Mobile wallets aren’t going anywhere, and here’s why…

In a pre-pandemic world, mobile wallets struggled to compete with the penetration rates of alternative - more embedded - payment methods. But then COVID happened, and it caused the payments landscape to shift.

Moorwand Team

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In a pre-pandemic world, mobile wallets struggled to compete with the penetration rates of alternative – more embedded – payment methods. According to Capgemini’s World Payments Report, there were 708.5 billion non-cash transactions in 2019 globally. But just one billion of these were via mobile wallets.

Whilst a staggering 81% of Chinese consumers were using AliPay in late 2019, just 9% of America’s population had adopted Apple Pay. In the UK, there were 8.3 million mobile payment users – that’s just 12% of the population.

But then COVID-19 happened. It caused the payments landscape to shift. “All of a sudden, we’re seeing players jump in to say: ‘Hey, we think there’s an opportunity to play in this space,’” Brett Narlinger, Blackhawk Network’s head of global commerce, told PYMNTS.

Growing faster than cards

Even before coronavirus, the growth of mobile wallets was double that of credit and debit cards – even if the latter still holds a greater slice of the payments pie today. According to JP Morgan, 29% of UK ecommerce transactions in 2019 were made with an e-wallet, pointing to where the majority of growth is happening.

Since then, data gathered by Buy Shares UK suggests mobile wallet payments increased by a whopping 50% during 2020. The UK is the largest digital payment market in Europe, accounting for a hefty 25% of the region’s total digital transaction value – which is just over $164 billion.

On a Q3 earnings call, we saw PayPal’s CEO Dan Schulman claim confidently that the rise of digital – which included mobile – wallets will drive the fintech giant’s growth over the next decade. PayPal’s active users have quadrupled in the last ten years, which bodes well for the firm’s next ten.

Post-pandemic shift to contactless

So far during the pandemic, the UK has experienced two calls for the contactless card limit to increase. The first call was implemented EU-wide in April. The second, called for by UK Finance, would just apply to the UK. Currently, the contactless limit sits at £45, but could be raised as high as £100.

Mobile wallets already enjoy the advantage of higher transaction values, because they aren’t beholden to the contactless card limits. This is down to the extra security embedded in an app, as opposed to a card, which is much more easy to use once stolen.

Whilst these contactless card limit increases might not seem to directly impact mobile wallet usage in the UK, they do indirectly help to change consumer behaviour. Not only do they boost spending frequency via contactless methods, they also encourage consumers to spend more using technology they once didn’t trust. In the US, a third of American consumers have used a contactless payment since the pandemic began. This is expected to increase eight fold in just the next three years.

Customer expectations

There’s a number of reasons why consumers like using mobile wallets. Data from Capgemini suggests ‘ease, convenience and speed’ are top of their list – regardless of age group. Mobile wallets still offer a breadth of opportunity here, specifically around rewards. The more a mobile wallet can act as a centralised hub for payment solutions and the benefits that come with them, the more it seems they will grow.

We’re seeing this ease of use translate into different market opportunities. One such is the demand for wearables. A study by Ericsson ConsumerLab shows 74% of people understand the benefits of multiple wearables and sensors – devices which have been converted into payment mechanisms over time. The same survey suggested that last year, smartphone users were ready to ‘wear at least five wearable devices’.

Benefits for merchants

 For merchants, mobile wallets offer a host of perks. They reduce cart abandonment, increase conversion and acceptance rates – which in turn boosts sales – and they generate significantly lower chargeback rates compared to ordinary card transactions. Data analysed by Worldpay, spanning from Q4 2018 through to Q1 2020, showed that the value of US digital wallet transactions were 25% greater than ordinary card transactions in 2019.

Higher acceptance rates via mobile wallets are largely down to the better level of security inherent in an app in a phone which is password and fingerprint protected. Mobile devices also use two-factor authentication and card details in a digital wallet are already tokenised.

Other perks people often forget include e-receipts, which save merchants buying receipt rolls. And the customer loyalty and engagement aspect. Around 69% of consumers are more likely to use a loyalty card if it’s on their phone, as opposed to another piece of plastic cluttering their wallet.

A more tech savvy generation

 The developments of new technologies like 5G, as well as the growth of payment services like Samsung Pay, Apple Pay and Google Pay – all of which are Moorwand partners – aren’t just happening for fun. An increasingly tech savvy audience are demanding their creation and growth. According to FIS data from last summer, some 45% of US consumers have a mobile payment wallet – with PayPal, Venmo, Apple Pay, and Zelle being the most common.

But it’s not just the big players making the most of this demand. For example, German fintech start-up Stocard – a Moorwand customer – now has 50 million users globally. It recently launched in the UK, where almost €56 billion is transacted annually via mobile commerce. That’s according to Marco Grossi, Stocard’s VP of Sales who joined from Facebook.

Europe runs its own race

 European mobile wallets still hold a much smaller fraction of the wallet than cards. As Chris Skinner said in one of his blogs last year, in Europe mobile wallets need to create value for all parties, and monetise the ecosystem – not just the product.

“It’s no good trying to replicate the world of paying onto a mobile wallet,” says Skinner. “You need to create a new ecosystem of value, where payment is the side-product and not the end-goal. This is what the Chinese got right, and the USA and Europeans got wrong.”

Discover more insights from Moorwand by reading our other articles.

To find out more about Moorwand’s Issuing (Bin Sponsorship), Digital Banking and Acquiring – head to our payment solutions page or get in touch.

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