The rise of digital wallets has been subtle, often going unnoticed as people use them with a quick swipe on their phones or deep within the privacy of their laptops. Some consumers making purchases with services like PayPal and Google Pay might not even realize they’re using a digital wallet.
Yet, their usage is widespread. According to McKinsey, digital wallet penetration among Americans is approaching 90%. One study by Forbes suggests that a majority of Americans now use their digital wallets more frequently than traditional payment methods. Another study found that digital wallet usage is expected to double between 2023 and 2028, when there are projected to be 1.4 trillion digital wallet transactions worldwide.
The ongoing rise in customer satisfaction with digital wallets has led to their growing adoption—and vice versa. In March, J.D. Power and Associates reported that nearly half of all U.S. consumers had used a digital wallet in the past 90 days, a 12 percentage point increase from 2023. Overall customer satisfaction with digital wallets is also up, with ease of use—both online and in person—being the top factor driving this increase.
The most widely used digital wallet is PayPal, utilized by 40% of digital wallet holders, followed by Apple Pay at 28%, and Venmo at 22%. Apple Pay is the preferred choice among consumers who use their digital wallet for purchases five or more times a month, while those who use their wallet just once a month tend to favor Venmo and Cash App Pay.
The growth in this area has created ample opportunity for new competitors to innovate and offer consumers services they didn’t even know they needed. And a new bank-issued digital wallet, PazeSM—from Early Warning Services, LLC, an innovator in financial and risk management co-owned by seven of the largest banks in the U.S.—could be the next major solution to disrupt the industry.
Several Advantages
It’s easy to see why consumers are gravitating toward digital wallets. Like many new technologies, the main appeal here is convenience. Studies show that consumers want their payment experiences to be more streamlined, and digital wallets—capable of executing payments with a single touch—make purchasing products and services online incredibly convenient.
They’re also faster. Payments made with a digital wallet can be completed more quickly than traditional payment methods. This is particularly true in online environments, where the need to manually enter card data is eliminated.
Equally important, digital wallets offer this convenience without compromising security. They typically protect data through encryption, and most require multi-factor authentication before approving transactions.
Data suggests that safety is the primary reason consumers prefer bank-backed digital wallets over guest checkout options. The vast majority of consumers trust their own bank’s security protections more than those offered by alternative payment methods.
Stumbling Blocks Remain
Digital wallet users are still navigating a few pain points. People who are unfamiliar with them often fear that setting up a digital wallet will be more complicated than they would like.
Many shoppers have expressed a willingness to use digital payment tools if they were already set up for them. A Paze Pulse report indicates this could be an opportunity for digital wallets that come preloaded on consumers’ phones.
Another hurdle is that not all businesses are prepared to accept digital wallet transactions. Some merchants only accept digital wallets online, while others do so only in person. This inconsistency makes it difficult for some consumers to fully transition from their traditional wallets to digital ones.
Benefits for Merchants Too
The convenience and security of digital wallets don’t just benefit consumers—retailers stand to gain as well. Some of the key advantages include:
- Using a digital wallet for online purchases reduces friction and saves time since neither the customer nor the vendor needs to manually enter card information.
- The technology for accepting digital wallet payments can be easily integrated into existing checkout systems.
- Offering multiple payment options gives customers the flexibility to pay how they prefer.
- Digital wallet usage is higher among affluent consumers. While slightly less than half of U.S. consumers use digital wallets, that number jumps to 55% among those earning more than $100,000 annually.
Research also shows that consumers tend to spend up to 31% more when using a digital wallet for transactions. This impact is even more pronounced in the restaurant industry, where diners using digital wallets have contributed to a 33% increase in spending.
Smoothing the Way for eCommerce
Although ecommerce is a part of modern life for most American consumers, it still presents some difficulties for many shoppers. More than 70% of all online shopping carts are abandoned before checkout. One of the primary reasons this occurred was, according to consumers, that the checkout process was too long or complicated.
Digital wallets remove those concerns making ecommerce transactions smoother and more reliable for all concerned. With its stored, secure credentials, a digital wallet eliminates the need for customers to manually re-enter lengthy payment information during checkout.
Security is another major concern for people shopping online. More than 60% of the respondents to a recent Chubb survey said they have altered their behavior or reduced their usage of digital payment platforms due to concerns about cyber scams or other fraudulent activities. With features like tokenization and multi-factor authentication, digital wallets can protect sensitive customer data from being compromised during transactions, reducing the risk of fraud.
All these factors are becoming more significant as consumers make more transactions on their smartphones. There will be more than $500 billion in sales made via smart phones and other mobile devices in 2024. These devices are exceptionally well-suited for processing information and securely managing a significant amount of data.
Before long, the question won’t be whether someone has adopted a digital wallet. We’re approaching the point where the real question will be: Are you offering your customers the option they want: to pay with a digital wallet?
Paze and Paze related marks are wholly owned by Early Warning Services, LLC and are used herein under license. Learn more about Paze
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