Digitally Restless Consumers Demand More From Their Digital Wallets

Digital wallets have revolutionised the way people manage their money. With the convergence of in-store and ecommerce payments, personalised journeys and heightened expectations, today’s tech-savvy customers demand faster and frictionless digital wallet services from their banking and payment providers. And they won’t hesitate to switch providers if their needs aren’t met.

According to FIS’s Global Payments Report 2023, digital wallets are the leading payment method among consumers shopping online in the UK and accounted for 35% of ecommerce transaction value in 2022 – rising from 32% in 2021. Globally, the appeal of digital wallets is broadening as more use cases come online, including microtransactions for gaming, cryptocurrency payments, personal financial management tools, and B2B expense management for employees and business travellers.

But in a fluctuating economic environment, the rising cost of living means that consumer focus is shifting more towards making money last longer and work smarter. Interest rates have risen, inflation has taken bites out of household finances, and people are looking for guidance on how to manage their money better.

It’s no surprise that the rise of alternative payment methods, such as Buy Now Pay Later (BNPL) and personal financial management tools, has led to a change in the way consumers want to pay. With end user ease and control both being important aspects of modern payment solutions, the growth of BNPL through digital wallets demonstrates a consumer mindset that is not just using digital wallets to spend money, but to save it too.

“The most successful digital wallets are built on ecosystems, comprising like-minded players, who work together to connect customers with the integrated services they depend on in their daily lives.”

To diversify the appeal of digital wallets to users and ensure their continued growth, usability and convenience must be top of mind. The digital wallets of the future must be able to bring together the ability for consumers to manage payments, savings, investments, crypto, budgets, loans, insurance, and more, in one place. Amid this shift, financial institutions need to do something differently if they are to stand out in a competitive market, and help their customers as their financial goals shift from spending to saving.

How super wallets and apps will help financial institutions to grow
The message is clear: single-function digital wallets are out, and super wallets are in. It’s much easier for consumers to have just one app for everything. Super wallets provide the one-stop convenience and ease that consumers are looking for, and the propositions that financial players can use to secure customer loyalty.

A super wallet, AKA super app, offers a full ecosystem of integrated services at customers’ fingertips designed around their daily lifestyle needs. You only need to look at the super app giants of the Far East to get an idea of the potential. China’s WeChat Pay (1.67 billion monthly active users) and Alipay (650 million users) offer social networking and messaging, ecommerce, payments (including QR codes), and a plethora of other services designed around aspects of users’ daily lives. With nearly 200 million users, Grab offers food and item deliveries, ride-hailing and financial services including payments, ecommerce and insurance.

Whichever of these digital wallet giants you look at, they’ve made it possible for a user to go about their day without ever leaving it – from using it to travel to work, buy lunch, order shopping to be delivered at home, transfer money to friends and family, and manage their investments. But what future services could help financial institutions to achieve that all-important customer stickiness?

The potential for digital ID to be integrated into digital wallets is illustrated by the success of the Smart-ID app in Estonia, Latvia and Lithuania, now boasting five million users. The Smart-ID app enables verified users to access e-government services, online banking, and for digital signatures across a wide variety of purposes – contracts, utility bills and so on. In March 2023, Smart-ID users across the Baltic states made a record-breaking 85 million transactions, demonstrating how, by establishing trust, consumers become more comfortable with using the app for a wide array of services.

As regulators across Europe and elsewhere begin to formalise digital ID roll-out plans, interoperability and security of user data will be key. With digital ID (including biometric verification) incorporated into wallets, and in line with the uptake of Open Banking and data sharing, it will be much easier and quicker for customers to be verified and onboarded in line with KYC and AML regulations. Banks and financial players can link up with other industries, like utility providers, to speed up customer checks and co-create even more innovative services.

AI promises to revolutionise digital wallets even further. A multitude of personal budget management and saving tools are already embedded into digital wallets. These smart tools are helping users to categorise spending, move money into savings pots, and achieve their financial goals, but they’re modelled on users’ historical transaction behaviour. AI-powered personal finance advisors promise to help digital wallet users make more informed future spending and saving decisions to make their money go even further, proposing investment strategies and proactive budget management – such as cancelling under-used subscriptions – based on user consent.

The role of financial institutions in the connected ecosystems of the future
The most successful digital wallets are built on ecosystems, comprising like-minded players, who work together to connect customers with the integrated services they depend on in their daily lives. By combining payments, banking, personal finance, ecommerce, and other lifestyle services in a single digital wallet, partners can create an end-to-end ecosystem that users won’t need or want to leave.

As embedded finance spreads into more aspects of people’s daily lives, the digital wallet can be the hub where banks and financial entities help non-financial companies to improve their customers’ experiences, underpinned by greater connectivity, speed and security. According to data from Ernst & Young, financial service players cite increased efficiencies and cost reductions as the advantages that ecosystems offer over traditional business models, while over half cite creating new joint products as an exciting prospect.

Financial players must now explore synergies within their own organisations through cross-functional teams to reimagine customer journeys through their digital wallets. Exploring synergies with players outside of their own industries – transit, retail and entertainment, for example – and create a wallet proposition that seamlessly links data from each customer interaction to anticipate consumer behaviour and meet it with innovative and immersive services. Doing so will form the foundation of a powerful ecosystem of like-minded partners that can leverage each other’s customer bases, CX strategies and omnichannel delivery to offer a digital wallet that continually surprises and delights consumers – and will keep them coming back for more.