The world is speeding towards a cashless economy. More businesses are beginning to embrace alternative payment systems instead of the traditional fiat payment methods used for decades. People can now make cross-border payments from anywhere in the world through digital or mobile wallets and with ease.

According to a report by Statista, in 2020, digital and mobile wallets accounted for roughly 45% of global e-commerce transactions. This number is set to increase to over 50% by 2024.

As the world moves to a cashless economy, partly through mobile wallets, consumers can now pay and get paid easily and conveniently within a tap of a buttton. Easy access is in turn boosting economic growth and benefiting the financial sector.

In this blog we explore the power the mobile wallets and the opportunities they present for increasing financial inclusion. 

How Does a Digital Wallet Work?  

Digital wallets essentially allow customers to store and trade value without using a bank account. Using a mobile app or internet banking, customers can store money virtually and use it to buy products and services.

They can also use a mobile wallet to receive money for goods sold or services rendered. People no longer have to carry cash to pay for goods or services. They can do so conveniently from their smartphones or other digital devices like smartwatches, as is the case with ApplePay.  

While the the terms mobile wallet and digital wallet are sometimes used interchangeably, there is a key difference between the two. Both can be used for online transactions. However, a mobile wallet, as the name suggests is tied to a smartphone or wearable device.

A digital wallet on the other does not have to be explicitly tied to a device. It can be accessed online and used for online transactions rather than at a point of sale. Both mobile and digital wallets connect to bank accounts, debit and credit cards. 

Why Digital Wallets Are Gaining Popularity  

Mobile wallets utilize different technologies for payment processing, such as Near Field Communications (NFC), Magnetic Secure Transmissions (MST), QR codes, and others. This makes it easy for users to make payments online and at a point of sale.

One of the reasons this payment method has become so widely used is its safety. Mobile and digital wallets have a security system that utilizes tokenization to keep your credit or debit card data secret. Additionally, when using mobile wallets, you will be required to provide a security PIN, and sometimes fingerprint or facial recognition, further increasing security. 

Signing up for a mobile wallet can be a relatively simple process that enables greater financial inclusion for a broader spectrum of the population. Getting a mobile wallet usually entails downloading an app, going through a simple online onboarding and eKYC process, connecting your bank or card and you’re done. Some digital wallets don’t even require a bank or card account to be connected. Users can top up their digital or mobile wallets using physical cash deposit machines or other means.  

Additionally, some unique features such as low-cost remittances, digital loyalty cards, innovative financial products, and services have further added to the allure of mobile wallets.  

Here are some more reasons why an increasing number of people are choosing mobile wallets as their preferred payment method.  

Awareness  

According to a report by Accenture, there has been a rapid transition to digital payments globally. This change comes as a result of the decline of cash transactions and more companies adopting eCommerce.

There is a growing awareness among consumers about mobile wallets and their benefits. This has helped drive overall adoption. By the end of 2020, over 2.8 billion mobile wallets were in use across the world.

Wallet providers have been creative with their marketing and utilize the power of social media and other media channels to promote and educate the public on the benefits of mobile wallets. Many digital and mobile wallet brands also go the extra mile to educate their customers on how to manage their money better and cultivate positive financial habits.

This educational awareness is helping foster diversity and inclusion in the financial system across the globe for those that has been traditionally excluded. A recent report suggests that in East Africa, 85% of women receive their payments through mobile wallets. 

Greater Acceptance  

The increase in customer awareness and usage of mobile wallets has pushed more merchants to begin accepting them as a viable payment method. Wider acceptance has in turn increased customer adoption. Merchants now see the benefits of accepting digital and mobile wallets allowing for easier payment facilitation.

As customer awareness grows, more mobile wallets are entering the market. This is encouraging more merchants to accept alternative payment methods, at the end of which overall adoption grows.

This is evident in recent estimates which suggest that there will be 4.8 billion mobile wallet users by the end of 2025. With the ease of mobile wallet use even local stores are adopting this payment methods, thereby expanding the reach of mobile wallets and giving customers new ways to pay. 

Additional wallets are increasingly used by migrant workers who cannot go through the highly complex process of opening a bank account, especially in a foreign country. Instead, they opt for mobile or digital wallets. Opening a mobile wallet is generally simpler and quicker than opening a new bank account with a traditional banking institution. 

Diverse Options  

Many people feel more comfortable completing transactions through digital payment methods because of their flexibility, convenience, and security. There are different options available to customers when using digital wallets, as users can either go for a single purpose or multi-purpose wallet.

For example, people who want to give one-time cash gifts can use single-purpose wallets. In contrast, multi-purpose wallets can be used for regular transactions. Digital financial services in the mobile wallet space offers users a more diverse array of payment options, increased flexibility in topping up and paying for goods and services.  

Mobile Shopping  

The COVID19 pandemic drove an increase in mobile shopping. According to Business Insider, eCommerce retail sales in the United States experienced an unprecedented growth of $359.2 billion in 2021, 15% higher than sales made in 2020. It is predicted that this number will likely increase by 42.9% in 2024.

A large portion of this increase can be contributed to mobile wallets. Customers now make purchases through their smartphones and prefer the more convenient mobile wallet payment options.

Additionally, businesses benefit from digital and mobile wallets because they have brought reductions in cart abandonment due to a more straightforward checkout process, with mobile wallets offering a seamless way to make payments online and at point of sale.   

Cross Border Payments 

One of the challenges remote and migrant workers have faced over time is managing their money across borders. Sending and receiving payments using digital wallets provide a more convenient way for migrant workers to get paid and send money to their families back home.

While banks and remittances companies tend to charge high fees for cross-border transfers, mobile wallets generally charge little to nothing. And with the high rates of mobile usage across the world, especially in low-income countries, being able to send and receive money directly on your smartphone is hugely important.

Additionally, the process of remitting money across borders can be cost-effective and straightforward using a mobile wallet; however, using a bank can be complex and confusing. 

Enhanced Security 

Digital wallets have a reduced risk of fraud and theft. Users are protected because mobile and digital wallets make use of a biometric authentication system that lock out any unauthorized attempt to get into the wallet.

So, nobody can get into the mobile wallet even if the user’s mobile phone is lost or stolen. Some wallets even require face recognition or fingerprint verification before a purchase can be completed, adding another layer of security. These security features in mobile wallets are highly advanced and difficult to bypass increasing overall safety. 

One unique feature with mobile wallets is you can lock the wallet if you lose your device for security purposes. This way, they provide a more flexible way to carry your money around, with safe access to all your credit or debit cards in one place. Users don’t need to hold multiple credit cards or hold bulk cash when they have access to a mobile wallet. 

The Mobile Wallet space continues to grow 

Mobile wallets offer a solution for people who want to conduct banking transactions and don’t have a bank account. Big financial institutions like American Express and VISA already provide mobile wallet services, and many new start-ups are entering the digital wallet space.

Mobile wallets are the perfect solution for improving financial inclusion. They reduce cash dependency and offer a safer way to conduct financial transactions online with minimal risk of fraud and theft. In addition, mobile wallets remove intermediaries in cross-border transfers, making the entire process is transparent. As a result, people have more control over their money and can do business anywhere, driving consumer confidence and trust. 

Many non-traditional banking brands are entering the digital wallet space, such as Telcos, Delivery brands, and even parking payment brands. Brands like Touch and Go, Grab, and Shopee offer customers mobile wallets which are widely accepted across Asia-Pacific in Malaysia and Singapore. In Bahrain and Saudi Arabia, the well known telco, STC has launched its own mobile wallet, STC Pay. STC Pay allows customers to pay their internet bills and pay at various merchant outlets across the MENA region.

Mobile wallets can also boost financial inclusion by accommodating migrant workers who don’t have bank accounts to access their salary. For example, with mobile money apps like MyMa, workers can receive their salaries directly on the app and then use it to do transfers quickly, even without a bank account in Singapore.

How Mobile Wallets Boost Financial Inclusion  

According to World Bank, a total of up to 1.7 billion people globally have no access to banking services. Many people still do not trust banks or cannot avail a bank account for various reasons. This lack of trust makes them avoid transacting with mainstream banking institutions.

Without a steady relationship with financial institutions, many underbanked individuals do not develop credit histories which means getting approval for financial products can be near impossible. This is where mobile wallets have a distinct advantage, allowing sign-ups with minimal credit checks. Additional factors that can impede being banked are not having a regular income or access to a bank branch. 

This forms a sort of negative loop whereby the unbanked are unable to ever truly enter the financial system. They’re stuck in an endless cycle, unable to access loans, credit cards or other facilities to improve their lives.

As a result, many end up turning to expensive financial products like payday loans, title loans, and other low-quality loans. This, however, generally ends up putting people in more debt over time, and the vicious cycle continues. Mobile and digital wallets offer a way out of this cycle of debt, allowing customers to manage their finances effectively and improve their livelihoods. 

Additionally, innovative mobile wallets frequently bundle additional products and services with their core offering, such as mobile wallets that offer unbanked customers a combined wallet and BNPL (Buy Now Pay Later) system as a way of solving financial inclusiveness.  

Conclusion  

Digital wallets have been an effective tool to promote financial inclusion worldwide. They offer a fast and convenient way for people to make payments and provide a secure platform for online transactions.

There are many benefits of using digital and mobile wallets, and that is why they have continued to gain popularity across the globe. Mobile wallets have attracted customers and served as a bridge between financial services and the underbanked.

In addition, digital wallets have gained support from governments worldwide, which has contributed to widespread awareness and adoption. As the world reduces its reliance on cash and aims to improve the financial wellbeing of more and more people, mobile and digital wallets are emerging as a critical tool to do just that.