Payment methods: Digital wallets

More and more people are leaving home without a traditional wallet. Instead, they rely on the one thing nearly everyone never leaves at home: their smartphones. According to a Reviews.org survey nearly 90 percent of people feel uncomfortable leaving home without their phones—and over 65 percent of them check their phones 160 times each day.

And thanks to their digital wallet, people who leave their old wallets at home aren’t missing out on anything—in some cases they can even do more with their digital wallet. This payment trend is another example of how the pandemic has driven changes that retailers have to keep up with—as reported by PYMNTS, in the U.S. alone, the use of digital wallets jumped from 38 percent to 55 percent during the pandemic.  

Let’s look into digital wallets, some of the different types, what it means for retailers and the safety of them.

Quite simply, digital wallets are electronically stored credit and debit cards on mobile devices—most commonly on smartphones, but also wearables and in particular smart watches are increasingly being used for digital wallets. Consumers can then use them contactlessly in the store and remotely make payments for goods and services. Some digital wallet providers also store things like movie tickets, so people only need their phone to go to a movie theater—which makes sense because traditional wallets also were used to carry movie tickets.

Here’s a look at some of the various types of digital wallets that demonstrates why shopping around for the right digital wallet is a smart idea.

Apple Wallet—or just Wallet—is an app that is already installed on iPhones so consumers can easily add their cards without having to download the app and begin using their Wallet to make purchases. And that’s not all it can do. Have an iPhone and recently booked a flight? There’s now no need to go to your airline’s app to download your QR check-in code, it’s automatically stored in your wallet even if you purchased the ticket on your computer. Coupons, loyalty cards and types of IDs can also be added to your Wallet.

Due is a digital wallet that was introduced in 2015 originally designed for contractors and small businesses with the capabilities of tracking time and providing innovative invoicing. Now they offer a complete solution no matter how big or small the company, with project and client management tools, digital wallet, and payment processing—all without the need to go through a separate bank because they offer their own eBank.

PayPal is appealing to retailers because they can accept payments in 25 different currencies from 200 countries. And their digital wallet plans for 2021 demonstrate that not only are digital wallets on the rise, companies are eager to get into the incredibly competitive payment industry (in 2020 digital wallet spend was $5.5 trillion and it’s expected to be $10 trillion in 2025). Besides acquiring Honey (the coupon/discount finding company), PayPal plans to roll out the following in their digital wallet: “direct deposit, check cashing, budgeting tools, bill pay, crypto support, subscription management, buy now/pay later functionality and all of Honey’s shopping tools.”

Samsung Pay’s digital wallet is set apart by giving consumers the ability to take out loans and get cash back on purchases—and, like other digital wallets, users earn loyalty rewards when they use Samsung Pay. Also, similar to Apple Wallet, you can apply for a Samsung Money by SoFi payment card that “gives you the convenience of a debit card with the rewards of a credit card.” And users can receive up to 30 percent off of Samsung products.

Want to read about other digital wallet providers? Get a list of the 30 top digital wallets.

The payment landscape was changing before the pandemic partially because of the newest consumer generation and their payment demands. Gen Zers have never known a day in their lives without a smartphone and they depend heavily on them for shopping—71 percent use them for comparison shopping and 31 percent say they’ve made a purchase in one store for something in a completely different store. And now COVID has all the generations thinking about payments much like Gen Zers.

Digital wallets may be the accumulation of the changing payment trends—contactless, digital, mobile, convenient, easy, safe, engaging and all in a way that can, if used correctly, help manage money. So retailers that don’t accept digital wallets will be in serious trouble when it comes to remaining competitive. Also, digital wallets aren’t just for consumers. Businesses are using them to pay other businesses, too.

So, how do you best accept digital wallets?

The good news for retailers is that it’s easy to accept digital payments when your point of sale (POS) system is enabled with Near Field Communication (NFC). The technology allows your POS to communicate with your customers’ mobile devices so they can use their digital wallet in your store. If you don’t have NFC on your POS, it’s easy to upgrade your system and start accepting your customers’ digital wallets.

Related: Your customers want to use all their payments and get the same experience across every channel

If you’ve ever lost a wallet than you know that getting it back, unless you live in Japan, is unlikely and so are the items in it, particularly cash. If you lose an electronic device you probably won’t see it again, but your financial information will be much more difficult to access. Smartphones either have passcodes or use biometric authentication (use of your face or fingerprint) to open it. So it is effectively useless to a thief. And you’ll be able to easily transfer the payments to a new device.

Also there are other protections put in place. For example, data encryption. PayPal and Venmo both use it to encrypt your financial information into a code that’s concealed. If you have Apple Wallet, tokenization is used to protect your information with a randomly generated “token” code. And sandboxing protects your digital payment apps from all the other apps on your phone.

But that doesn’t mean digital wallets are 100 percent protected. Hackers tend to be smart and persistent so there are precautions you should take to protect your digital wallet. One of them is to use a trusted digital wallet provider. There are many new companies trying to get in on the digital wallet payment business, but some of them aren’t to be trusted. Also, be extra wary of emails and texts—they could be hackers waiting for you to give them access to your phone via phishing.

In time, someone asking for a traditional wallet as a present for their birthday may come as a shock—the only wallet you’ll be using won’t be made of leather. The convenience, safety (both from a health perspective and financially) and ease will increase the demand for digital wallets. And both consumers and retailers will benefit from them making the traditional wallet nearly obsolete.