In the complexities of today’s economy, with a high level of income disparity, widely spread income volatility, and sub-optimal business investment, exacerbated by an ongoing global supply chain breakdown and increasing inflation worldwide, businesses are facing tremendous obstacles to generating growth and prosperity. Today we’re examining trends in digital payments with an eye to a future where businesses will be able to focus on what they do best.
How Innovative, Disruptive Technologies Are Changing The World Of Payments
The consumer-led experience is blending with the business-to-business (B2B) experience. Recent developments in technology – from Venmo to digital IDs, Netflix to Amazon, wearables, and apps – have changed our norms around the speed of transactions. Whether your product is consumer-facing, or B2B, customers, clientele, and business partners are all trying to speed up the process, and remove any and all pointless delays.
As a result, corporations are looking for ways to make payments easier. One example can be found in the now-ubiquitous tap-and-go technology for plastic cards. What we learned was that it is not that much easier to take a card out of your wallet and tap it than it is to take a card out of your wallet and swipe it or dip it. So while tapping the card was cool, it really didn’t remove friction. Fintechs went back to the drawing board and came up with the digital wallet. Experts predict e-wallet technology is going to continue to be developed in the next years, and see greater adoption in 2023.
E-Wallets Landscape Worldwide
The View From The US
Although mobile wallet use in the US is increasing, the card is still king when it comes to POS transactions. In 2021, just 11% of POS transactions came via e-wallets in comparison to a combined total of 70% for debit, credit, and charge cards. However, the e-wallet POS market share is expected to increase to around 15% by 2025, mostly at the expense of cash.
Online, e-wallet use is surging and is broadly equal to card spending. Both take up around 30% of the transaction share. This trend is expected to rise further and take over a third of the market by 2024, driven by the uptake of Apple Pay, Google Pay, and other “pass-through” mobile wallets (i.e., wallets that hold cards).
The View From The UK
The UK online and mobile commerce market is the most advanced in Europe, with just a small minority of non-digital buyers. As a result, e-wallets have been the main online payment method since 2020 in the UK, with most major retailers equipped to take payments via Apple Pay, Google Pay, and PayPal. Just over a third of UK consumers now have a digital wallet and as of 2021, e-wallets made up for 32% of all e-commerce spending. According to World Pay Global, this will rise to 34.5% by 2025. For POS transactions, e-wallets still have a bit to go and only make up around 9% of all transactions with debit cards (45%), credit cards (28%), and cash (11%) still leading the way.
Young(er) spenders are leading the way. Gen-Z and Millennial use of e-wallets is considerably higher than most, with 64% of the 18–34 age bracket using the payment method. That drops to just 18% amongst 54–65-year-olds. Expect usage to increase further as Generation Alpha (anyone born after 2010) reaches spending age.
In June 2022, the UK government announced plans to bring stablecoins (a form of crypto asset typically pegged to a fiat currency) within the country’s payment regulations. As the use of stablecoins and general crypto-currency increases, this should create opportunities for e-wallet providers to reach a wider market.
The View From Europe
E-wallet use is on the rise across Europe and is now the most used payment method in the region’s five largest e-commerce markets: France, Germany, Russia, Spain, and the UK. In 2021, e-wallets accounted for 26.7% of the continent’s online transaction value. This dominance is expected to grow with e-wallets set to account for up to 30% of e-commerce transactions in Europe by 2024.
Pre-pandemic, cash was still widely used across the continent. According to Global World Pay, in 2019, 40.2% of POS spending was cash. By 2021, it was down to 25.6%. E-wallets benefitted from this immensely, and in 2021 they accounted for 7.7% of POS spending, a share projected to nearly double by 2025.
Cash still rules in certain parts. There are huge disparities across the continent in terms of payment methods. In 2021, 4% of POS transactions in Norway were cash. In Spain, it was 47.1%. Success surely beckons for any e-wallet provider able to penetrate the cash-heavier markets.
The View From Asia
Asia was the first region in the world where the use of e-wallets took hold and that shows no sign of stopping – especially when it comes to online payments. E-wallet payments made up 68.5% of online APAC transaction value in 2021. This is projected to expand to over 72% by 2025, the equivalent to over US$3.1tn. This trend is driven primarily by huge uptake in China, where e-wallet payments accounted for nearly 83% of e-commerce transaction value in 2021. The numbers out of India (45.4%), Indonesia (38.8%), and the Philippines (30.5%), although much smaller, are still impressive.
Across the region, e-wallets also top regional POS payments. However, this is disproportionately concentrated in China, where e-wallets outperform all other POS methods, accounting for 51% of translation value in 2021. The reason for this is the now ubiquitous QR codes used for payments from dominant mobile wallets Alipay and WeChat Pay,
The region’s second-highest POS e-wallet penetration can be found in India. There, in 2021, e-wallets made up 24.8% of POS transaction value, less than half of China’s.
The View From Oceania
The e-wallet market in Oceania is growing, but online credit cards still reign supreme. In 2021, they accounted for nearly a third of e-commerce payment value. In contrast, e-wallets made up 25%. However, Global World Pay predicts that e-wallets will take the number one spot from credit cards by 2024. For POS sale transactions, just 11% of the payment value was made via e-wallets. This is projected to see 5% CAGR through to 2025.
One of the emerging trends is QR Codes. Late in 2021, it was announced that Australia’s Eftpos national debit card system was launching a QR code-enabled mobile payments and rewards network to enable “seamless payment experiences across e-commerce, mobile, and point of sale”. This has now been trialed in stores across the country. QR code POS payments have been particularly successful in China and the US.
At the end of 2021, the Australian government released its plan for “Transforming Australia’s Payments System” after almost two years of discussions by the Parliamentary Joint Committee on Corporations and Financial Services. E-wallets were covered extensively, with the reporting noting the development of all types of digital wallets in recent years.
What’s Next For E-Wallets?
What remains to be seen is how e-wallets will be used as the digital payments landscape evolves over the coming years. Buy now, pay later (BNPL), for example, is becoming one of the fastest-growing payment methods, especially in Europe and the UK. There’s already some overlap between the two payment methods, with PayPal offering credit and recently launching Pay in 3, mirroring one of Klarna’s flagship products. Apple has also announced plans to launch Apple Pay Later, their own BNPL offering.
This overlap will likely only grow as the implementation of embedded finance increases. According to one study, across the UK, Germany, and Belgium, 75% of retailers are using embedded finance to offer financial products such as cards, BNPL schemes, and loyalty incentives, while 56% are planning to introduce more in the near future. Embedded finance will allow these companies to offer e-wallet services too.
Analysts observe there are around one billion cryptocurrency users in 2022 and they’re all going to need digital wallets. What’s certain is that e-wallets are now an established part of the global payment landscape. Use is rising in every geography and as the world moves further towards a cashless society – and e-wallets continue to provide financial services to the unbanked population (estimated to be around 24% of adults globally) – this is only going to gather pace.