The payments industry has seen an increasing number of alternative payment methods on the market, especially over the past 12 to 18 months. This is a result of consumer needs, new businesses adapting to local and regional payment requirements, and to payment regulation.
Take Secure Customer Authentication (SCA) regulation which has been enforced in Europe since the 1 January 2021. While the payments ecosystem moves to comply with the regulation, there have been delays in syncing up processes and data flows between card issuers and retailers and as a result, many consumers have moved to an already familiar payment method, that has authentication measures built in: e-wallets. This form of payment makes it easier for retailers to ensure their transactions are SCA-compliant because of default security measures in place such as biometric authentication (fingerprint) and their customers experience a frictionless purchase.
What exactly is an e-wallet?
In simple terms, it is an electronic payment method. An e-wallet can be used when purchasing goods or services on a computer or smartphone; either online or in-store where NFC technology is used. Some e-wallets can also hold electronic versions of a driver’s license, health insurance card, store loyalty cards, cryptocurrency etc.
E-wallets offer a great alternative payment method for consumers who regularly experience high abandonment rates during the checkout process, which can be due to payment delays, a lack of trust in the retailer with their card payment information, insufficient payment methods offered by the merchant, declined credit card payment, or other various reasons.
There are many e-wallets currently available on the market. Over the last 14 months, people have shied away from using cash in stores to ensure social distancing and many have moved to tapping their smartphones instead. So, there has been a clear shift to mobile and digital commerce.
According to an article by RetailDive in 2018, the number of customers using mobile wallets in 2019 was expected to be 2.1 billion. That number has only increased over the past 18 months. This activity is leading to many large brands introducing their own e-wallets. We can expect to see more companies jump on board as payments organisations and phone companies see the opportunity to be top of wallet for consumers. Brands that already offer e-wallets include Alipay, Microsoft Wallet, Paytm, Mobikwik, and Samsung Pay. The largest brands providing the service are Google, Amazon, PayPal, and Apple. PayPal currently has 361 million active users. According to a June 2020 report from Lumos Business, 5% of global card transactions are currently processed by Apple Pay.
Challenges
Recently, there have been challenges for e-wallet companies. In August 2020, the Russian Government banned the use of anonymous wallet deposits in a move that affected more than 10 million users across the country and several neighboring countries. According to the law, the ban was put into place to control illegal activity such as money laundering, drug trading, terrorist financing, and other financial fraud.
Digital wallets such as Yandex.Money (now Yoomoney), QIWI-Wallet WebMoney, PayPal, and VK Pay were immediately affected, with customers endeavouring to recover genuine funds and PSPs clamouring to provide refunds to their merchant customers where sales were blocked mid-transaction.
The change meant that any cash deposits made by e-wallets ceased, so users needed to use bank transfers instead, where they had to identify themselves by linking their account to their e-wallet. It also enabled lawmakers to identify where the funds were coming from. Similarly, the law impacted users who bought and sold cryptocurrencies using their digital wallets.
E-wallet providers are also obliged to comply with regulations, especially the varying financial and consumer-based regulations in each country in which they operate. So GDPRcompliant e-wallets are a must.
Consumer trust
With growing reports of hacking incidents, ransomware attacks, data leaks etc., consumers are growing more cautious about uploading all their payment data to one place.
Recent research published by YouGov in the UK (fielded by The Financial Brand) stated that of the consumers polled, 38% are concerned they will lose all their payment information if they misplace their smartphone, and it will be used by others to purchase goods or services from their device.
Moreover, in a recent Auriemma Roundtables payments survey (reported by Payments Dive), it was found that consumers are slow to recommend e-wallets to a friend or family member.
Therefore, much work needs to be done by the providers to build consumer trust and promote the benefits of using e-wallets – because they are here to stay.
This article is part of the Payment Methods Report 2021 – Latest Trends in Payment Preferences, a comprehensive overview of the payment methods in scope for 2021, as well as best practices for checkout optimisation and customer conversion by addressing digital transformation, security, and localisation.
About Úna Dillon
Úna is VP of Global Expansion and Merchant Advocacy at the MRC. Having worked in the payments industry for more than 25 years, she has chaired industry working groups at the European level, ran Laser Card (the Irish national debit card scheme) for 12 years, and was responsible for driving the development of policy on major initiatives such as SEPA. She was recently appointed to the European Commission Payment Systems Market Expert Group (PSMEG) to advise on regulatory policies on payments and payment fraud prevention. Here she brings the Voice of the Merchant to the European Payments Regulator’s table.
About MRC
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now