U.S. consumers are embracing digital payments, which is, in turn, giving a boost to digital wallets. Leaders at banks, credit unions and fintechs should take note and strategize accordingly.
Most people — 64% — now say they use digital wallets at least as much as traditional methods of payment, such as paying with cash or a card, according to a Forbes Advisor survey of 2,000 U.S. consumers with bank accounts. And just over half — 53% — say they use digital wallets even more often than traditional payment methods, the August 2023 survey shows.
The pandemic prompted many people to try contactless payments for the first time, as such options were viewed as more hygienic and, thus, safer. The pandemic also drove up the adoption of mobile banking, which made digital wallets more accessible. Some banks offer their own wallets within their banking apps, along with incentives to encourage use, including cash back, discounts, and exclusive offers.
Digital wallets, which are also sometimes called mobile wallets or e-wallets, store information for bank accounts, cards and loyalty programs in one place. In the survey, 43% of the respondents report having two bank accounts linked to their digital wallet, while 33% say they have linked two debit or credit cards.
When facilitating a transaction on a mobile device, wallets create a unique token, ensuring that card details are not shared with the merchant. So, if that merchant’s system becomes compromised, the payment information remains protected.
The Benefits of Digital Wallets for Merchants
One of the benefits of digital wallets for consumers and merchants alike is convenience. In fact, it is the top reason consumers give for using a digital wallet, with 41% of respondents in the Forbes Advisor survey citing it.
The primary reason consumers give for using digital wallets
- Convenience — 41%
- Availability of rewards or loyalty programs — 23%
- Ability to track recent purchases — 16%
- Enhanced security — 14%
- Faster checkout process — 4%
- Nothing in particular — 3%
Source: Forbes Advisor survey of 2,000 U.S. bank account holders
Allowing digital wallet payments speeds up the checkout process, reducing the time and effort required for customers to complete transactions. This can improve the overall customer experience, thereby increasing customer satisfaction and building customer loyalty.
That ease and speed can go a long way in reducing the chances of cart abandonment, a major concern of merchants. That, by extension, can improve conversion rates and boost sales. To this point, 47% of consumers say they spend more money when using digital wallets than when paying with physical cards or cash, according to the Forbes Advisor survey.
With the increase in the use of digital wallets for transactions comes an increase in customer data. Merchants can harness this information to inform marketing campaigns, product offerings, and more. Assumptions around customer preferences, purchase patterns, and behaviors suddenly become a thing of the past.
How to Prepare for the Increased Use of Digital Wallets
To prepare for the increased use of digital wallets in the next few years, leaders in the banking industry should consider implementing the following strategies.
1. Map out integration
Optimizing the critical moments along the customer journey has grown increasingly important for financial institutions, the most important being the transaction.
Integrate digital wallet solutions with your existing payment infrastructure and make using them as seamless as possible. Include a diverse range of options to ensure your organization caters to the growing number of customers who prefer using this type of payment method.
Of the respondents in the Forbes Advisor survey, 69% say they use PayPal, 56% Google Pay, 53% Apple Pay, and 52% Samsung Pay.
Peer-to-peer apps are also popular, with 52% citing Cash App and 49% citing Venmo among the digital payment options they use.
2. Enhance security measures
Financial institutions need to prioritize security measures for digital payments. This includes implementing robust authentication protocols, encryption techniques, and fraud detection systems.
Taking these steps will go a long way toward encouraging wider adoption of digital wallets, especially among those who are concerned about security.
The survey finds people are split as far as perceptions of security. Though 36% think digital wallets are safer than traditional payment options and 23% think they are just as safe, another 30% say they are less safe. (The remaining 11% say they are unsure.)
Among the 14% of respondents who have never used a digital wallet, they cite concerns about security as one of the top reasons why.
3. Educate customers
Many consumers are unfamiliar with the benefits of digital wallets and the mechanics of how they work. So customer education is a key component of any rollout plan.
Targeted marketing campaigns can help get the word out, but take it at least a step or two further by creating educational materials and establishing customer support channels to field questions, troubleshoot issues, and simply explain the basics.
For more insight on spurring adoption, read here.
4. Streamline the onboarding process.
As with any new technology, proper onboarding is key to digital wallet adoption. Make it easy for customers to link their accounts or cards to their preferred digital wallets.
If not already part of the educational materials created, provide clear instructions on how to link accounts and cards. Make it step by step so people have fewer questions.
Also, consider leveraging automation to streamline the onboarding process for everyone.
5. Leverage data analytics
One of the main benefits of digital wallets is the transactional data generated when they are used.
By using data analytics tools, a financial institution can derive valuable customer behavior insights. The insights can be used to personalize offerings, improve customer experiences, and drive engagement not only with digital wallets, but also with the institution itself.
The future of business will be digital. There is no getting around that, and as more and more consumers begin using digital wallets to purchase any number of products and services, businesses and financial institutions will be in a better position to compete if they enable this payment option.
