08 December 2015
Will Digital Wallets Walk The Path Of The iPhone?
Now this is a paradox. Digital wallets are generally considered the next big thing in mobile payments. And its adoption does seem to be increasing slowly across many global regions.
Recent research performed by Market Force Information shows that fewer people are actually using digital wallets to make payments or receive money in the US. Currently 12% of internet users who are also banking customers are making use of digital wallets, compared to 7% in 2014. Half of those people (50%) said that they are using digital wallets to pay or receive money, which is down 5 percentage points from 2014.
This digital wallet paradox deserves some further examination. First, let’s look at what these findings say about the absolute number of people paying with digital wallets. There are 242 million adults in the US. A little over half of this group (51%) bank online: roughly 121 million people.
Now we can have a look at the absolute number of people paying with digital wallets:
- In 2014, 7% used digital wallets, which accounts for roughly 8,4 million people. Of this group, 55% used them to pay and receive money: 4,7 million in total.
- This year digital wallet adoption is up to 12%, meaning that 14,5 million use the technology. Half of those people pay and collect money with them: over 7 million in total.
These numbers tell an interesting story. While digital wallets are used relatively less often for payments, the actual adoption of digital wallet payments has increased by roughly 50%. These findings contrast the picture that some media are currently painting, customers just aren’t adopting it. In fact, they are, massively. If the adoption rate increases in this pace, more than half of all adults in the US pay with digital wallets by 2021.
Another way to look at the research results is by examining the other functions of the digital wallets.
Customers are increasingly depending on this new technology to store loyalty cards or store coupons and gift cards. This is basically what we are currently using our good old physical, leather wallet for – or how we used to.
This shows that the attractiveness of this mobile technology does not rely primarily on payments, but on having one single integrated place that covers all the touch points between customers and retailers – from payments, to coupons and loyalty programs.
Now where have we seen a similar development before?
It is generally agreed that the fast adoption of the iPhone was not fuelled by the fact that one could make phone calls with it. We could do the same with our Nokias or Motorollas. The iPhone got popular because we could use it as one single device that would make a lot of physical redundant: address books, photo cameras, watches, alarm clocks, paper maps, business cards, you name it. Suddenly there was an app for everything, all in your back pocket.
The leather wallet in most consumers’ back pocket is currently still stuffed with physical items like loyalty cards, receipts and coupons. People that already have embraced digital wallets seem to appreciate the technology for exactly the same thing: making physical items redundant.
Think of it: how often do you realize at a checkout in a physical shop that you forgot to bring your loyalty card?
The strength of the digital wallet and its promise for the future lies not only in digital payments; it is the integrated digital platform approach, with all its benefits over the thick leather wallet, that will make it successful.