of digital wallets is on the rise, and is transforming the way we pay. In fact, according to a recent Citi survey, the majority of shoppers (55%) are using a digital wallet product – up from 35% just a year ago. “Digital wallets are quickly becoming mainstream,” noted Leslie McNamara, Managing Director of Partner Management, Citi Retail Services – but questions still arise when it comes to how digital wallets actually work and the advantages they provide to shoppers.
“A digital wallet is essentially an electronic storage space for the plastic payment and loyalty cards in your physical wallet,” explains Will Hernandez, editor of Mobile Payments Today.
But not all digital wallets are the same. “There’s a wide variety of digital wallets available to consumers, and they can be used across devices and channels – including in–app, online, and in–store, depending on the type of digital wallet at hand,” adds Jessica Turner, Senior Vice President for Digital Payments & Labs at Mastercard®.
Here is how you can use digital wallets:
All digital wallets use some form of encryption of your personal information and your payment details in order to process your payment. But how the process works depends on what type of digital wallet you’re using.
A recent report from Centric Digital states that by the end of 2016, one in five smartphones will be mobile payment–enabled. That’s a 210% increase from 2015 – so more merchants and retailers are starting to accommodate shoppers who wish to pay with their mobile devices. Case in point: More than three–quarters of US retailers plan on accepting Apple Pay by the end of 2017, according to research by the National Retail Federation and Forrester. In the meantime, the number of retailers accepting at least one form of mobile payment now exceeds over 30 million, thanks to mobile wallets like Samsung Pay that work with terminals that use magnetic stripe, NFC, and EMV (used for chip–enabled cards) reader technologies.
Most digital wallet devotees cite ease, convenience, and the time–saving benefits as the major reasons to make the switch. “Users don’t have to carry their payment cards with them when making purchases at stores, and all payment, billing, and shipping information is stored in your wallet, making your purchase fast and simple,” Turner explains.
She also adds that it’s important for consumers to realize there are no additional costs associated with using a digital wallet – and in some instances those cardholders can still enjoy all the same benefits that apply if they used the plastic version of their credit card.
Many retailers are also looking at ways to reward shoppers who pay with their mobile digital wallet – alongside existing benefits that come with their credit cards. The connection between the two services could be the tipping point for digital wallet adoption, according to consulting firm Accenture – with around 80% of users admitting they would make more mobile payments in store if offered discount pricing, coupons or rewards.
Digital wallets provide a number of security features. One of those features includes the technology called tokenization, which is “a security measure that replaces the sensitive data associated with your credit or debit card with a one–time account number,” Will Hernandez of Mobile Payments Today explains. “The number is produced at the time of the transaction and is immediately useless to hackers should that information be compromised in any way.”
Staying vigilant and keeping an eye on your statements is still critical to help ensure that your information is safe, however – no matter what form of payment you use. “Digital wallet providers have gone to great lengths to make these products as secure as they can be,” adds Hernandez. “That said, nothing is 100% secure these days and consumers should still monitor the card accounts they link to digital wallets.”
Many experts think that geo–targeted mobile payment offers could be the next big thing for digital wallets. “I personally can see digital wallets getting even smarter,” comments Sean McQuay, credit cards expert at NerdWallet, “to the point where they proactively suggest coupons or other monetary solutions when entering specific stores.”
And mobile payments are no longer just limited to your mobile device, either. Wristbands using NFC technology are now ubiquitous at many major music festivals and sporting events, where lugging around a wallet and fumbling with credit cards at concession stands are becoming a thing of the past.
“Digital wallets are a product of the digital story of our time: a story in which the world is becoming seamlessly connected, and every device has the potential to be a commerce device,” concludes Turner. “As the world goes digital, so are the ways we pay.”