Digital wallets: what they are and why your company should have one
When it comes to payment technology, digital wallets have become all the rage and can help your business grow.
Technology has created new ways to buy and sell, generating ecosystems that provide ease, convenience, and access to consumers. A good shopping experience is sought at every stage of the process, and now more than ever, cell phones are being used to attract new audiences, especially with digital wallets.
Processes that attract new consumption habits are drawing attention. Digital wallets have attracted a new consumer profile, mainly due to their convenience.
Read on and discover why digital wallets are what companies are betting on, how they work, and the primary payment methods.
Why are digital wallets booming?
Digital wallets, or e-wallets, have attracted market attention. Startups and large companies are using this technology to expand their area of operation and attract larger audiences.
In the payment landscape, the pandemic has led consumers to prioritize digital payment options, including digital wallets.
In the beginning, e-wallets were just a way of storing information digitally. Today, they allow for services such as payments, transfers, cashback, loans, and investments. All this through a single app.
The technology has been linked to faster and more secure transactions, in addition to offering a new layer of possible services.
How do digital wallets work?
Digital wallets are applications that store payment data, such as credit or debit cards and even cash cards in electronic form. It can be used to carry out transactions both online and in physical stores.
E-wallets work through tokenization technology. It transforms card data into tokens. Once the card data is saved onto the app, the token is stored and used to make purchases.
In e-commerce, digital wallets facilitate the checkout process.
Transactions are authenticated with a password generated on the spot, or via digital recognition, without filling in your card details.
What payment methods are there?
Payment methods can be defined as the path that customer money takes to reach your business. It is essential that companies understand each step of this process.
1. Bank slips
A widely used payment method is bank slips. This format has the advantage of being accessible since the consumer does not need to have an existing bank account, credit, or debit card.
It’s also an inexpensive option for those issuing the document. In addition, your payment can be made very easily, whether at stores, ATMs, or online.
For companies to issue payment slips, they must have an open checking account at a bank and have a collection portfolio linked to that bank.
2. Debit and credit cards
Clearly, this is the most used payment method.
Accepting cards as a form of payment is essential. Not accepting debit or credit cards is generally considered to be a “bad move.”
3. Digital wallets
Payments made through digital wallets such as PayPal and Apple Pay, among others.
As we’ve already mentioned, these are applications that store credit and debit card data and enable online payments in just a few clicks.
4. Automatic debit
When a product or service is used continuously, its payment can sometimes be set up through automatic debit transactions.
Streaming subscriptions, gym memberships, and other monthly fees are all classic examples of situations where automatic debit payments are made.
It works by deducting the correct amount without compromising the customer’s limit, leaving you free to use the rest as you wish.
5. Cash
In physical stores, cash is still a widely used form of payment. This means of payment is driven mainly by unbanked individuals, people who do not have a bank account.
The advantages of accepting cash include the lack of transaction fees and accessibility for those not in the banking system.
6. Payment gateways
A payment gateway is a service intended for online stores. It is maintained by a financial operator that authorizes payments for transactions made online.
The payment gateway handles the exchange of bank details. It makes sure that payment takes place between the seller and buyer in an encrypted fashion, with all information remaining confidential and secure.
7. Wire Transfers
Wire transfers are generally used for larger sums of money and take a longer time to process and actually arrive once sent.
There is also the possibility of conducting instant wire transfers, which has become much easier due to the climate of data sharing between financial institutions (open finance).
Trends in the payment market
Fintechization: the movement that will revolutionize the market
A growing number of startups have expanded their financial services portfolios, opening a new front in the market. The trend was labeled the “fintechization” of the market.
Fintechs are startups focused on using technology to solve financial issues. Asset decentralization is already taking place. Banking services are being made available by companies from various sectors. This is possible through Banking as a Service (BaaS) platforms.
Over the next few years, we will see an increase in the number of banks offering features and functionality on platforms developed by fintechs, like online investment applications.
Open Banking
Open banking is a new business model that promises optimized processes in the financial market and improved user experiences.
Financial institutions have a working model where all services and applications are created and managed in-house. Open Banking is a business model that works a little differently.
In summary, the main idea is to allow third parties to develop applications around financial institutions. These banks would have to open up their APIs — a set of programming patterns that will enable you to build applications or interfaces.
Contactless payment
The coronavirus pandemic has changed the way people pay their bills and make purchases. Touchless payments have been gaining popularity as a result.
In the first quarter of 2021 alone, there was a 372% increase in the use of contactless payments compared to the same period last year.
How to prep for the deployment of new payment technologies?
There is a growing interest in new forms of payment. Consumers are learning to live in a more dynamic and technological environment and are looking for safer and smarter ways to buy and pay.
The changes in behavior caused by the pandemic are becoming permanent and giving rise to a new customer profile—the ability to make a purchase anywhere and at any time. Convenience is the new gold standard.
That’s why companies need to be prepared for this new potential customer.
A recent study showed that customers who use digital wallets spend 23% more than those who don’t.
New payment technologies are increasingly accessible to businesses. The expansion of these services is mainly due to the growth of e-commerce. And also the rise of fintechs, which adopt an aggressive policy to win over entrepreneurs, reducing or even removing fees.
Convenience Economy
With all this technology-related behavioral change, it’s possible to conclude that companies that don’t fit the mold will lose market share.
Adopting new payment methods, diversifying offers, and generating multiple options for your customers is undoubtedly a vital practice.
Financially successful companies are pioneers, especially in offering digital payment, as they are aware that this procedure is the most unsatisfactory step for consumers.
With more practical, convenient, and digital means of payment, people tend to consume more and feel more satisfied when they complete a purchase.
The main benefit of digital wallets is the simplification of the payment process. Customers save time and avoid headaches by not taking their wallet out of their pockets or typing in their pin.
The future of payment methods: could the end of cards be near?
In 2020, non-face-to-face financial transactions grew by around 32%.
With the advancement of the Internet of Things (IoT) and other technologies, indications are such that the transformation of payment seems to be going far beyond what we predicted. The evolution of consumption doesn’t stop here, and the trend is that purchases will become faster and simpler.
Less paper money and cards, an increase in digital payments, expansion of digital wallets, enhanced payment security, and the use of Artificial Intelligence for biometric authentication are just some of the market predictions.
Investing in these forms of payment means taking your first steps towards the future, attracting new customers, and retaining them.
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