Digital Wallet is a $10 Trillion Market: Here’s How to Profit From It
The convenience of paying for a product or service from a mobile or web wallet is nothing new. In fact, digital wallets have been with us longer than you think. The technology was only subtly used. That was until the pandemic of 2020 exposed millions of people to the convenience digital wallets offer. And where people go, money follows.
The Digital Wallet Boom
Every booming technology had a predecessor or something that laid some foundation. For digital wallets, it was the rise of smartphones, e-commerce and contactless payments. By 2019, digital wallets have already gone mainstream, and 79% of consumers worldwide are now using contactless payments, especially in Europe and North America. While the market was huge even then, the business was controlled by a handful of brands like PayPal.
Fast-forward to 2020, when businesses were forced to operate online, and cash was hard to come by, digital wallets were quickly adopted as a payment solution. Today, it is regularly used by a broad cross-section of consumers in-store and online, fueling growth at an insanely fast pace.
How fast? In 2019, a report by eMarketer had that the number of people using digital wallets was expected to reach 2.1 billion by 2023, up from 1.6 billion that year. But just one year later, in 2020, digital wallet users surpassed that ‘expected’ number, towering to 2.8 billion users spending $5.5 trillion globally!
The number is expected to double in 2025 to 4.8 billion users spending $10 trillion worldwide.
Source: Payments Industry Intelligence | Mobile Wallet Users by 2025
Why Digital Wallets? You Ask — The Benefits
One of the most significant advantages of digital wallets is their convenience. With a digital wallet, you can easily store and access all of your payment information in one place without carrying around multiple credit cards, debit cards, or cash. This not only makes it easier to make purchases, but it also reduces the risk of losing your cards or cash.
Digital wallets also offer a high level of security. Most digital wallets use encryption technology to protect your payment information and may require you to authenticate your transactions with a fingerprint or other biometric data. This makes it much more difficult for fraudsters to access your payment information, which is particularly important when making online transactions.
Another benefit of digital wallets is their versatility. Digital wallets can be used for various transactions, including online purchases, in-store purchases, and even peer-to-peer transactions. Many digital wallets also offer features such as loyalty programs and rewards, which can help you save money over time.
Compared to many payment methods, digital wallets are relatively cheaper. For example, sending money abroad through traditional methods can cost up to 10% of the transaction amount plus exchange rates. Also, transfer times can be long. By contrast, using a digital wallet to exchange currency, or pay someone in your network, can be instantaneous. And fees may be lower at less than 2%.
Similarly, investment firms usually transfer funds to and from their client’s bank accounts directly, but these transactions may take 2 to 5 business days. With a digital wallet such as PayPal, it could take only 1-2 working days to process at a 2.7% cost. Skrill offers the same service for just 1% within 1-7 days.
What are the Growth Drivers?
The rise of digital wallets can be attributed to several factors. Firstly, as more people use their smartphones for everyday activities, they would also use them to make payments.
Smartphones and mobile banking
Smartphones have been on the rise since the previous decade. With that rise comes mobile payment solutions like m-money and electronic money. In 2021 in Latin America, the use of smartphones jumped by 77% and is predicted to rise to 82% by 2025. This is significant as 70% of Latin Americans are either unbanked or underbanked, meaning that the reach of smartphones exceeds that of banking services.
Ahead of Latinos in Africa, with the most unbanked people using mobile payment solutions. Overall, 1.3 billion minors and 1.7 billion adults are underserved and unbanked globally.
Digital wallets loaded onto smartphones serve as a gateway to more advanced financial products for more people. They can empower individuals, economies, and societies by offering a convenient way to store digital value and make payments without cash.
Online transactions boom
Another factor driving the rise of digital wallets is the increasing number of online transactions. As more and more people are shopping online, digital wallets offer a secure and convenient way to make payments without entering your payment information every time.
Increasingly, customers want to purchase a wider range of products and services using their smartphones, not only at the point of sale but also throughout the entire discovery-to-decision journey. Storing value directly in a digital wallet on their phone makes this process much more convenient. This trend is predicted to continue growing in the future.
Adoption among young people
In addition, digital wallets are becoming increasingly popular with younger generations, who are more likely to use their smartphones for everyday activities. This demographic shift has led to a rise in digital wallets, as younger people are more likely to adopt new technologies and embrace new ways of handling their finances.
Here’s a 2021 report by Oppotus showing the average monthly e-wallet spending by Gen Z, Gen Y and Gen X in Malaysia.
Source: Oppotus 3Q2021
Digital Wallet isn’t Slowing Down
It’s clear that digital wallets are on the rise, but what does the future hold for this technology? One possibility is that digital wallets will become even more versatile and integrated into our daily lives. For example, digital wallets are used for everything from public transportation to vending machines.
Another possibility is that digital wallets will become even more secure as technology advances. Biometric authentication, such as facial and voice recognition, could become more widespread, making it even more difficult for fraudsters to access your payment information.
We could see digital wallets become even more popular with businesses as they offer a convenient and secure way to handle transactions. As more businesses adopt digital wallets, we could see a shift away from traditional payment methods, such as cash and checks.
Now we at the question, how do you profit from this $10 trillion potential market?
Accessing the ‘Wallet’ Opportunity
There’s a huge opportunity for savvy entrepreneurs or businesses looking to offer wallet solutions. Currently, there are 8 ways to tap into the market based on groups of digital wallets users:
- Instant Payouts: Offer instant payout wallets to gig economy workers like Bolt Drivers and freelancers. In Africa, instant payout wallets are booming, allowing Africans working for foreign employers to get paid in their local currencies on the spot.
- Payments and Check-outs: Online merchants rely on these wallets to let their customers store various cards, from debit cards to gift cards. This makes it easy for customers to make payments without including card information every time.
- Banking and unbanked: These wallets usually carry low KYC requirements giving access to finance to the unbanked and underserved customers.
- Super app: Superapp wallet solutions like Paytm offer more than seamless payments or digital-value storage. They are part of an ecosystem and can offer cashback. AmazonPay is another good example. A super app wallet is an excellent solution for building an ecosystem-like platform.
- Remittance: These wallets enable the storage, exchange and spending of multi-currencies. This is the ideal wallet solution for remittance, cross-border payments or forex businesses.
- Crypto wallets: Crypto wallets are relatively new, allowing the storage, spending, buying and selling of cryptocurrencies. These wallets can be made to accept fiat deposits and convert them into cryptos.
- Investments: These wallets are designed to let investors instantly collect proceeds from their investments (usually stock sales or bond returns). Etoro is a great example.
The access problem
While there is an opportunity, setting up a wallet solution or business requires a lot of consideration. First, you have to take the time to determine the need of target customers, your value proposition and how to monetise it.
Then you have to consider your capacity to deliver. A poorly implemented wallet solution will likely fail. Two groups of capacity questions to ask are:
- Internal technical resource:
- Do we understand the real cost of owning and maintaining a wallet infrastructure?
- Do we possess the technical capability necessary to build?
- Do we have the talent to sustain and assist with continuous improvements?
- Do we understand the market needs and the latest trends?
- Do we know what customers want from the solution we’re launching?
- Can we launch to market faster?
- What’s our buy model?
On average, it takes 12 months to build and launch a wallet solution if you’re building from scratch. The fastest has been 6 months. If you’re targeting a trending opportunity, time may be long before you launch.
Finslack Digital Wallet Solution allows you to build and launch your platform in weeks. We have built the infrastructure to start, scale and maintain digital wallet solutions, so you don’t have to. With 12 years of experience, we have partnered with leading compliance, BaaS and other service providers to ensure you launch to market with zero legal friction.
Finslack’s modular banking architecture, cloud-native infrastructure and customisable workflows offer the most flexibility to build and launch quickly.
With their convenience, security, and versatility, digital wallets offer a compelling alternative to traditional payment methods. Digital wallets and other forms of contactless payments will continue to be prevalent. Now more than ever is the opportunity to build the solution that will serve billions of customers, with Finslack helping you to profit faster.