What Is The Fate of Various Mobile Payments In the Years Ahead?

Digital wallets have been hyped as the future of payments for so long it would have been easy to dismiss them as marginal even just a couple of years ago. Now, that has become a risky bet, because digital wallets — often referred to as mobile wallets — are finally catching on in a meaningful way with consumers.

75% of those who were surveyed globally said they have used a digital wallet within the past year. While the U.S. is slightly behind the global average, where 71% reported using a digital wallet from June 2021 to June 2022, the rate of adoption is still up from the previous year (64% in 2020).

Digital Debutantes:

Many people who never before used a digital wallet began doing so during the pandemic-related lockdowns of 2020.

Digital wallets are an increasingly competitive space for card issuers. In fact, without 'top-of-wallet' status cardholder activity can plummet. Here are key ways bank and credit union card issuers can grab and hold consumers' attention at the point of sale.

What Is the Difference Between Contactless Cards and QR Codes? Digital Wallets and Mobile Wallets?

First, it's important to acknowledge these terms, because they're all used now in the payments sphere.

They all play virtually similar roles — consumers can pay a merchant, friend or stranger without the same legacy payments strucutres that have been around for decades.

But, they're not interchangeable:

• Digital wallet: A software where customers can store their credit card numbers to make purchases from, digitally. 
• Mobile wallet: A digital wallet in a mobile app where people can physically tap their phone on a credit card terminal to complete a transaction.
• Contactless card: A credit card technology that utilizes RFID technology so a consumer can tap their plastic credit card to a terminal to complete a transaction.
• QR code: QR payment codes function the same as a regular QR barcode, but it takes the consumer to the merchant's online payment form.

Some reports have found the tap-to-pay form of payments — through either a contactless card or mobile wallet — have been growing as digital wallet usage falls.

Doug Mearkle, Head of U.S. Merchant Services at TD Bank, says this isn’t surprising because, while contactless payments has grown more and more important to consumers, "the perception from the consumer’s perspective of what contactless means still isn’t very well defined."

It’s pretty clear that "tap to pay" is seen as contactless, but Mearkle says that for many consumers inserting a chip card in a terminal and returning it to their wallet, never handing it to a cashier, is relatively contactless as well.

Similarly, the QR code as a primary form of payment has also been growing in popularity.

"The QR code is very versatile, and just like anything digital, it got a big boost during the pandemic," says Rutger van Faassen sen, an analyst specializing in innovation and new markets for Curinos , in an interview with The Financial Brand.

"Think about how we now use it to pull up menus. And then you think about the Coinbase Super Bowl ad. It has gone a bit mainstream, now most people know what to do with a QR code."

The Digital Wallet As A Threat To Traditional Credit Cards

By 2025 digital wallet use will account for just over half (52.5%) of ecommerce transaction value worldwide, versus 48.6% in 2021, according to the FIS Global Payments Report.

At the physical point of sale, the report states, digital wallet use will rise to nearly 39%, an increase of about ten percentage points from 2021 levels.

Regarding the use of digital wallets in online and mobile commerce, the report states that "growth will be driven by digital wallets offering superior checkout solutions, flexibility in underlying payment methods, their anchor role in e-com marketplace ecosystems, and local wallets consolidating into regional and global super apps."

By 2025 about 60% of ecommerce will be conducted via mobile devices globally, versus online, according to the report.

While new technology can often be perceived as complex, Marqeta stated, this isn’t the case with mobile wallets: "88% of survey respondents globally said they found their mobile wallet simpler to use than they imagined prior to adoption."

Fierce Competition:

The increase in the popularity of digital wallets means issuers will have to work harder to retain consumer mindshare.

In theory, any number of credit and debit cards can be loaded into a digital wallet. Significantly, however, most consumers tend to only keep a few in there. A majority (61%) of consumers reported that they had just one to two cards in their mobile wallet, according to the Marqeta data.

"For card providers, this will be concerning," Marqeta said in its report. "Given that consumers will typically spend four times more on their top-of-wallet card choice than other payment methods, this represents a significant potential drop in their revenue."

One TransUnion study confirms this — which found an increasing interest in one-click and tap-to-pay checkout options, often delivered through digital wallets like Apple Pay and Google Pay.

The younger the consumer, the more likely they are using these methods at checkout, but the dominant reason across all generations studied is speed. All consumer groups said they find this faster than debit and credit cards.

Mark Rose (Senior Director of Marketing Solutions) at TransUnion, says the trends are glaringly evident.

"Convenience is huge, and it’s changing retail."

The Rise of Banking QR Codes in Mobile Payments

Turning Point:

Number of U.S. and U.K. consumers who increased their use of QR codes since the start of the pandemic, per Diebold Nixdorf survey data: 50%.

So, does all this mean banks and credit unions should incorporate QR codes more into their digital functionality and user experience?

There are some areas where it could be beneficial, says Van Faassen.

One obvious one is in payments. Van Faassen notes that using QR codes for payments is much more popular in other parts of the world, especially Asia, whereas “the U.S. is still very card heavy.”

Targeted Marketing:

QR codes can be beneficial in delivering limited-time or hyper-targeted offers to a subset of customers.

Of course, like all digital technologies, QR codes can be exploited by criminals, particularly for payment applications.

For example, fraudsters can create new QR codes linking to fraudulent websites or manipulate and attack existing ones, giving them access to sensitive financial information at the point of payment, Zilvinas Bareisis, head of retail banking at Celent, told Bank Automation News.

Beware of Scams:

While QR codes have a wide utility to reach customers, they can also be manipulated by fraudsters