Although banking has been around in some form or other for hundreds of years, the last few have seen a revolution thanks to digital technology. Improvements in connectivity and computing power have allowed for more sophisticated financial services, fitting the Millennial generation. In the modern world, solutions need to be cutting edge, offering an experience that makes dealing with finance as simple as possible.
The Global Mobile Payment Market reports have said that it expects the financial solutions market to grow at an annual rate of 33% between 2019 and 2026, ultimately reaching $457.4 billion. Banks can ill afford not to innovate where it comes to services like payments and mobile wallets.
What is a digital wallet?
A digital wallet or “e-wallet” refers to any electronic device or online service that allows an individual to make electronic transactions. This includes using a computer, laptop or mobile to purchase something without the need for physical payment methods like card or cash. According to Deltec Bank- Bahamas- “The digital wallet is a fundamental driver towards a cashless society and bring functionality that consumers now expect.”
The International Data Corporation (IDC) has found that the commoditization of financial services has introduced more transparency and accessibility to the banking industry. This, in turn, has made banks rethink their business models to stay inline with new entrants from the fintech market. New tools like digital wallets allow banks to provide more personalized service at scale.
Banks are teaming up with fintech enterprises to provide the best in class digitization. As banks have a long history of data and expertise but fintech has access to innovative technology, the partnership is ideal for both parties, rather than setting up in competition.
Digital wallets are incredibly cost-effective and available whenever users need them. Providers can add services at will based on customer usage. Whilst society still operates will cash, it will be difficult for somebody to go fully digital just yet but eventually, the time will come where that is the case.
Digital wallet core uses
There are several keys uses for digital wallets. We have covered some of the main ones below which emphasize the reasons for the growing modern-day use of the technology.
The main purpose of moving to a digital wallet is an easier and smoother payment experience for the customer. Digital wallets allow customers to make payments from one bank account to another or to third parties with a minimal amount of fuss. Digital wallet holders can store details of any debit or credit cards they hold for more secure payments.
Instant payments can be made between wallets, anytime and from anywhere. This means funds can be immediately available to the payee as opposed to waiting days like with traditional banking. Digital wallets tend to offer easy access for bill payments where consumers like to get details of the people, they pay money to and when that happens.
B2B Marketplace Growth
Away from the consumer side of wallets and payments, in a closed-loop environment, they can promote the development of a B2B marketplace. Take an example like the agriculture industry. Loans to farmers could be provided by banks through a wallet rather than a typical cash loan as with traditional banking. In this way, the farmers could be limited in how they can spend the loan. One such method could be in only allowing farmers to spend the loan with suppliers using the same wallet system so that it cannot be misused.
The objective here is to ensure funds are used for their due purpose and not misspent, creating economic benefits for all parties.
Physical and Virtual Card Operations
One of the major benefits of the digital wallet is that it can store the user’s credit or debit cards securely. This means they can make transactions at any time, using the wallet as an aggregated space for all their financial information. The card data stored in these wallets are encrypted with high-grade security making it a more appealing option than continually carrying everything around with you.
Given people have a multitude of credit, debit, loyalty and membership cards, digital wallets are the perfect aide for life management.
More and more merchants are now opening up their processes to allow for digital wallets. In retail, it is quite common for in-store payments to allow for contactless methods like smartphones (using a technology known as NFC) or QR-code (although these are starting to get a little outdated already perhaps).
User Engagement and Experience
Digital wallets have brought a new way of creating an engaging payment experience for users. There are several features enabling this. First, mobile wallets let users create budgets and plans for being savvier when it comes to spending. This includes options for categorizing payments, managing expenses and income, setting reminders about budgets and bills as well as savings goals.
Alongside these features, mobile wallets can provide users with relevant discounts and offer from the services they use most. From the wallet provider point of view, these features help them stand-out more in what is set to be a competitive marketplace going forward.
The most important feature of digital wallets is security. If somebody reaches into your back pocket and takes your wallet, all the cards are there are open for them to use. If somebody takes your phone, they cannot physically gain access to anything without various forms of identification. When payments are made, instead of a card number, a unique tokenized transaction ID is created. This means that stores do not ever get access to your financial information. Even if the store data is hacked, criminals won’t get hold of your personal information.
A digital wallet needs to be considered as more than just an application. They can provide a rich array of financial services, payment options, B2B marketplaces, loans, and discounts. These platforms offer more security than we’ve ever seen before and allow organizations to satisfy their customers in a rapidly changing world.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.