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The advancement of technology, propelled by the ongoing COVID-19 pandemic, has changed the way people shop and pay for good. Many Australians have already embraced the trend towards cashless, such as the use of e-commerce, contactless payments and digital wallets. Digital wallets are the arguably is the fastest growing, less familiar of the three – so read on to learn how this disruptive payment technology works and the benefits for consumers.

What is a digital wallet?

Digital wallets are app or internet-based services that store digital versions of your credit, debit and prepaid cards. Examples of digital wallets are Apple Pay, Google Pay, Samsung Pay and PayPal.

How can I use a digital wallet?

You can use your digital wallet much like how you would use your cards with a physical wallet. Digital wallets allow you to make payments without your physical cards through a variety of channels, such as:

  1. In-person – instead of tapping, swiping or inserting your card, you can use your digital wallet. Simply open up the app, and hold your phone up close to the terminal whenever you see the ‘contactless pay’ symbol.
  2. Online – some websites give you the option at checkout to pay using your digital wallet. You will need to log into your digital wallet via a password or fingerprint scan, depending on whether you are using a phone, computer, tablet or wearable device.
  3. In-app – similar to the online channel, you can make payments for things like food delivery, ride shares and game purchases.
  4. ATM – some banks, such as ANZ, allow you to cash out at an ATM with the use of a digital wallet instead of a card.

What are the benefits of using digital wallets?

Digital wallets are a convenient, easy to use and secure way to pay instead of using cards or cash.

Saves time at checkout

Digital wallets simplifies the checkout process by allowing you to hold your phone near the terminal if you are paying in person instead of pulling out your card. The same goes for online payments, where you simply tap or click on your screen instead of having to enter your card details in manually.

For merchants, the benefit translates to a faster transactions processing through the checkout, which over time leads to incremental revenue increase.

Convenient when out and about

Gone are the days where you need to lug around a wallet, as long as you have your phone on you. Most stores these days accept contactless payments, which means you can tap and pay with your phone.

More organised

Beyond credit, debit and prepaid cards, you can also add a variety of other cards such as loyalty, gift and transit cards. No longer do you need to worry about forgetting, losing or having to make space in your wallet for your cards.

Heightened security

Unlike a physical card which prints its card number, name and CVV on its card, cards that sit within the digital wallet use virtual account numbers instead of actual account numbers. In addition, when you make a payment is in-store or online, the information exchanged to the merchant is a unique transaction identifier, which means that the stores do not have your account information. This process, known as tokenisation, can help to enhance your card and transaction security.

On the other hand, a physical card is more susceptible to theft and misuse, as all the information is printed on the card.

Increased customer loyalty and spend

According to Capgemini’s World Payments Report 2020, digital wallets (including QR-based payments) were the preferred choice of 48% of respondents.

Additionally, consumers are becoming more tech savvy, with increasing expectations of wallet solutions that integrate loyalty and rewards programs. According to this study69% of the consumers are more likely to use a digital loyalty card. 73% of the users are more likely to join a loyalty program if their rewards and points are automatically visible and updated on their digital wallet loyalty cards.

What are the different types of digital wallets?

There are three main categories of digital wallets, which varies on the type of transactions you can perform.

  1. Closed wallet – a wallet that only stores funds to make payments with a single merchant. An example of a closed wallet is Amazon Pay.
  2. Semi-closed wallet – instead of a single merchant, a semi-closed wallet supports storing funds and making transactions with a number of merchants in the network. The merchants will need to enter into an agreement with the issuer, with then allows users to make payments via both online and offline channels. Examples of semi-closed wallets are Google Pay and Apple Pay.
  3. Open wallet – usually reserved for banks or financial institutions, users with open wallets are allowed to withdraw funds from banks and ATMs, and transfer funds into other accounts.

How popular are digital wallets in Australia?

According to the Roy Morgan Digital Payments Report released in March 2020, around one in ten Australians are using digital wallets such as Apple Pay, Google Pay and Samsung Pay – up from 6.8% a year ago. The figures are undoubtedly higher thanks to the push towards contactless payments and increased merchant adoption.

Apple Pay remained Australia’s most popular digital wallet with a 5.9% usage rate, followed by Google Pay at 3.9% and Samsung Pay at 1%.

Overall, digital wallets are gaining in recognition and usage due to its ease of use and convenience. Digital payments have transformed our online shopping, bill payment experience, with greater reassurance on the security of our funds and transactions.

With increasing consumer expectations for fast, instant and seamless payments, so too will businesses need to respond by offering a digital payment solution. Integration with digital wallets such as Apple, Google and Samsung Pay, or the development of a bespoke digital wallet app, will help businesses stay on course of the fast-changing payment landscape.

Interested in a virtual card solution?

Vasco Pay specialises in Visa prepaid cards (physical and virtual) that can be integrated into digital wallets, such as Apple, Google and Samsung Pay. From reloadable prepaid cards to gift and loyalty cards, we provide customised, holistic digital payment solutions for enterprises and fintechs.

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