The business of payments has been around for a very long time. The first instance in the annals of history refers to using barley as token money—way back in 3000 B.C.
After that, payments slowly evolved, with coins minted around 700 B.C. But paper money didn’t come into existence until the 17th century—a big time gap. And it wasn’t until the 19th century that electronic funds transfers were introduced.
But since that event, the timeline has significantly sped up:
1950s: Credit cards are introduced
1970s: Debit cards are introduced
1994: The first online purchase is made
1997: The first mobile and contactless payments are made
1998: PayPal is launched as a mobile payment company
1999: Internet card issuers enter the market
2003: Chip-and-pin cards are introduced
2007: M-PESA launches the first mobile payments system
2009: Bitcoin is developed
2013: WeChat Pay is launched
2014: Apple Pay is launched
All thanks to the lightning pace of technological developments around the world.
Global Payments Revenues Will Continue to Grow
Technology was the fuse to ignite the electronic payments industry, and then the pandemic rocketed it to the next level. Remember when merchants didn’t want your cash due to COVID and card readers started showing up at your restaurant table?
Just two years ago, the global payments industry threw off revenues of $2.4 trillion, which amounted to 3.4 trillion transactions, accounting for $1.8 quadrillion in value. The sector has been growing at a 7% CAGR, and while that initial growth has slowed a bit, it is still predicted to grow at a 5% annual rate, creating revenues of $3.1 trillion by the end of 2028. That’s big business—some 35% of total banking revenues.
The Six Trends That Will Boost the Payments Industry
As the electronic payments industry has advanced, I don’t have to tell you, the use of cash is declining, down about 20% (about 4% per year) since COVID. I usually carry about $20 in my wallet, but sometimes it stays there for weeks. I use my debit card for groceries and gas, and my credit card for all my business expenses. And as you can see by the following graphic, I’m certainly not alone.
The no-cash trend is escalating, due primarily to these technologies:
Embedded Payments within a variety of platforms and applications, which no longer require clicking through to a separate payment page.
Digital Wallets, with mobile-based platforms like Apple Pay or Google Pay, store your payment information to speed up and enable contactless transactions.
Contactless Payments, use near-field communication (NFC), such as a chip and antenna that transmit encrypted card information, so that you can tap your card or phone on the contactless-enabled card reader.
Real-time Payments, provide the instant transfer of funds between accounts. This sometimes seems like magic to me, as I worked in banking for a few years, and it wasn’t that long ago that it took 10 days for a check to clear!
AI-powered Fraud Prevention, predicted to be much more accurate than current card identification and verification and secure payment systems.
Digital Identity Authentication, relies on secure digital identity verification methods to enhance payment security, including knowledge-based, biometric, and two-factor authentication.
Digital Wallets: The Next Big Consumer Revolution
All of the above technologies are going to affect consumers and businesses alike, but I believe that digital wallets will have the biggest personal impact on the lives of consumers—at least in the near future.
A new study from Juniper Research forecasts that the total number of digital wallet users will exceed 5.2 billion globally in 2026, up from 3.4 billion in 2022, representing strong growth of over 53%.
So, let’s explore how that’s going to happen.
What Is a Digital Wallet?
Digital wallets are cloud-based electronic wallets or e-wallets and are used as payment systems for mobile devices. You’ve probably heard the term cryptocurrency wallet in terms of paying for crypto, and I’ll talk about that later in this article.
But essentially, digital wallets are a method you can use to make payments from your financial accounts via computer, smartphone or a smart device. And their usage is rapidly increasing among consumers.
The goal of a digital wallet is to allow safe transactions through online devices, retail point of sale (POS), ATMs, and even mass-transit turnstiles by using technology to protect your bank account information, credit and debit cards, and passwords. And a side goal—you can leave your real wallet at home!
Additionally, here are some other items commonly stored in a digital wallet:
- Boarding passes
- Insurance cards
- Hotel reservations
- Concert tickets
- Gift cards
- Coupons—I just tried this out at our new BJ’s store!
- Loyalty rewards cards
- Loyalty transaction cards such as Starbucks offer a digital wallet as well as a rewards app.
There are hordes of digital wallet providers, but Apple Pay, Google Pay and Samsung Pay are three of the most popular (keep reading for additional providers). Individual retailers are also entering the digital wallet realm with closed digital wallets that only allow payments to the wallet issuer. Walmart Pay is an example of a closed digital wallet.
Lastly, the banks are also getting in on the digital wallet action. According to the Bank for International Settlements, 94% of surveyed central banks are exploring a central bank digital currency (CBDC), and more than 30 already have pilot programs.
How Do Digital Wallets Work?
Ok; there’s some trust involved here. And as I’ve mentioned in previous issues, I’ve had some difficulty with PayPal, another digital wallet. I was hacked twice (credit card and bank account!) and finally got fed up, canceled my account, and removed the app.
But I’m willing to give it another go (but not with PayPal!). In order to use the wallet, you will need to enter your card information on the app or site. Your information will then be encrypted, and you will be permitted to use the wallet once you unlock your device and authorize the use.
If you want to know how the technology actually works, read on:
Quick response (QR) codes:
Here’s a sample:
QR codes are unique codes, similar to barcodes, that some apps use to take payments. You’ve seen them everywhere. I’ve used them to access menus when restaurants don’t provide a printed version and also to claim loyalty rewards. You just scan the code into your phone’s camera and then authorize the payment using your digital wallet.
Near-field communication (NFC)—see above.
Magnetic secure transmission (MST) uses magnetic waves to transmit data; think of it as similar to swiping your credit card’s magnetic stripe.
I’m sure you’ve “tapped” on a card reader recently. If your wallet uses NFC and MST technologies, you can do the same thing with your phone. Hold your device close to the payment terminal and look for the contactless payment indicator. It looks like a sideways Wi-Fi icon.
Some peer-to-peer payment apps, like Venmo or Zelle, allow you to send money to them via the app. And note that some retailers are not yet accepting mobile payments, so you may need to carry your cards around for a while longer.
But more widespread acceptance shouldn’t be too far in the future.
According to Capital One,
- 65% of U.S. adults said they used a digital wallet at least once in the past month.
- In 2023, 30% of point-of-sale transactions globally were made using digital wallets, more than any other payment type.
- Digital wallets led in online purchases globally, capturing 50% of transactions in 2023.
- In 2023, the global total value of digital wallet transactions was $9 trillion.
- 50% of global online purchases in 2023 were made using digital wallets, more than twice the 22% captured by the runner-up, credit cards.
- From 2023 to 2027, global digital wallet use is predicted to grow at a compound annual growth rate (CAGR) of 15% online and 16% at POS.
As to providers of wallets, the same survey reported that most users don’t just rely on one provider since different types of digital wallets offer different features and uses; 69% of Americans using digital wallets used PayPal the most, followed by Google Pay (56%), Apple Pay (53%), and Samsung Pay (52%).
Globally, the most popular wallets were Alipay, with 651 million users; WeChat, 550 million; and Apple Pay, 507 million.
And who are those adopters? As you may have guessed, Gen Zers—primarily those between the ages of 18 and 26—are the highest global users, since young folks have less fear about using new technology than those of us with, hmm, let’s say more miles on our tires.
The survey said that a whopping 91% of this age group use digital wallets for their primary payment method.
Geographically, Asia has the most users, with India leading the charge, where 90.8% of consumers utilize digital wallets, followed by Indonesia (89.8%) and Thailand (89.0%).
Here in the U.S., we are considerably behind, with just 46.7% of us adopting digital wallets so far, but as you can see in the graphic below, all age groups are beginning to see the value of using this kind of payment.
Transaction-wise, the global total of digital wallet transactions was $9 trillion in 2023 and is predicted to explode by 77%, to $16 trillion by 2028. And the most popular type is expected to be QR codes, accounting for 40% of all transactions (about 380 billion).
Artificial Intelligence Will Send the Use of Digital Wallets Skyrocketing
According to Global Payments, artificial intelligence (AI) automation tools are now taking digital wallet technology to the next level with “super wallets.” These wallets can utilize AI to recognize your speech so that your voice command can be used to transfer money, view account balances, order concert tickets, or pay for just about any purchase you want to make. Additionally, the AI tools will provide analytics to gauge your spending and payment habits.
You may not want to know how much you spent on groceries last week, or how often you sent your college student money, but you will have the tools to do so. AI will also keep you updated on your credit score trends.
Experts predict that the next step will be virtual AI assistants and embedded chatbots for customer support.
Pros and Cons of Digital Wallets
To be certain, there are both advantages and disadvantages to using digital wallets. These are courtesy of financemagnates.com:
Pros:
Convenience: Sure, I’d love to have one less thing (like a wallet stuffed with debit and credit cards and cash) to carry around, wouldn’t you? And I love the idea of quick and easy transactions. Statistics show that “80.6% of digital wallet users in the U.S. prefer digital wallets due to their speed; 76.9% prefer them due to their overall convenience.”
Security: Well, I’ve been known to leave my wallet in a shopping cart, and I know (from many hackings) that traditional credit and debit cards don’t seem that safe anymore. But because the majority of digital wallet apps use biometric authentication (like fingerprint or face recognition) and encryption, they are deemed safer, making the thief’s job a bit more difficult.
And digital wallets have one more important feature to enhance security: tokenization. Tokenization disguises your sensitive data—card number, expiration date, and security code—by generating a unique number called a token. Instead of your specific card information being sent through the transaction process, the token is used to make the payment.
That way, even if a hacker were to intercept the token, he wouldn’t have the necessary details to steal from your card.
Additionally, digital wallets often include additional layers of security, such as a fingerprint scan, facial recognition, or password protection.
Accessibility: I do love the idea of storing all my payment and loyalty cards in one place. Right now, I have a wallet stuffed with cards, as well as a key ring full of loyalty cards. Yes, I’m ready to downsize my purse!
In addition to those advantages, many digital wallet apps include rewards and discounts for using their apps to make purchases. You may get cash back or points that can be redeemed for gift cards or other inducements. And the more you shop, the more you stand to benefit!
Cons:
Not widely accepted at many merchants. Digital wallets will eventually proliferate throughout the economy, but we’re not there just yet. The Capital One survey reported that “51% of digital wallet users have stopped shopping with a merchant that only accepted traditional payment methods,” and “47% of Americans report spending more with digital wallets than with physical cards or cash.” Good to know if you are a retailer!
Technical issues: You know how it is; all new technology has challenges, such as software bugs, network failures, or device malfunctions, which can create difficulty in using your digital wallet to make payments.
Security concerns: While digital wallets were created to be more secure than carrying around a purse filled with cards, the security is not perfect. Security technology always tries to keep up with the hackers and cybercriminals, but somehow, they always seem to be a step ahead. Consequently, it’s essential that you take all the possible identification and verification steps to secure your wallet.
Dependence on technology: Well, you have to have a smartphone or an internet connection to use digital wallets. Fortunately, 60% of the world has a smartphone. If you lose your phone, though, you are going to have a tough time checking out at a retailer with your digital wallet.
Top 10 Digital Wallets
There are many sites on the internet that provide ratings for the best digital wallets. I ran across this one from Fintech magazine and thought it was pretty comprehensive in its description of each wallet’s services. I’ve also included some additional comments I found on Geniusee.com.
10. Amazon Pay enables partner companies to embed a payment function on their websites for customers to pay for products and services. Amazon Pay supports several payment functions, such as Single Euro Payments Area (SEPA) payments in the EU and Society for Worldwide Interbank Financial Telecommunication (SWIFT) payments globally. With no monthly commission for use, Amazon Pay offers low transaction fees, a high level of security and a simple registration process that takes no more than a few minutes. The Amazon Pay system allows users to make payments in their national currency with further conversion into U.S. dollars at the average rate.
9. Samsung Pay is the digital wallet for those with Galaxy devices—including smartphones and smartwatches. Samsung Pay allows shopping at virtually any location that accepts contactless payments. Utilizing Samsung’s contactless payment technology is effortless; users simply need to add their cards to Samsung Wallet and tap to complete transactions. Every transaction benefits from bank fraud protection and requires authentication via either fingerprint or PIN. Additionally, tokenization enhances security by adding extra layers of protection.
The company promises “defense-grade security” through Samsung Knox, the company’s security and management system preinstalled on most Galaxy devices.
8. Zelle is operated by its parent entity, Early Warning Services, which is owned by major U.S. banks. Zelle was introduced as the replacement for the clearXchange payment platform in 2017. With Zelle, users can effortlessly transfer funds to friends or family using just an email address or U.S. mobile phone number. This is done directly through a banking application regardless of who a person banks with. With translation processing taking just minutes, Zelle’s popularity has only been growing, and today it is integrated with over 2,000 U.S. banking applications.
Zelle also promises your money back “if a scammer or hacker gains unauthorized access to a bank account” and that “victims can work directly with their bank for a refund.”
7. Alipay e-Wallet helps businesses connect with their customers across the globe. Powered by Alipay’s technology, Alipay e-Wallet provides seamless payment collection and a convenient customer experience. Alipay offers a diverse portfolio of market-preferred payment methods, flexible and scalable integration options, efficient cross-border and multi-currency settlement and leading financial technology that safeguards every transaction. Today, Alipay, whose parent company is Ant Group, has a range of products and services. It now serves more than 1.2 billion users worldwide and works with over 250 overseas financial institutions.
6. Venmo, in recent years, has emerged as synonymous with transferring funds among friends and family in the U.S. (I’m sure you’ve heard, “Just Venmo me.”) Originating as a basic SMS platform for monetary exchanges, Venmo has transformed into a social payments application and has introduced a host of features. These include capabilities for dividing expenses and offering exchange experiences, as well as payments alone. Venmo was founded by college roommates seeking an improved method of transferring funds among themselves in 2009. Today, it has 60 million users and processes hundreds of millions of transactions across the U.S. Venmo is wholly owned by PayPal.
Venmo is free and very consumer-friendly, but it’s also used by some small businesses to receive digital payments.
Venmo is indeed its own social network as you can view and comment on your friends’ transactions (not sure I would like that!).
5. PayPal Digital Wallet is one of PayPal’s most popular products. The digital wallet is useful when making purchases from foreign online stores, thanks to the fintech’s international brand recognition. Storing funds in the wallet also allows consumers to access those funds from anywhere in the world, and bank accounts can be directly linked to PayPal to negate the need for consumers to keep topping up their accounts. With easy registration, PayPal’s services have long been favored among countless consumers.
PayPal also allows you to send money to friends.
4. The Dwolla Balance offers digital wallet-like services for businesses. Money is transferred through the company’s financial institution partners, which include major U.S. banks such as Bank of America. Users can send payments via automated clearing house (ACH), real-time payment (RTP) or to a debit card with push-to-debit. With Dwolla, businesses can transfer money and complete purchases more easily than ever before.
Dwolla works best for U.S. residents, as it may be tough to withdraw funds in other countries.
3. Cash App was initially designed to simplify peer-to-peer transactions. It began as a straightforward solution with a singular focus. However, today it has transformed into a multifaceted financial platform catering to nearly 50 million active users, providing various services, such as Afterpay (Clearpay). Launched by Block, Cash App facilitates swift and convenient contactless payments for Cash App users. This method enables customers to make payments to merchants effortlessly by scanning a QR code, whether at physical locations or online.
Geniusee.com says that Cash App “has reached a key milestone in the development of Bitcoin payments and has become the most popular app in the finance category on the Google Play Store in the U.S., surpassing PayPal in terms of downloads.”
2. Google Pay, formerly Google Wallet and Android Pay, the Google Pay we know today was born in 2018. Google Pay offers an easy way to pay on various websites, within apps and also in stores using cards saved to customers’ Google accounts. Today, shoppers hoping to use Google Pay when they check out need only to look for the relevant icon, with no internet connection required for in-person transactions. Google is vocal about its efforts to protect payment information using industry-leading security technologies, allowing customers to pay with peace of mind.
Google has its own Google Wallet Card debit cards that can be used at ATMs to withdraw funds and to pay for in-store purchases. It’s only available for U.S. transactions.
1. Apple Pay is the most dominant and widespread digital wallet on the market. It has become synonymous with contactless mobile payments and facilitates the leading amount of mobile payments in countless markets. It has almost become a synonym for contactless payments, as it dominates these markets. The iPhone—in which Apple Pay is already included—remains the most popular smartphone on the market, and a growing proportion of users are activating the feature, making the most of its simple, tap-to-pay functionality. Apple Pay is a fast, easy alternative to cards and cash and can be set up in a matter of seconds for use on iPhone, Apple Watch, Mac, and iPad. Launched a decade ago, the payment method is accepted on millions of websites and apps.
To accompany its digital wallet, Apple has released a digital-first credit card designed to be stored in and used with your Apple Wallet.
The Apple Pay system operates on (NFC) technology, inside distances of up to 20 cm (about 7.9 inches). It features the Secure Element chip, which securely stores bank card information in an encrypted format while running a dedicated Java application for added safety and efficiency.
Cryptocurrency Wallets Are Growing at a Double-Digit Rate
I mentioned crypto wallets earlier in this article. Crypto wallets and digital wallets are not the same thing. You would use a digital wallet for everyday purchases but would only use a crypto wallet to buy cryptocurrency.
However, the two wallets do work similarly. The crypto wallets interface with business and financial services that accept cryptocurrency, and the crypto wallets then function as digital wallets.
Let’s look at the details.
Crypto wallets have proliferated with the popularity of the currency, and there are more than 84 million wallets on Blockchain.com, one of the most popular wallet providers.
The crypto wallet market is estimated at almost $8.5 billion and is forecast to grow at a CAGR of 25% from 2023 to 2032.
A crypto wallet is basically a software application used to store your cryptocurrency (which is not really money, but bits of data that add up to some monetary value). Instead of holding cash and credit cards, it holds the address and passkeys you use to sign for your cryptocurrency transactions, and it also provides the interface, such as random number generators and cryptographic primitives, which lets you access your crypto. The wallets use the internet in order to access the blockchain network that your cryptocurrency uses.
A blockchain, as defined by blackduck.com, is “a distributed database that maintains a continuously growing list of ordered records, called blocks. These blocks are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.”
By using crypto wallets, currency owners can easily send and receive their cryptocurrency. Like digital wallets, crypto wallets often have integrated QR codes and near-field scanner technology that allows you to scan a code, select an amount, enter your key, select the transaction fee, and click send.
There are two main types of crypto wallets: custodial and noncustodial.
Custodial wallets (also called online wallets) are hosted by a third party (sometimes a crypto exchange) that stores your keys for you.
Noncustodial wallets are the most common type and are wallets in which you are responsible for securing your keys.
And there are also two subcategories of wallets: hot and cold. A hot wallet has a connection to the internet or to a device that has a connection, and a cold wallet has no connection.
Finally, there are three subcategories of wallets—software, hardware, and paper. And they can be hot or cold.
Crypto Wallet Security
As cryptocurrencies are very tasty to hackers, you want to make sure that your wallet is safe and includes encryptions, a strong password, two-factor authentication for exchanges, and storage for any large amounts you have offline.
Investopedia.com says that “most crypto wallets generate a twelve-word mnemonic seed phrase. An example phrase could be ‘airport bedroom impression sample reception protection road shirt...’ which seems random but is created and linked to your keys by your wallet. You can use the phrase to restore the wallet if the device is lost or damaged. These words should be carefully stored in a safe place because anyone who finds them will be able to access your cryptocurrency.”
The Best Crypto Wallets
Like with digital wallets, there’s a variety of ratings for crypto wallets. Since I am no expert on crypto, I’m going to give you several of the websites that feature ratings and let you decide for yourself if they meet your needs.
Coinledger.io compares hardware and software wallets.
Nerdwallet.com ranks hot wallets.
Money.com features wallets of the companies with whom they partner.
Investopedia.com offers a selection of crypto wallets to compare based on number of currencies, exchanges, fees, hardware, etc.
Ideas for Investing in Wallets
Many of the digital wallet companies are still privately held. Of the public companies, these four caught my eye. They are established, growing, and two pay dividends! The crypto company, of course, is more speculative, but offers an entre to the cryptocurrency markets.
Company/Symbol | Price ($) | 52-Week Range | Dividend Yield (%) |
Apple Inc. (AAPL) | 222.64 | 164.08 - 260.10 | 0.43 |
Alphabet CL A (GOOGL) | 198.05 | 130.67 - 202.29 | 0.41 |
Paypal Holdings (PYPL) | 89.77 | 55.77 - 93.66 | N/A |
Coinbase Global Inc Cl A (COIN) | 294.19 | 114.51 - 349.75 | N/A |
The bottom line: Americans have not kept pace with the digital wallet adoption around the world, but we are rapidly making up for it. And whether you choose to invest in a company that offers wallet technology, or just tiptoe into the industry by creating and using your own wallet, there’s no doubt in my mind that the convenience and security protocols offered by the technology will compel all of us to begin using digital wallets at some time in the near future.