As the world increasingly becomes digital, digital wallets continue to grow in popularity. As a preferred method of payment for many customers, they offer a host of benefits. These include the ability to simply tap a smartphone to purchase goods and services, the capability to store numerous debit and credit cards, as well as to house loyalty program information. What’s not to like?
The PaymentsJournal podcast was joined by Damany Abernathy, Executive Director of Solution Engineering at CSG Forte, and Christopher Miller, Lead Analyst in Emerging Payments at Javelin Strategy & Research, to discuss the expanding popularity of digital wallets, as well as the security challenges and inherent risks of their growing use.
What Has Driven the Growth of Digital Wallets?
Amid widespread fear of contracting COVID-19 during the start of the pandemic, contactless payments became increasingly important for consumers. According to Abernathy, the pandemic contributed to the disruption of payments, bringing about a new normal. Paying with cash was no longer desired, and anything that provided a cashless environment reigned superior.
“From a U.S. perspective, I don’t believe there was a singular event, but rather it seems there was a trifecta of sorts that aided in its surge—that being EMV (Europay, Mastercard and Visa, an embedded-chip technology designed to limit fraud), COVID-19, and Millennials, including those generations after,” Abernathy said.
“I do recognize that the weights of the aforementioned aren’t equal, but each played their respective part. EMV was the primer that forced the shift in tendering behavior.
“Then we moved from swiping to inserting and tapping. But it was the cost and complexity of integrating EMV that caused many merchants to seek alternative acceptance methods that aided in digital wallet normalization.”
On the merchant side, Abernathy added, digital wallets presented many benefits, including a faster checkout experience, a reduction in cart abandonment, and enhanced levels of security that nearly eradicate the risk of fraud.
“One thing that we have seen is a reemergence in some cases of cash transactions, at least even in younger generations,” Miller said.
“The notion of envelope budgeting as a way of controlling expenditures had, to a certain extent, grown out of control because of pandemic-era habits.”
As for the future of digital wallets, Miller asked whether we should expect “persistent, continual growth.”
Abernathy mentioned that the younger generations are the “final catalysts.”
“The younger generation really pushed the envelope regarding their finances, credit card ownership, and how they want to pay and be paid,” he said. “This is forcing wallet ubiquity, at least for peer-to-peer payments, as that is the easiest means of payment across social mediums.
“Businesses are recognizing the need to attract these younger buyers, and they’re helping to tip the culture shift of payment options.”
Consumer Concerns About Digital Wallet Security
Although digital wallets are relatively safe, consumers will always be fixated on the security of their personal and financial information. Organizations must continue to take the necessary measures to ensure this security and ease the minds of their customers.
Abernathy said he believes that digital wallets deliver on the security angle and customers can rest assured that their data is well protected.
“Not to say that there aren’t ways to fraudulently use someone else’s credentials, but the security framework on the cryptography is very solid,” he said.
“The provisioning process alerts consumer banks and the associate networks to the wallet and payment credential that’s being married, and so you know ultimately what you’re obtaining in your application or this mobile app.”
Whereas losing cash can be an irrevocable loss, as there is no true ownership, and credit cards can be easily stolen and used, Abernathy explained that digital wallets have the “liability and security” baked within the technology, making it a more successful payment vehicle for customers, merchants, and even banks.
How CSG Forte is Building Solutions Amid Digital Payment Trends
Any business that wants to remain relevant and profitable must keep a close ear on its customers’ needs and wants, especially in this rapidly evolving digital payment space. CSG Forte has determined that this is its secret sauce, developing and tailoring the solutions its customers want.
“Ultimately, market listening is more than just a skill. I attribute it to a guiding truth,” Abernathy said. “We have a well-understood target market, and the solutions we bring need to meet the demands of our vertical focus.
“Much of our clients fall within the SMB (small and medium-sized business) space, and for them, there’s no appetite to develop huge amounts of code and logic supporting the request and decryption of wallet payloads for each wallet scheme they would like to support.
“Our focus is on solutions that enable frictionless integration and deployments that aid in enhancing the checkout experience for both the customer and merchants.”
Abernathy went on to say that it is important to continually assess the needs of clients. Based on the next trend, CSG Forte’s focus is to facilitate the adoption of that new technology.
He also emphasized the importance of partnering with a solution provider that can provide the best-tailored solution for a business based on the organization’s desired strategy for growth.
What’s Ahead
When asked about what he sees next on the horizon, Abernathy mentioned that cryptocurrency, although once hailed as a valid asset, will now be seen as a currency tool, especially in regions where there is a lack of banking infrastructure. It will be interesting to see how this new payment method unfolds, he said.
