The New Frontier Of Digital Wallets
and what it means for merchants.
Posted by Andrea Baker on
This year almost US $30 million worth of transactions will be completed in America courtesy of digital wallets and mobile payments. That's three times the value of last year but a meager drop in the estimated ocean of what's expected to occur by the year 2020 when mobile transactions will reach US $266 million annually.
Driving the trend are big players including PayPal, Apple Pay, Android Pay and Samsung Pay, and they are betting the house on the prospect that consumers will embrace the apparent security and ease of use of having all the funds they need contained in the convenience of a smartphone.
The digital wallet offers a host of potential benefits to retailers and customer alike, but how exactly does it work, where is it at, and what's in it for retailers?
While the US hasn't been the greatest adopter of contactless payment methods like chip cards, the digital wallet has seen a big take-up nationally.
In a nutshell digital wallets allow consumers to download a (usually) free app, add their credit or debit card details to their "wallet" and pay by holding their phone near a contactless point of sale or payment processing terminal to complete a transaction.
Security comes in the form of fingerprint technology that authorizes the payment, or a four-digit code keyed into a smartphone.
It works using near-field communication technology which allows phones and tablets to share data with other NFC enabled devices like point of sale or payment terminals.
The benefits for consumers include abandoning bulky physical wallets and increased security. For retailers it opens a bevy of doors in terms of loyalty promotions, gift cards and consumer data.
The big players
The four biggest players in the digital wallet market at present are PayPal, Apple Pay, Android Pay and Samsung Pay. Each allows users to connect or upload their credit or debit card details to an app and select their preferred payment method.
But their comfortable current hold on the market will likely be threatened by new apps and technology being actively embraced by banks and big retailers alike. For now let's take a look at the offerings on the table...
As of August this year PayPal was well in front of competitors with a 77% hold on the US digital wallet market. They offer consumers the opportunity to utilize their services at any participating retailer with the additional option of linking bank accounts to a single PayPal account.
Their vast market share is likely because of the universal familiarity consumers have with PayPal. It was initially a subsidiary of EBay, has actively pursued mobile transactions through retailer applications like PayPal Here and is trusted as a result. The greatest benefit of PayPal is that it works on nearly every smartphone.
Apple Pay works on the latest iPhones, iPads and the Apple Watch; you can see a full list of their compatible products here. It also works with debit and credit cards from most major US banks and a number of store credit cards.
Additionally, rewards cards are now a feature of Apple Pay, meaning consumers can add their loyalty cards to their digital wallet to earn and redeem points.
In September last year Google released the much-anticipated Android Pay, and all four major US banks along with hundreds of others have come onboard.
Many newer smartphones come pre-loaded with the Android Pay app or it's available at Google Play. Consumers then just select their device and eligible credit or debit cards to upload.
Security comes in the form of physically unlocking your phone via fingerprint or pass code, while Google notes no card details are sent to merchants. Instead they use a virtual account and allocate a transaction ID. If you lose your phone you can utilize the Google device manager to lock your phone from anywhere.
When you tap at select merchants your loyalty points are automatically recorded.
Like Apple Pay and Android Pay, Samsung Pay is accepted at any location where contactless payments are made, however Samsung Pay offers the additional feature of magnetic swipe capability. This means users can use their digital wallet pretty much anywhere a credit card is accepted.
It currently supports more than 300 US banks, with more coming on board all the time.
Samsung Pay is available on all the latest Samsung devices and at set-up users are required to scan their fingerprint to be used for security purposes and payment authorization.
The app also accepts participating merchant gift and rewards cards.
While retailers require a PayPal account to accept PayPal payments, any card reader including magnetic swipe models can accept Samsung Pay and any terminal with contactless ability can in theory accept Apple or Android Pay.
This alone allows for increasing ease of customer payment and a swifter checkout process, but it's the rewards and gift card capability that should have every merchant taking note.
Retailers now have greater access than ever before to information about when a customer visits, how often and what they buy. Combine this with digital information like email addresses for receipts and all the makings of a new marketing frontier are readily at their fingertips.
The final word
All data indicates the next few years will see the world of mobile payments open up at lightning speed. This brave new technological trend will see more banks, credit card providers and retailers all vying for a slice of the digital wallet pie. For merchants the opportunities will be vast and exciting, depending on how swiftly they get up to speed on the developments and embrace them to suit their needs.