The online payments market is one of the fastest growing – according to Fortune Business Insights, it’s expected to hit $17,643.35 billion by 2027. This booming development is based, among other things, on users’ great interest in convenient, fast, and secure payment methods. Digital wallets meet all these criteria – they enable fast transactions, offer convenient payment options and a high level of security for user data.
To help you get answers to all your questions about these apps, we’ve created a comprehensive guide to digital wallet development. Inside, you’ll learn how to develop a digital wallet, what subtleties to pay attention to when designing the user interface, what trends to expect in the niche, how to win user loyalty with advanced features, and much more.
History of Digital Wallets
The story of the development of digital wallets begins in 1994, when a New Hampshire entrepreneur sold a CD over the Internet via credit card payment. That transaction triggered a string of one technological marvel after another. Here are the key milestones in the digital wallet revolution:
• In 1997, Coca-Cola installed two vending machines in Helsinki that enabled mobile and contactless payments via SMS.
• In 1999, PayPal was launched as an online platform for money transfers.
• Four years later, in 2003, Alibaba launched the mobile payment platform Alipay in China.
• In 2007, the first payment system for cell phones was introduced by M-PESA.
• 2009 brought the first decentralized payment network, which enabled secure, untraceable payments.
• In 2011, Google introduced a discontinued peer-to-peer payments service introduced.
• Three years later, in 2014, Apple Pay launched with 220,000 merchant locations in the United States, and it now claims 2.2 million.
Since then, digital wallets popularity has grown tremendously. According to some estimates, 3.6 billion people – almost half of the world’s population – will be using digital wallets by the end of 2022. But it will not stop there – industry experts predict that digital wallets growth will continue for a long time, reaching over 5 billion users by 2026.
Advantages of Digital Wallets
The increasing use of digital wallets is due to a number of benefits they offer to both businesses and consumers. They save time and money, provide unique services, and even allow instant access to information that would otherwise be unavailable. Below, we listed key advantages of digital wallets for businesses and consumers.
Benefits of digital wallets for businesses
🔸 They improve the customer experience and increase conversion rates by streamlining the payment process and offering customers more payment options.
🔸 They protect cardholders’ sensitive financial data and provide an additional layer of security with biometric features – e.g. fingerprint, retina scan or facial recognition.
🔸 They provide access to real-time data and actionable insights into customer behavior, enabling data-driven decisions and more effective marketing efforts.
Benefits of digital wallets for consumers
🔸 They enable multiple payment methods through a single app, as if users were storing multiple cards in a physical wallet.
🔸 They allow additional information to be stored such as loyalty cards, concert tickets, travel cards, coupons, boarding passes, etc.
🔸 They offer enhanced security – users don’t risk to loose their cards or cash, all sensitive financial data is encrypted and protected by multi-factor authentication.
🔸 They enable P2P money transfers, making it easy to share bills with friends or send money to family.
🔸 Some digital wallets offer advanced features such as expense tracker that helps develop healthy financial habits.
Types of Digital Wallets
There are different types of digital wallets, which can be categorised based on the following criteria:
• target audience
• delivery technology
• goals
Below, we explore the most widespread digital wallet types and explain their differences.
Classification by Target Audience
Depending on the digital wallet functions and target audience, apps can be divided into three groups.
🟢 Closed.
These are developed by a company that sells products or services. The use of such wallets is limited to the purchase of products or services offered directly by the issuer of the wallet; these apps cannot be used for money transfers or payments to third party providers.
🟢 Semi-closed.
Such apps allow users to conduct transactions at listed merchants and stores – both online and offline. To accept such payments, merchants need to sign an onboarding agreement with the wallet issuer.
🟢 Open.
Open digital wallets are issued by a bank or other organization in partnership with a bank. These apps allow users to make any type of transaction, including payments, transferring money between financial institutions, withdrawing cash from ATMs, etc.
Classification by Delivery Technology
This classification is based on the delivery technology.
🟢 NFC.
NFC stands for Near-Field Communication. In short, this technology is a form of contactless payment that enables data to be exchanged between devices that are close to each other – for example, between a smartphone and a payment terminal. It also enables the transfer of funds. The advantages of this delivery technology include easy connection to the ecosystem of e-payment services and a high level of security.
🟢 iBeacon and Bluetooth payment.
Wallets equipped with the Bluetooth iBeacon-based payment method enable contactless data transfer within a certain distance range (up to 70 meters on average). This delivery technology enables electronic payments, is characterized by ease of use, can reduce the requirements on a payment terminal and costs, and can therefore be used more widely.
🟢 Optical/QR code.
Such wallets allow consumers to use their devices to make online and offline payments almost anywhere – e-stores, grocery stores, coffee shops, taxis, etc. A simple tap and scan is all it takes to complete the transaction. The payment information is tokenized, encrypted and contactless.
🟢 SMS-based payment.
These apps allow payments and accounts to be managed via SMS commands and are used in P2P marketplaces and C2B transactions. This delivery technology allows to make payments via a smartphone even when the Internet is turned off, but it is not flexible enough to be widely used.
🟢 Digital delivery technology.
These apps are for online payment only. They are easy to install and use, but useless when it comes to offline payments – digital delivery technology can be used for offline payments in rare cases and under certain conditions.
Classification by Goals
E-wallets have long been a part of everyday life. To win over users and stand out from competitors, issuers constantly add advanced features to their solutions. Depending on the added functions of a digital wallet, they can be used for different purposes:
🟢 Storage and exchange of cryptocurrencies.
Cryptocurrency digital wallets enable secure storage and exchange of crypto assets, protect and validate transaction information, and store private keys. There are hot and cold crypto wallets. Hot wallets are always connected to the internet and include mobile, desktop, and hybrid solutions, while cold wallets are hardware-based and not connected to the internet.
🟢 Money management.
These wallets aim to give users maximum control over their spending and financial habits. They often come with advanced reporting – this function of digital wallet provides deeper insights into one’s spending patterns and helps to reach financial goals.
🟢 Online payments.
Such wallets allow all kinds of online payments and provide fast transactions. They support a wide range of devices and are compatible with most debit and credit cards.
🟢 Money transfer.
Just like other types of digital wallet, these allow all kinds of online payments. However, their function is to provide users with fast and secure local and international money transfers. Such apps help save on transfer fees as they don’t require the involvement of a third-party provider in the process.
Monetization Possibilities
There are multiple ways e-wallet can make money. But essentially, they all boil down to the following:
• Charge users for cash withdrawals, cross-border transfers, etc.
• Charge transaction fees from merchants or banks. For example, a bank that issued users’ connected payment cards pays a certain amount to the wallet issuer. This way, Apple charges 0.15% for each payment made through Apple Pay.
• Generating interest income from customer funds held in partner bank accounts.
• Sale of anonymized and aggregated users behavioral data.
However, before an e-wallet can turn a profit, it has to establish a strong market presence and grow the user base.
Digital Wallet Trends
There’s no doubt that mobile wallets will continue to dominate the way people make purchases. But what can we expect from these apps in the coming years? Let’s explore the key digital wallet trends and the technologies driving their development.
🔸 Extensive Use of AI & ML
When it comes to users’ money and sensitive data, security is crucial. Banks and financial companies have been actively investing in AI- and ML-powered fraud prevention solutions lately, so the chances are that digital wallet issuers will pick up on this trend. The scope of these technologies in the fintech space is immense – from improving decision-making and automating customer service to virtual financial assistants and predictive analytics.
🔸 Advanced Biometric Authentication & Verification
We are all used to biometric authentication being applied in financial apps to log in or verify transactions. The most common techniques for biometric check are fingerprint and retina scanning, face recognition, and vein mapping. However, data breaches still occur, leading to identity theft and fraud. As fraudsters’ methods become more sophisticated, financial service providers need to move forward more advanced options to protect users’ data and funds.
🔸 Increased Adoption of Voice-Activated Transactions
Voice-enabled transactions haven’t been on the rise in the financial industry, however, this digital wallet technology is expected to become more widespread. To implement voice-controlled authentication and transaction verification, wallet issuers leverage AI capabilities – either by integrating existing voice recognition solutions or developing their own.
🔸 Increase in QR Codes
The benefits of QR technology include flexibility, convenience, efficiency, affordability and a wide range of applications. It’s no wonder that more and more businesses want to give their customers the ability to pay with quick response codes, and digital wallets are expected to meet that demand.
Keys to Get Users Love Your App
As mobile wallets have evolved over time, users’ expectations of them have also grown rapidly. And when it comes to the features digital wallet offer, users want more than just high transaction speed and data security. Below, we explore winning digital wallet features that will help you win users love and make them recommend your app to others.
🔸 Smooth Onboarding Flow
There’s only one chance to make a first impression. In this regard, registration and onboarding can either make it or breake it – high drop-off rate is often caused by a confusing registration process. Users don’t want to be confused, they want to complete their tasks quickly and without extra effort. A smooth onboarding flow is a powerful tool to delight users from the start and get them to keep engaging with the app.
🔸 Frictionless User Experience
The role of user experience cannot be overstated, especially when it comes to a fintech app that users trust with their financial assets and sensitive data. This way, it is crucial to ensure the best user experience possible. The most efficient way to achieve this is to have a well thought-out app design and ensure intuitive navigation.
• The best user interface is an invisible one that helps users focus on their goals and guides them to what they need.
• As far as navigation goes, it’s about structuring an app to be simple and efficient, not just about design aesthetics. It needs to be consistent and simple, and provide a clean interaction that relates to the physical way users interact with the navigation in a variety of contexts.
🔸 Reward Programs
Mobile wallet rewards are an effective brand loyalty strategy. They can be loyalty points that users receive exclusively for performing desired actions within the app, which can then be spent on something; or cashback for payments at certain merchants; financial referral programs; etc. Whichever option you choose, it will boost user engagement and help increase the number of users by encouraging them to recommend your wallet to their friends, colleagues and family members.
Of course, all of these are add-ons that cannot exist in isolation and should be built on top of an efficient, robust, and well-designed application. The core digital wallet features are described in the next section.
Core Components & Costs
Let’s explore the basic features of the digital wallet and their cost. Please note that all estimates are rough and can go either way. For simplicity, features are estimated in labour hours – to express it in monetary terms, multiply the labour hours by the hourly rate of your software development partner. On average, the hourly rate of experienced fintech developers starts at $40.
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