Digital Wallets Gain Payments Market Share

Many consumers don’t write paper checks at all, thanks to modern payment technologies, and many others never use a physical credit card. For these consumers, the advent of the digital wallet makes payments faster, more convenient and paperless. Many people are switching all or part of their payment processes to their smartphone apps and related online tools.

The digital wallet is a type of smartphone app/online account that enables consumers to a) make payments at cash registers or online, b) securely store all needed bank account, debit card and credit card information and c) communicate wirelessly with cash registers/point-of-sale systems in stores. Most wallets also enable peer-to-peer (P2P) payments directly to the accounts of personal friends or family members.

Apple’s digital wallet is one of the most popular in this sector. This app comes included with Apple devices such as the iPhone. Users store their payment accounts’ information within the app. Then, their credit and debit accounts can be easily used with participating sellers, without the need for cash, paper checks or physical credit/debit cards. The digital wallet has the capacity to store other items for convenience, such as transit or concert tickets, student identification cards, boarding passes and/or loyalty cards (such as Walgreens rewards).

Apple’s own popular credit card is often used in conjunction with the digital wallet. Digital security is very high. When a user receives an Apple Card, they are given a unique iPhone identifier number. Every purchase made on the Apple Card requires both this device number and a one-time code that the iPhone’s digital wallet creates when the purchase is authorized. Purchases are authorized via Face ID, Touch ID or by inputting the password on the iPhone.

Security: Google’s popular Google Pay digital wallet offers another good example of the high level of security utilized in these systems, referred to as tokenization. First, a Google Pay user adds credit and/or debit cards to the Google Pay app. The app will request, from the bank issuing the cards, a token (a unique identification number) to represent the account, creating a “virtual” credit card. Google Pay then encrypts the newly tokenized card, making it ready for use. When a user taps the mobile device on a POS terminal or pays within a mobile app, Google Pay responds with the token and a cryptogram which acts as a one-time-use password. Google Pay can also store reward cards, transportation passes and other vital information. Users can also send and request money with Google Pay through email. Google Pay does not store a user’s physical credit card number in the app, and it requires a PIN for purchases over $100. If the phone is lost or stolen, a user can use the Android Device Manager online to instantly lock the device or wipe it clean of personal information. Some wallets can also be used to store IDs such as drivers’ licenses, and documents such as airline boarding passes.

Digital wallets are also seen as vital tools at major payments platforms including the parent firms of Zelle (owned by financial technology firm Early Warning Services) and Venmo (owned by PayPal). Early Warning Services announced a new digital wallet in early 2023 called Paze. It is expected that both the Mastercard and Visa systems will support Paze. Since Early Warning is jointly owned by a consortium of several of America’s largest banks, it is also expected that tens of millions of bank customers will be able to easily add their bank debit cards to their Paze wallets.

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