23 September 2015
Tech companies are paving the way for banks to introduce digital wallets
With the new digital wallets Apple Pay, Android Pay and Samsung Pay the competition is heating up between Apple, Google and Samsung. The idea is to replace the physical wallet including all cards, coupons and cash money with a digital wallet. It sounds really convenient, but mass adoption is just still not happening. How can the last remaining hurdle towards the digital wallet really be taken?
A digital wallet is the technology that allows consumers to store credit and debit cards, cash, loyalty card and coupons in an app to make electronic payments via a digital device. As consumers use more smartphones and mobile devices, it seems to make sense to replace physical wallets with a digital version to make digital payments whenever and wherever they could. The reality is that consumers are not sharing the enthusiasm of the wallet providers.
The use of digital wallet is low
According to consulting company Gallup only 13 per cent of U.S. adults with a smartphone have a digital wallet on their device and 76 per cent of those who have a digital wallet have never used it. Among consumers who have digital wallets, 38 per cent don’t even see any benefits of using the technology. Nine out of ten consumers who don’t have a digital wallet say that they are very unlikely or unlikely to start using one in the next twelve months.
It’s safe to say that digital wallets are just not that popular. This lack of enthusiasm is even more striking next to the claim of providers that their digital wallets offer convenience, relieving customers of the need to carry multiple cards and remember separate passwords for each. The problem with this claim seems to be that every provider is telling the same story, without really being disruptive or adding something new. This could be a reason why adoption is gaining traction rather slowly, because consumers just haven’t been convinced yet on the benefits of the technology.
Consumer don’t trust tech companies with financial information
So, tech companies such as Apple, Google and Samsung are not really convincing the audience to use their solutions when it comes to financial behaviour. According to the Gallup research, the main reason that they won’t use one is due to security issues. There is a reluctance to hand over private payment information to companies, for several reasons. Who or what can be trusted with this kind of information when it comes to services?
The answer is of course: banks. For many years banks have made it possible for consumers to make trustworthy transactions. The Gallup 2014 consumer trust study shows that customers place some or a lot more trust in their banks to keep their personal data secure (91%), far more than they trust credit card companies (66%), cellphone platform providers (63%), cellphone carriers (59%), brick-and-mortar and online retailers (69 and 58%) or social networking services (23%). This means that banks are in the perfect position to overcome security concerns and increase us of their branded wallets.
Advantages such as giving budgeting advice
Another reason why banks should take the next step in providing digital wallets, is the use of their unique competitive advantages. As stated in the article ‘No one is winning the battle for digital wallet customers’: with knowledge about a customer’s disposable income, credit card ownership, and purchasing preferences and frequencies, banks can offer more than a convenient method to make purchases. Banks can also serve as trusted financial advisers, helping customers understand how they are spending their money and how to make informed decisions about future purchases.
So, digital wallets are not all about payments, but service is key. Especially now the new generation of customers (Millennials) are becoming more important for banks. Millennials have very different views towards banking relative to other demographic segments, according to Dan Glessner on Finextra. He states that banks need to take action to keep Millennials happy with the online banking services. Glessner: “Investing in new digital services which deliver personalized, proactive interactions would be a positive step for Millennials.”
Digital wallet technology is coming of age thanks to the tech companies. Banks are in the perfect position to close the gap of the lack of confidence in providing security. Without even knowing it, tech companies seem to pave the way for banks to introduce a secure digital wallet service.
- Industry insights