Mobile Wallets

Attracting the digital consumer

Customer expectations are being set by Bigtech. Mobile is the engagement tool of choice. COIVD-19 has accelerated this.

By 2025, it is forecast that wallets will be the second-most preferred method of payments after cards and the most preferred method among millennials [1]. It is expected there will be 70.6m users in Europe by 2023 [2]. It is highly likely over the next five years that mobile will replace contactless cards as the preferred payment method. Jupiter Research reports that spending via digital wallets will exceed $10 trillion in 2025, up from $5.5 trillion in 2020, a rise of 83% [3]. China serves as good case study as today, just under half of in-store purchases in China are made via a digital wallet, way above the levels in developed markets.

Most users (excluding baby boomers) use digital wallets to store debit and credit cards, pay bills and transfer money to and from bank accounts. These are all core banking functions.Most users (excluding baby boomers) use digital wallets to store debit and credit cards, pay bills and transfer money to and from bank accounts. These are all core banking functions, but banks are losing out.

The evidence is that the FinTechs (e.g. Paypal) and BigTech (Apple Pay, Google Pay, AliPay, WeChat Pay) are winning the battle, about 40% of top retailers offer Apple Pay on mobile and 43% via app [8]. JPMorgan has pulled its Chase Pay digital wallet as only 1% of online merchants accepted it [5], instead US banks are banding together to launch their own digital wallet [6]. There is still a long way to go as Apple Pay, eight years after its debut, has captured only 2.4% of in-store transactions and recent holiday season shopping data showed that Apple Pay had been used in 12.7% of online transactions [7].

Players are already battling beyond just the wallet, instead thet want to be the front door “super app” to the consumer and/or the merchant. The idea of a single app to integrate payments, banking, messaging, mobility and more. Here again BigTech is out in front, according to PYMNTS data, the one-third of consumers who said “sign me up" when it comes to super apps said they’d trust Google (45%), followed by Amazon (29%), Apple (27%) and PayPal (22%) to deliver that experience [8]. However governments may consider super apps as being too powerful, as recently the Chinese government is pushing back against the power of Alibaba/Ant and Tencent and starting to force less integration between the social, commercial and financial services elements.

Delivering end-to-end digital experiences will require the integration of networking, cloud, AI & analytics and security.

Digital Currency

Replacing physical cash

A cryptocurrency is a digital “asset” that uses peer-to-peer networking, so it is decentralised and broadly accessible. The asset is a digital “token” with no backing or intrinsic value. The concept of cryptocurrency started around thirty years ago but since 2011, cryptocurrencies have gained momentum from investors and captured media attention, particularly after bitcoin prices rose dramatically in 2013.

In the long run, a digital currency could eventually replace cash, especially central bank digital currencies (CBDCs). This could take two forms: (a) a widely accessible electronic currency available to the public for retail transactions; or (b) an electronic currency restricted only to large business transactions.

Central banks representing over 100 nations  are exploring CBDCs and all G7 economies have now moved into the development stage of a CBDC [1]. The Bahamas became the first country to launch a general purpose CBDC, known as the Sand Dollar, in October 2020 [2]. The People’s Bank of China expanded a trial of a digital renminbi to its three largest urban regions, which together contain 400 million people, in August 2020 [3]. The ECB is also in the process of creating a digital Euro [4], as cash payments in the euro area have dropped from 72% to 59% [5].

Leverages cloud, AI & analytics and security.