What is the future of mobile wallets?


  • fintech
  • mobile payments
  • Piotr Gąsierkiewicz
Piotr Gąsierkiewicz
5/10/2021

mobile wallets image

Introduction

This article is the first in a series created to support FinTech entrepreneurs creating new products in this fast-moving marketplace. In the first instalment, we look at the mobile wallet market, as it is now and how it may change in the future.

The popularity of payments using mobile wallets continues to increase as more vendors begin to accept them, and more consumers realise their convenience.

In 2017, the global mobile wallets market was worth $368 billion. In the next two years, the value jumped to over $745.7 billion 1. The market growth seems unstoppable, but is it still growing and will that continue?

The short answer is YES.

2020 was the first year that more than 1 billion people worldwide used mobile payment apps to pay in-store, at least every six months 2.

It was also the year the entire mobile wallet market became a $1 trillion worth industry, growing by a massive 36.5% year-on-year. The strong rising trend is forecast to continue in 2021 and the following years also, with the entire market reaching $2.1 trillion value in 2023 3.

So what are the major trends & drivers in this fast-moving area?

Market drivers

The major ongoing trend is that cash continues its decline with mobile payments picking up the change. 2020 was the year that mobile payment overtook cash as the second most popular payment method, after debit card payments 4. Soon, most of us will be living cashless.

What drives the change in how we interact with those we buy from, and the way we manage our money?

Mobile payments are easier and more convenient than a credit card or cash. Mobile phone payment is contactless, so customers do not need to present cards or cash.

Mobile wallet payments can easily be integrated with loyalty and incentive programs. Unlike cards or cash, all the necessary information is stored in the app with every purchase they make.

Valuable customer data can also be accessed through mobile payments, such as how often they shop, what they buy, and their preferred mode of payment. This information can be used by vendors to target their customers more accurately.

Mobile payments are extremely secure. Most mobile payment applications are tokenised, meaning that personal information entered is verified by the app and then held as a “token” that stands-in for the customers’ personal data. In addition to this, each transaction is made using that token integrated with a one-time-use security pin. This makes it extremely difficult for malicious actors to misuse a customers account, without access to their mobile phone.

Mobile payments provide security even in a case where the mobile phone is stolen as the payment information remains secure behind a passcode or biometric authentication (or both).

The attraction and usefulness of mobile wallets and their complementary apps are apparent. But what uses are currently growing in popularity?

Fast-growing varieties

FinTech has spent the last decade absorbing traditional financial services, making them hugely more accessible while at the same time adding utility. Consumers can now access wallets and associated apps across all these areas of their financial lives:

  • Retail payments
  • E-commerce transactions
  • Bill splitting
  • Personal budgeting
  • Expenditure tracking
  • Digital bank accounts
  • Multiple bank account data consolidation
  • Savings and investments
  • Loans
  • Insurance

Indicators of the growth within consumer markets can be found everywhere. There’s China’s Alipay, which recently overtook WeChat as mainland China’s most popular payment provider. In South American, consumer payment app Pago saw its user base grow 155% and total payment volume through the digital wallet increase 299% to $1.3 billion 5.

Within our business lives, there’s an ever-increasing diversity of wallet-connected banking and financial tools for SMEs, micro-businesses and freelancers, all of which help entrepreneurs gain control, have peace of mind and also lighten the management task-load:

  • Invoices and payments
  • Mobile banking
  • Business accounting
  • Expense tracking
  • Cashflow management
  • Tax record preparation and filingW
  • Business financing

Some of the companies offering hope of a better life to small business owners and entrepreneurs include Kabbage, which has provided $4 billion of funding to more than 100,000 small businesses in the US, and they are now worth over $1.3 billion. 6 Much smaller is UK-based Coconut, offering micro-business owner banking combined with accounts and tax automation. In the past year, Coconut has grown to 25,000 registrations, a growth of more than 3x.

Some mobile wallet providers even manage to span both personal and business use. ApplePay is an example of this, with a prolific collection of connected apps targeting both personal and business users.

Let’s take a look at the most noteworthy providers, where they operate and which regional factors might offer opportunities for FinTech entrepreneurs.

Top global providers of mobile wallets and associated apps tend to be divided into two, regionally. There are those operating within mainland China and those prevalent elsewhere.

In China

Alipay is the world’s biggest mobile payment platform with more than 1.2 billion daily active users 7.

Elsewhere

ApplePay had 441 million daily active users in 2019 (up from 292 million users the previous year).

Paypal has 305 million daily active users (Q1-2020 saw year-on-year growth of 17%).

Slow US mobile payment adoption

Mostly, this is due to the momentum of traditional payment methods in the US domestic market. China, by contrast, mostly leapfrogged these conventional payment processing methods, going direct to an explosion in mobile payments.

Also, public distrust. 40% of US consumers who don’t use mobile payments cite security concerns as a major reason 8.

Regions with fast growth rate

Within 2019, India (26.4%), Indonesia (24.3%), Mexico (20.3%) and Germany (20.1%) were the fastest-growing markets. Retailers adding point-of-sale (POS) terminals to support proximity mobile payments will largely be responsible for driving this growth 9.

Which territories will come to the fore in the near future?

Economies in the Southern Hemisphere such as the Philippines, Indonesia, parts of Latin America and countries across Sub-Saharan Africa have largely been under-banked or un-banked for decades, but this is changing due to the rise of mobile payment and wallet innovations. Mobile sales for these regions are anticipated to rise into the billions soon 10.

What else is causing the change?

Millennials are pushing the financial sector towards change. They started looking for work during the post-2008 recession. Many see they stand on the wrong side of the wealth gap and are likely also carrying heavy student loan debt.

A high proportion of millennials lack financial education. They make up for this by using multiple apps - for investing, budgeting and saving, and so on.

They need different solutions and are happy to embrace unconventional approaches 11.

What lies ahead? 

These factors will be among the most significant within 2021:

Entrepreneurs will reduce their reliance on traditional professional services and, instead, use software solutions, many connected to mobile wallets.

Previously inaccessible markets will open up. Regions with under-banked or unbanked populations will create huge growth in numbers of active users, especially in the Southern Hemisphere.

Millennials will drive availability of more comprehensive, interoperable and diverse financial services on smartphones.

Lastly, we can’t end this article without mentioning how awareness of the Covid-19 pandemic is driving increased use of mobile wallets. According to Statista data 12, the global mobile wallet industry will jump almost 50% amid the COVID-19 outbreak, reaching $1.47trn value within 2020.