Digital Wallets as a driver towards a cashless society
Even though digital mobile wallets have been around for a while, we still see new wallets being launched on a weekly basis, like Huawei Pay launching in Russia just last week. As we are taking a closer look, it is easy to see that there are significant differences between various digital wallets and those differences mainly originate from regional requirements and differences in consumer expectations.
At its origin, every wallet starts from the same core value proposition; offering mobile payments and digitizing payment instruments. But the implementation varies greatly from wallet applications that are essentially offering a digital version of a plastic card, to others that offering closed loop payments based on carrier billing or even based on cash in/cash out mechanisms via agents that represent the wallet operator. And those operators are equally diverse, ranging from the device manufacturers to wallets owned by banks, mobile network operators (MNOs) or retailers. On the technology side, they also come in all shapes and sizes: all the way from basic USSD based implementations to sophisticated mobile apps that leverage all the latest and greatest technologies that smartphones have to offer, such as NFC and biometrics.
So why are there so many differences?
There is no single answer to that question. In emerging markets, it all revolves around empowering people by making financial services available to them. Mobile network operators play a key role in this and are also often the ones operating the wallet. By offering low barrier solutions, based on simple technology to ensure that even the most basic mobile devices comply, mobile network operators have been very successful in bringing large portions of the population on board. Even to the level that the banks had to step their game up to provide a viable alternative for these MNO driven solutions. In Kenya for example, the M-Pesa wallet has become so successful that the volumes of payments processed through this (proprietary) wallet solution started to become a systemic risk for the economy. With existing solutions provided by the banks by no means offering an alternative with the same acceptance rate and benefits to the end user, the Kenyan banking community established a brand new real time payments system in 2017 to allow efficient P2P payments. It remains to be seen whether consumers will be willing to shift to this new solution but this clearly demonstrates that mobile closed loop payment systems are fulfilling a true need.
In developed markets, there is a wide variety of mobile wallet solutions and their origins again are as diverse as they come. The large mobile device vendors have launched their own solutions but to date with limited success. Most of those solutions come from the need for convenient mobile payments, whether contactless payments, mobile commerce or in-app payments. In the US market, Venmo is one of the more successful mobile wallets and this can largely be attributed to the lack of any P2P payment options (and regular bank transfers taking multiple days to settle). With the new real time payments (and Zelle), there are now other options to address this consumer requirement so it will be interesting to see how this impacts the usage of Venmo.
India is another prime example of an economy that was traditionally very cash heavy – workers paid in cash, online shopping was mostly based on “cash on delivery” – that has leapfrogged into mobile payments. Interestingly, one of the key drivers was a regulatory push for demonetisation. The government decided to remove 500 and 1000 RUP notes from circulation as a proactive tool to promote digital payments and this measure combined with the general availability of biometric authentication through Aadhaar has led to massive adoption of mobile wallets.
Whether it is a mobile wallet solution that is built around convenient access to mobile payments or it is rather focusing on financial inclusion, it remains a fact that digital wallets only tend to generate a sustainable use once they go beyond payments. Mobile wallets can be used for so much more than paying friends or family through P2P payments or buying goods at a merchant, they are a secure, convenient platform for all payment needs, whether those are utility bill payments or mobile top up. Integration with loyalty and coupons creates an additional incentive to use mobile wallets as the preferred payment option. The WeChat wallet is a prime example of a comprehensive package, it includes P2P payments, payments to merchants via QR code, split the bill, red packets for Chinese New Year, charity payments, utility payments, mobile top up and even wealth management – all natively part of the wallet application. In addition, it is seamlessly integrated with 3rd party solutions that allow to order a taxi, book a hotel, buy railway tickets, order a coffee at Starbucks or buy items at discounted rates.
With different drivers for different regions and a variety of technologies being used to deliver the solution, digital wallets come in many shapes and sizes. As technologies and user requirements will continue to evolve, the best is yet to come and mobile wallet operators must be ready to evolve along with their clients – striving to equip customer and merchants with convenient and secure payment options.