Over the past decade, digital wallets, also known as e-wallets, have gained significant popularity as more people have shifted to using digital forms of payment.
These wallets enable users to store and manage their money electronically, making transactions more convenient and secure.
According to Ark Invest’s research report “Big Ideas 2023” from January 31, the global digital wallet penetration rate is currently at 40%, which translates to around 3.2 billion users.
However, the firm predicts that the number of digital wallet users will increase at a rate of 8% annually, which will lead to 65% of the world’s urban population using digital wallets by 2030.
The report also highlights that digital wallets are gaining ground in both online and offline transactions, and the decline of cash is further accelerating this trend. Moreover, the number of people using digital wallets is growing faster than those using traditional bank accounts.
Ark Invest predicts that the United States will experience continued growth in digital wallet adoption, with the number of users expected to increase by 7% per year over the next eight years. By the end of the decade, the number of digital wallet users in the US is expected to exceed 260 million.
The report also notes that digital wallets facilitate “closed-loop” ecosystems, enabling direct transactions between consumers and sellers, bypassing traditional financial institutions.
This system benefits both merchants and consumers, with wallet providers earning more money per transaction.
Ark Invest highlights the potential for closed-loop transactions to improve the margin structure of wallet providers.
For example, if customers did business directly with merchants, wallet providers like Block Inc. could more than double their net take rate by reducing the fees paid for interchange, assessment, processing, and bank settlement fees.
Digital Wallets on the Rise: Key Factors Driving Adoption Worldwide
There are several factors driving the growth of digital wallets. Firstly, their convenience cannot be overstated. Users can quickly and effortlessly make payments from their smartphones or other digital devices, eliminating the need to carry cash or credit cards that can be lost or stolen.
Digital wallets can store multiple payment methods, including credit and debit cards, and can be used for transactions both online and offline.
The emphasis on security is also driving the growth of digital wallets. To prevent fraud and identity theft, digital wallets use encryption and other security measures.
Many digital wallets offer additional features such as two-factor authentication and remote device disabling to enhance security.
Digital wallets offer flexibility that enables users to transfer funds between accounts, make international payments, and split bills with friends or family. Some digital wallets even provide cashback rewards, discounts, and other incentives to promote usage.
It’s worth noting that digital wallet adoption is not just limited to developed countries. Developing nations are also rapidly adopting the technology. For example, in China, 45% of adults use digital wallets daily, and another 41% use them at least once a week.
Issues with Digital Wallets
While digital wallets have gained popularity, there are still issues that need to be resolved before they can be widely adopted. One significant challenge is the lack of acceptance by all merchants. While many stores have started accepting digital wallet payments, there are still some that do not, especially in less developed countries.
Another issue that needs to be addressed is the concern over the security and privacy of financial information stored in digital wallets. It’s crucial to establish trust among users by addressing these concerns.
Despite these challenges, the use of digital wallets is expected to increase significantly in the coming years. As more people become accustomed to digital payments and security measures continue to improve, it’s projected that the number of users will rise significantly by 2030.