It can be a bit disconcerting the first time you shop at a store that refuses cash. But more businesses contend they don’t want the hassle of dealing with cash, and neither do most of their customers.
Not only is there an increased reliance on credit cards instead of cash, but now there is a greater push toward “digital wallets.”
A digital wallet is a system that safely holds users’ payment information and passwords on their mobile or desktop devices, allowing them to quickly make purchases using near-field communications (NFC) technology. Experian says that more than 1 in 10 millennials use such wallets for every purchase, desiring an easier way to deal with transactions.
“The struggle of dividing checks during group dinners or gathering cash for a March Madness bracket is now easily remediated by logging onto the app and electronically sending them money, which transfers directly from your bank account,” says Jared Weitz, founder and CEO of United Capital Source, a small business lender.
Still, not all consumers are familiar with such apps, while others harbor doubts or security concerns.
“The technology gets better and better every day,” says Michael Bruemmer, Experian’s vice president of consumer protection. “It’s not the technology that’s the problem, it’s the people that are not using the technology properly.”
There are often common questions asked about digital wallets, and some of the answers are helping to alleviate the concerns and underscore the benefits. Consider the following:
- Why use a digital wallet?
Digital wallets give the user an ability to simplify their finances by conveniently allowing users to organize and store multiple payment types, loyalty cards, digital coupons and personal data. It can also allow merchants to send the user special offers or help track receipts, warranty information and rewards. Unlike a mobile wallet that is just an app stored on your smartphone, a digital wallet can be used on your desktop, laptop and smartphone.
- Are they secure?
They are more secure than a traditional wallet. Digital wallets are secured with passwords or biometrics to eliminate anyone but the user from gaining access to an application, and all credit cards and bank information in the digital wallet are robustly encrypted. In addition, smartphones with NFC have encrypted SE chips that contain the data necessary to begin and end a transaction.
- How do I get started using one?
There are a lot of options when it comes to digital wallet apps. There are well-known names like Google Wallet, Apple Pay, Samsung Pay and Microsoft Wallet. Others include Due, Venmo and Zelle. You can set up a digital wallet through your smartphone or your bank. Make sure that whatever app you use, you read the terms and conditions, as some may charge a standard fee for sending money to another person via credit card.
- Are digital wallets just another trend that will be gone in 6 months?
Not likely since big players like Apple, Samsung, Google and major banks are players in this arena. In fact, these apps are being downloaded and employed more than mobile banking apps. About 110 million American adults say they’ve exchanged cash and credit for digital wallets at least once. In addition, more than 80 million Americans say they use them because they’re more convenient than carrying around cash and credit cards.
Business advantages of digital wallets
In addition to the benefits to consumers, digital wallets open up new opportunities and markets for businesses. Consider that they:
- Improve the customer experience. Customers often have to search through multiple “loyalty” tags on their key ring, juggle bags or dive through pockets looking for cash – not to mention trying to remember where they stuck their coupons. They will find businesses that accept digital wallets are helping them to stress less and conduct transactions faster because they simply have to swipe and go.
- Provide important data. A customer’s shopping preferences and shopping history can be accessed, which then allows a business to send them appropriate product suggestions or enroll them in a loyalty or reward program. Businesses can also directly send customers coupons based on past purchases.
- Provide faster reimbursements. Businesses will have almost immediate access to funds, in addition to saving money on transaction fees because third parties are not involved.
- Reduce abandoned shopping carts. Once a consumer reaches the checkout stage, the last thing any business wants to see is that consumer walk away without completing the transaction. Digital wallets can cut down those abandonments as they pre-fill the payment form, making checkout much easier and more likely to be completed. According to a report by 451 Research on current trends in customer experience, it’s noted that poor conversion rates caused by checkout friction is a “fundamental pain point” within digital commercial channels, prompting merchants to boost their integration of digital wallets. In 2017 in the U.S., online retailers lost $34.4 billion in sales because of customers abandoning their shopping carts because of purchasing hassles.
The number of people in the U.S. using mobile payments is expected to grow, reaching nearly 62 million this year. As more people become comfortable with the process – and more merchants adopt the technology – then the use of digital wallets is also expected to grow, especially among younger users. For example, last year Apple Pay had about 252 million users, with about 1 billion Apple Pay transactions in the third quarter of 2018.
“Those that are integrating are seeing promising results,” 451 Research reports. “For instance, eBay notes that within months after integrating Apple Pay, more than one in 10 customers using an iPhone or iPad are now choosing it at checkout.”
451 Research also found that online retailers ranked second among the most popular spots for digital wallet use in the past 90 days, following the No. 1 most popular places of restaurants and coffee shops.
For businesses that want to embrace such technology, 451 Research recommends that merchants and marketplaces turn to partners to guide their payment strategies and then promote their new capabilities to customers.
“While the majority of U.S. consumers have Apple pay or Google Pay-enabled devices, few think to leverage them, particularly across digital storefronts,” 451 says. “Merchants should promote the enhanced security and ease-of-use advantages of these wallet options to drive consumer uptake.”
Still, the adoption of the technology may come down to a “seeing is believing” situation for consumers and merchants. Take, for example, busy Philadelphia mom Liz Jeaneault, who finds that juggling a wallet, stroller, diaper bag and other items can be a pain.
“I sometimes feel I don’t have enough hands to hold everything,” she says, adding that her digital wallet means “that I don’t have to whip out my debit card and go digging in my bag for it. There’s always a long line of people behind you when checking out so it helps get them through the line faster, too.”
It’s such testimonies that may compel more customers – and businesses – to embrace digital wallets and make them a common practice.