Across the five countries covered in a global study carried out for Google — Brazil, France, Germany, the UK and the US — most consumers say they are familiar with the digital wallets in their pockets or purses.
What are digital wallets?
In the US, for example, 85% say they know about digital wallets. However the research shows that consumer views about digital wallets are often confused – writes Dave Birch, International keynote speaker, author, advisor, commentator.
In the sample only 1 in 10 consumers were able to distinguish digital wallets from other types of platforms, such as digital banking apps, and this confusion highlights an interesting disconnect between the technologies consumers are using and their understanding of them.
All of which suggests some education is needed in order for both the providers of digital wallets and their users if the full potential is to be realised.
Digital Wallets Are Here
So what is the difference between an app and a wallet then?
I asked ChatGPT, so you don’t have to, and it told me that an app is a broad category of software designed for various tasks whereas a wallet is a specialised type of app specifically focused on storing payment methods and facilitating electronic transactions.
This seems like a reasonable way to structure a discussion, but there is another way to summarise the difference: an app is a way to do things, a wallet is a way to organise things.
What things?
Well, my Apple Wallet (just like my real wallet) is cash-free. It has credit cards, debit cards, loyalty cards, vaccination records, boarding passes, train tickets and soon my driving licence and passport as well.
This is not only about the Apple Wallet, of course.
The Google Wallet app now has an “everything else” option that can convert any physical document, card or whatever else into a digital pass.
This functionality, announced last May, initially for Google Pixel devices uses the device camera to automatically detect compatible information and imports it into the wallet using AI to detect the document type.
It is important to understand why this is so important.
Digital wallets are not just for replacing cash; they are also becoming a repository and an organising principle for credentials.
This observation fleshes out a strategic definition of the wallet: as a way to organise the credentials that are needed to enable transactions.
Ultimately, then, wallets are about organising identity, not money. If you think that competition around digital wallets is only about selecting cards to make payments, you are seriously missing the big picture.
Robot Wars
Worldpay’s Global Payments Report 2024 suggests that innovation in retail payments is being accelerated because the ubiquitous acceptance of digital wallets enables greater consumer choice and control.
According to their research, digital wallets accounted for $14 trillion in global transaction value in 2023.
In the UK, the transition to digital wallets is well underway. Almost half of us Brits aged 16 and over do not take their wallets with them when leaving the house, relying solely on their digital wallets as a payment method.
While digital wallets are gaining traction for their features beyond making purchases, for now transactions remain the most common use of the technology.
The fact that wallets are about much more than payments explains why the “wallet wars” are under way. Right now, in the UK and the USA, big tech has its tanks on the banks’ lawn, so to speak, and are encroaching on financial institutions’ territory with digital wallets in the vanguard and financial products (eg, savings accounts) ready to invade and occupy.
Banks and other financial firms are mounting a counterattack with their own apps, fighting for the prize of billions of dollars in fees and other revenue as digital transactions grow from $9 trillion in 2023 to an estimated $16 trillion over the next five years, according to Juniper Research.
We might conclude then that if you are anywhere in the payments value chain, you need a wallet strategy.
Going Smarter
We can push the discussion further by asking whether the future belongs to the evolution of apps into super apps, or wallets into smart wallets?
My biases are clear: I am a smart wallet kind of guy. In fact, I think we are indeed heading for a world of very smart wallets.
By this I mean wallets with interfaces to associated intelligent agents to take care of transactions that are too boring (e.g. paying for car parking) or too baffling (e.g. deciding whether to put spare money into a tax-efficient cash savings account or one based on equities) for most of us to deal with.
What is particularly exciting in that the very smart wallet view of the future is that the users of the smart wallets will, in the general case, be bots.
This is something that strategists need to take on board, a point I made last year when I spoke at the excellent “The Banking Scene” conference in Brussels (an event I always enjoy because it gives me a view of developments in the European banking world from the ground floor.)
I spoke about the shift from smart wallets (wallets controlled by people) to smarter wallets (wallets controlled by bots) and what this might mean in the world of payments and the strategic need to make wallets attractive to machines.
My conclusion was, I think, uncontroversial: not only are the wallet wars hotting up, they are going to force us on to some pretty interesting new battlegrounds!
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