Explore the world of digital wallets – how they work, why they’re so popular, and how merchants can accept digital wallet payment methods across multiple markets.
It’s no secret that mobile devices are having a bigger impact in global e-commerce. Over half of online retail in many major markets now takes place via smartphones or tablets. And while much of the conversation around mobile commerce rightfully tends to focus on the experience of shopping and selecting products, optimizing the mobile checkout process is also becoming an increasingly critical piece of the e-commerce puzzle.
Digital wallets help make it easier for customers to make purchases online using their mobile device, by eliminating the need to repeatedly enter card or bank account details, and providing more convenient methods of payment. But despite growing consumer demands, lots of merchants still aren’t offering many popular wallet products at checkout.
Research shows why this is a mistake: almost two out of three consumers will abandon their cart if they cannot pay with their preferred payment method. So how can merchants ensure they are optimizing the customer experience on mobile all the way through the checkout and payment process?
This guide explores the ins and outs of digital wallets: how they work, why they’re so popular, and how merchants can better integrate this important payment method into their e-commerce business.
How does a digital wallet work?
Advantages of digital wallets for merchants
Which digital wallets are popular today?
Regional variations in digital wallet adoption
How to accept more digital wallets in your e-commerce business
A digital wallet (or e-wallet) is a mobile application that takes advantage of the unique capabilities of mobile devices to improve access to financial products and services. By securely storing payment information, digital wallets allow customers to pay with the help of their mobile devices. There’s no need to enter credit card details or use other online payment methods.
E-wallets allow customers to quickly pay for online transactions. They’re easy to use and more secure than traditional online payment methods. Some digital wallets can store several items, such as gift cards, e-vouchers, and e-tickets. E-wallets also open the door to one-click payments, delivering a similar experience to the card stored in an account (card on file), but without forcing customers to set up an account with each new merchant. There’s no need to enter card details on the checkout page, since they’re saved in the customer’s digital wallet.
Mobile wallets are becoming immensely popular across the globe thanks to their convenience. Like many recent e-commerce developments, the latest jump in the adoption of digital wallets occurred during the pandemic – while e-wallets represented 50-55% of all digital transactions in 2020, their penetration is predicted to reach 75% by 2025. By 2031, digital wallet market share is projected to be worth some $16.2 trillion.
Setting up a digital wallet is straightforward. Mobile users enter their credit card, debit card, or bank account information into the wallet application (such as Apple Pay, Google Pay, etc). The information is then stored in the application for future use.
Wallets support contactless payments (for point-of-sale transactions), and can also be used to make online payments more efficient. In addition to reducing the need for customers to manually enter their credit card details, wallets can also enable customers to carry out one-click/one-tap payments – making checkout even more efficient.
At the back end, the wallet application instantly transmits the customer’s payment data securely to the merchant.
Online merchants know that abandoned shopping carts are one of the most frustrating parts of owning an e-commerce store. But they also present an opportunity to capture more potential sales from an audience that is clearly showing interest.
One of the biggest reasons behind cart abandonment is friction during checkout. Entering card information on mobile devices can often seem inconvenient, and more so if the page isn’t optimized for mobile. Digital wallets offer a smoother alternative, allowing customers to breeze through the checkout process.
Digital wallets help merchants to optimize their checkout process by allowing customers to complete the payment process with the payment information already on file in their wallet. This reduces the time it takes for customers to finish the purchase and increases the conversion rate at checkout.
Mobile wallets also offer shoppers convenience in the form of multiple payment options – whether they want to pay with a native mobile wallet or a physical debit/credit card linked to their smartphone. Providing customers with such a hassle-free experience is critical to increasing conversion rates in any e-commerce business.
Data security is a top concern for online shoppers. And the good news is that digital wallets add an extra layer of security to online transactions. Because payment data is stored and accessed via the customer’s wallet, customers do not need to worry about the security of leaving their data with a new or unfamiliar merchant.
A digital wallet can offer numerous ancillary benefits to customers, including special offers and rewards. These benefits can range from cashback to other kinds of incentives, allowing merchants to maximize engagement with every transaction. Merchants can also take advantage of digital wallets to send personalized offers to customers. This is a great opportunity for building sustained brand awareness and upselling.
Here is a rundown of some of the most popular e-wallets around the world:
Although the digital wallet landscape is filled with many household names in tech and e-commerce, merchants can’t necessarily take it for granted that globally popular e-wallets will always be the most important in any given region (much like payment methods in general).
Many countries and regions have specific digital wallet products that might not necessarily top the list of global e-wallets, but are still among the most important local payment methods in their specific location.
Cross-border merchants in particular should make sure that their payment system allows for accepting a wide range of local payment methods, including e-wallets, in order to appeal to the broadest possible share of consumers in new markets. Check out the infographic above for a summary of popular digital wallets in emerging markets.
Asia is a major digital wallet market, with the share of mobile transactions projected to reach $5.7 trillion by 2025. The region dominates in mobile wallet usage, even if its growth rate will be relatively slower than in other continents.
Africa and the Middle East represent the second biggest mobile wallet market after Asia, expected to increase by 147% between 2020 and 2025.
In Europe, the digital wallet market is expanding and will reach $708 billion in 2025, driven by developments in the UK, Germany, France, Spain, Russia, and the Netherlands. Larger Eastern European countries such as Poland and Romania are also steadily gaining more market share in digital wallets and will play a key role in driving the continent’s e-commerce growth in the future.
A recent report from McKinsey showed that 82% of customers in the United States now use some form of digital payment, including mobile wallets.
South America’s e-commerce growth activity is also set to boost the share of mobile wallets by a massive 166% between 2020 and 2025. This shows the incredible pace of changes happening across regions with a preference for alternative payments.
To implement digital wallets in a way that reduces friction at checkout, merchants should adhere to the following best practices:
One way for merchants to make sure they are offering the right digital wallets is to work with a payment solution provider that can enable a wide range of conventional and alternative payment methods depending on the market.
For cross-border merchants, tailoring the checkout experience is especially important. To win trust from customers in new markets, merchants must be prepared to offer the payment methods that shoppers expect. In many cases, these might be local or alternative payment method offerings unknown outside of their home market.
PayU enables access to hundreds of local, global, and alternative payment method options via a single global integration – ensuring that no matter the market merchants plan on entering, they can offer the payment methods that customers expect. This includes digital wallets ranging from the large global providers to alternative wallet products, like M-PESA, PagoEfectivo, and others that serve regional demand and play an important role in their respective locations.
Digital wallets have several advantages over physical ones. They allow customers to store their card or banking information in one central location, eliminating the need to re-enter payment details every time they make a purchase. And they provide an additional layer of security, since payment data is stored in the wallet instead of being entered into the merchant’s online store.
For merchants, digital wallets present a great opportunity for streamlining the checkout process to prevent cart abandonment while providing the payment options that customers look for. Merchants should consider the availability of digital wallet solutions when choosing a payment provider and make sure that the payment provider can offer a wide range of e-wallet payment methods depending on the market.
Although some digital wallets, such as Apple Pay and Samsung Pay, essentially act as vessels for existing payment methods, one growing e-wallet trend enables users to connect their wallet with cash-based solutions. This change has been especially prominent in Southeast Asia, Africa, and Latin America, where these “cash conversion” digital wallets have been gaining government support, helping foster greater financial inclusion.
In other regions, meanwhile, wallet use also continues to proliferate. According to a new report, in the next 12 months 80% of European customers anticipate using a digital wallet. 40% expect to do so frequently.