Digital wallets are a rapidly growing technology, seeing particular growth in popularity in the years since the COVID-19 pandemic, according to an update from Juniper Research.
As noted in a report from Juniper Research, they are also “important in the fields of financial inclusion, and movement towards cashless economies.” As explained in the research report from Juniper, there are many different types of wallets, “fulfilling a range of uses, which makes it an extremely broad topic.”
In its latest report, Juniper Research has defined digital wallets as: “A software-based system that can act as a storage mechanism for a user’s payment, identity, loyalty, or ticketing information; enabling these credentials to be used in a digital environment.”
Digital wallets enable users “to pay for both online and offline transactions via either stored payment credentials, such as debit cards, or currency stored in the wallet, by utilizing applications on smartphones, wearables, and other mobile devices.”
The Juniper Research report revealed that in developed countries, digital wallets saw much slower adoption. In spite of much higher smartphone penetration rates and the greater coverage of POS (Point of Sale) terminals capable of accepting NFC (Near-field Communication) payments from smartphones, consumers “generally maintained the use of cash, or payment cards.”
The report added that this particular trend “changed during the COVID-19 pandemic, where many developed economies were closed to in-person shopping, and where it was allowed, contactless payment methods were heavily encouraged.”
In this environment, alternative payment solutions “that could facilitate payments both in-store and online saw a surge in popularity.”
The Juniper Research report added that digital wallets “benefitted greatly from this environment and has maintained growth even after lockdown policies were removed from most developed economies.”
In both developing and developed markets, digital wallets are not only used for
payments, but are also “used to store digital documents, such as boarding passes,
tickets and coupons.”
The report from Juniper also mentioned that this can be “seen with the 2012 launch of Apple Passbook, a digital wallet that could not make payments but was for the storage of digital documents, boarding passes, tickets, and coupons.”
The total value of digital wallets transactions “will rise from $9 trillion in 2023 to
surpass $16 trillion in 2028, a rise of 77%.”
This trend is driven by growth across both “developed and developing markets, as the increased adoption of advanced services such as BNPL (Buy Now Pay Later), microloans, and personal financial management drive end-user engagement.”
In a highly congested wallets landscape, diversifying digital wallets appeal to users is vital.
As noted in the update, advanced services are “a key source of revenue growth for digital wallets.” Advanced services, such as BNPL or microloans, are “allowing digital wallet providers to diversify their revenue.”
The popularity of BNPL, especially “among younger consumers, will draw greater numbers of users, and generate additional revenue.”
This approach can be “seen with Apple’s roll-out of numerous add-on services, including Apple Pay Later.”
Advanced services give digital wallet providers “an opportunity to differentiate themselves in a congested market and generate additional revenue.”
As mentioned in the report from Juniper, super app strategies, “which many digital wallets are pursuing, will rely on the effective deployment of advanced services at scale.”
The report added that security benefits are “a key driver of digital wallet use in eCommerce in developed markets.”
Many consumers do “not wish to enter card information online.”
As explained in the report, “with digital wallets, this issue is reduced, as tokenization enables card and other payment information to be used in a highly secure way.”
The report concluded that as digital wallets become broader, “including elements of digital identity, convenience will play a greater role; enabling wallet services to act as more of an all-inclusive app for financial wellbeing.”