Whether it was a web browser that remembered you credit card or a millennial shopper buying a coffee with their smartphone, odds are you’ve probably come across some form of digital wallet during your shopping in the past year. Digital wallets are continuing to gain traction globally as well as in the Middle East and it’s slowly transforming the way we think about payments.
In this week’s post we’re going to be looking at what a digital wallet is, why you might want one, and what’s happening in the region right now that may lead to a digital wallet revolution in the coming years.
What is a Digital Wallet?
A digital wallet is pretty much exactly what it sounds like: a “wallet” that lives on a digital platform (such as a mobile phone or web browser) instead of in your pocket or purse. The technology provides a convenient way to organize your payment methods and ultimately pay for goods and services without the need to carry anything more than your smartphone.
Just like a physical wallet, digital wallets help to organize and manage your credit cards and debit cards as well as a wide range of loyalty club memberships and reward cards, all without the bulk of the physical cards. And digital wallets aren’t just about convenience, digital wallets can also help to cut down on fraud as they are generally harder to steal or copy than physical cards and cash.
How do digital wallets work?
Despite the complexity of what’s going on behind the scenes, from a consumer point of view the answer is a simple one. Consumers start by downloading their application of choice onto their device then load the card information they want to use to make payments.
And in 2019 that’s pretty much it… when you want to make a purchase using your digital wallet, you can either:
- Choose your wallet at an ecommerce checkout screen and select your preferred card.
- Tap your phone to a digital payment-enabled terminal at the participating merchants’ when checking out. Digital wallets use the same Near-Field Communication (NFC) technology current contactless payment to pay with a physical card.
The Case for Digital Wallets in the Middle East
When looking at the rise of digital wallets globally, there are three main factors that are currently driving demand: technology, demographics and innovation. For Middle Eastern markets, these factors are particularly interesting as many countries in the region are seeing dramatic transformations across all three that will have a major impact on the digital wallet usage in the coming years.
In terms of technology, the major driving force is the increasing penetration of high-end smartphone devices. As nearly all modern smartphones have the ability to act as a digital wallet, this trend has led to nearly ubiquitous mobile wallet penetration, even if many consumers are not using (or even aware of) the feature. At this stage the challenge is more about consumer education and incentivization than access to the technology.
In addition to the positive technological shift, demographics are also pushing in the direction of increased digital wallet usage. As millennials and Gen Xers increasingly expect their smartphone to power their lives (think social media, online shopping, travelling, and work), consolidating payments into the same device becomes an attractive and logical next step.
The third factor, innovation, is also taking hold across the region with an increasing population of entrepreneurs who are eager to solve old problems by leveraging new technology.
While the technology is still at the early adoption phase, digital wallets have already had a considerable impact on various aspects of the payment landscape. For retailers and ecommerce platforms alike, digital wallets are becoming a critical tool for managing payments.
For high-frequency businesses, like groceries and petrol stations, faster payment processing and a reduction in cash transactions has massive potential to improve efficiency. In restaurants, digital bill delivery and payment can accelerate table rotation and reduce staffing requirements. For retail, digital wallets allow for easier to implement loyalty programs and can even allow for more detailed consumer behaviour tracking.
With such a range of benefits to both consumers and the business communities, there’s little doubt digital wallets are here to stay.