Digital wallets have changed the way people pay, making transactions faster, more secure, and more convenient. Instead of carrying physical cards or cash, users can store their payment details on their smartphones and complete purchases or send money with just a tap or a click.
At Remitly, we understand how important it is for businesses to offer payment options that work for them and their customers. And for you to have the convenience of the method available to you. So here’s our lowdown on this popular payment method.
Digital wallets: a brief history
Digital wallets first came onto the payments scene in the late 1990s when online shopping began to grow in popularity. Platforms like PayPal started to emerge, offering a secure and convenient way to store payment information and complete transactions.
The rise of smartphones and mobile payment technology in the 2010s saw a major shift in digital payments, with companies like Google and Apple introducing mobile wallets that used Near Field Communication (NFC) to allow users to make contactless payments by simply tapping their phones on a device like a card reader.
As banks and retailers began integrating these payment options into their systems, digital wallets became a mainstream alternative to cash and cards, particularly in markets where mobile adoption was high.
Into the mainstream
Today, digital wallets are more widely used than ever. By 2023, more than 89% of consumers in countries like India, Indonesia, and Thailand were using this payment method, with the same being true for 53% of consumers in the United States.
This is, in part, because digital wallets offer greater speed, convenience, and security than traditional payment methods. Another reason is their continued use after COVID-19, where shoppers were encouraged to use contactless payment methods.
Their popularity shows no signs of waning, either. The value of digital wallet payments worldwide is expected to be more than $25 trillion USD by 2027—that’ll be 49% of all e-commerce and point-of-sale transactions.
Who uses digital wallets?
Loads of people use digital wallets nowadays, but there are certain groups who tend to favour them more than others.
For starters, younger consumers like Millennials and Gen Zs are more likely to use this payment method than any other. Nearly 80% of Gen Zs report using digital wallets, as do almost 67% of Millennials, compared to just 26% of Baby Boomers and other, older age groups.
This is partly down to younger people’s confidence and comfort with using technology, and their preference for seamless, contactless payment methods. The convenience of integrating multiple financial functions into a single app, along with advanced security features like biometrics and encryption, makes digital wallets attractive to them.
Considering that Millennials, Gen Z, and Gen Alpha—the generation that follows Gen Z—have more than half of the world’s buying power, businesses really have no choice but to offer digital wallet payment options if they want to stay competitive.
The impact of digital wallets on e-commerce
Consumers paid just under $3.1 trillion USD to e-commerce businesses using digital wallet payments in 2023, which made up half of all e-commerce spending around the world.
Mobile shopping has a fair amount to do with this. With smartphones becoming central to consumers’ daily lives, they’re increasingly relied on to find products and make the actual purchases. In 2023, 72% of global ecommerce sales were made with mobile devices, totalling a staggering $4.34 trillion USD.
One reason for this might be how easy it is to make payments with mobile wallets. They speed up the process and encourage more frequent purchases. Plus, with many wallets including loyalty programs, targeted special offers, and spending insights, they provide the personalised shopping experience younger consumers are looking for.
So consumers expect seamless, secure, and swift transactions, and digital wallets deliver just that. That’s why, as we said, businesses that want to stay competitive absolutely must integrate digital wallets into their payment options.
The benefits of digital wallets for consumers and businesses
Digital wallets have transformed the way people pay and get paid. But their success is about more than just convenience. From faster, more secure transactions to improved customer satisfaction, they make the shopping experience better for buyers and businesses.
Convenience
The convenience of effortless and instant payment is a major reason why digital wallets have become so popular. That’s especially true for online and mobile shoppers—they expect quick, easy transactions and don’t want to have to enter their debit or credit card details manually.
Offering digital wallet payment options can be really good for business, too. In the United States, 22% of shoppers reported abandoning their carts because the checkout process was too long or complicated. Plus, 17% of shoppers worldwide didn’t complete transactions because their preferred payment method wasn’t offered.
By giving customers the digital wallets option they’re looking for, businesses are more likely to keep them happy and boost their bottom line.
Security
Digital wallets also make payments safer, another big reason why so many people are using them.
For a start, digital wallet apps are encrypted. This ensures that users’ sensitive financial information is securely stored and transmitted, making it much harder for hackers to intercept their data. Plus, tokenisation—replacing the actual data with encoded, replacement data that’s meaningless to hackers—means that merchants never actually handle the customer’s real payment information.
Biometric authentication—like fingerprint or facial recognition—ensures that only the wallet owner can approve transactions, too. These security features help businesses reduce the risk of fraud, which can cost them a lot of money. Some countries have very strong data protection laws, too, and digital wallets help businesses comply with these security regulations.
Flexibility
Digital wallets allow consumers to hold money and store multiple payment methods in one place, so they can choose their preferred method—which bank account to take the money from, for example. This also makes people a bit more likely to spend more, which is of course exactly what businesses want.
According to research, 89% of consumers will be faster to make a purchase when they can use their favourite payment method. And 84% will buy more expensive items when they’re offered flexible payment options.
When shoppers can use their preferred payment method without hassle—and that payment method doesn’t make them complete multiple steps to send money internationally or locally—they’re more likely to complete their purchases.
Challenges and considerations around digital wallets
While digital wallets offer speed, security, and convenience, they also come with challenges that both consumers and businesses need to consider. Understanding these potential drawbacks can help you, and the businesses you buy from, make more informed decisions about using them.
Device dependence and accessibility issues
Unlike cash or physical cards, digital wallets depend on technology that not everybody has or wants, like an internet-connected smartphone, tablet, or other device, and a stable connection. Even if they do have a smartphone, for example, they could be locked out of purchases if it’s lost, stolen, or runs out of battery at the wrong time.
For businesses, this can make things difficult in remote regions where, for example, the phone signal is poor or the internet really slow. This can limit a company’s choices about the payment methods they offer, and can be very frustrating for customers.
Another issue on the retailer side is compatibility. There are loads of digital wallets out there—from PayPal to Careem—and businesses need to ensure that their payment system is compatible with as many different wallet providers as possible to offer the best customer experience.
Regional and regulatory challenges
Digital wallets may be convenient, but they don’t all work everywhere. Some wallets are widely accepted in certain countries but unavailable in others, making it harder for travellers and international shoppers to rely on them.
Besides their own platforms, every country has its own laws on data security, anti-money laundering measures, and financial transactions. This means that the compliance measures companies take in one country may be completely useless in another.
On top of that, some people are concerned about how dominant major tech companies have become in the digital wallet market. According to the UK’s Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR), Apple Pay and Google Pay saw a 21% increase in market share of digital wallet transactions from 2019 to 2023.
If this trend continues, it could limit competition and innovation, and lead to less favourable terms for both shoppers and businesses. In fact, Apple and Google are actually being investigated in the UK to see if they’re competing unfairly.
Security concerns
Unfortunately, because they store financial information on a digital platform, digital wallets are automatically a target for cybercriminals. For instance, hackers have been known to use malware attacks to steal from digital wallets.
For both customers and businesses, this can lead to criminals gaining access to sensitive personal and financial data. Shoppers can lose money and have their identities stolen, while businesses might suffer reputational damage, legal consequences, and financial penalties.
The future of digital wallets
As we move towards a cashless society, digital wallets are quickly becoming the norm pretty much all over the world. By 2026, the number of digital wallet users worldwide is expected to reach 5.2 billion; that’ll be over 60% of the global population.
One reason for this is that digital wallets help people in countries where the banking system may not be well-developed, or where in-person banking services are hard to access. In those regions, mobile payment solutions provide people without bank accounts or access to financial services the ability to send and receive money.
Another trend that’s driving the rise of digital wallets are “super apps”—like WeChat—in modern countries where almost everybody has mobile phones. These combine multiple services like payments, shopping, and communication, making digital wallets even more attractive to shoppers.
Handy, but be cautious
Digital wallets offer both shoppers and businesses speed, security, and flexibility in payments. They make things easier and safer for you and save you from having to carry cash or debit cards around.
But considerations like device dependence, regional security regulations, and cybercrime concerns mean you and your preferred businesses alike need to stay informed and make thoughtful choices about how to use them.
FAQs
Why do people prefer digital wallets?
Digital wallets offer more convenience, better security, and faster transactions than traditional payment methods. They also allow users to store multiple payment methods digitally, stopping them having to carry physical cards or loads of cash.
When did digital wallets become popular?
Digital wallets started booming in the early 2010s, when smartphones and mobile payment technologies like NFC began to become more popular. The COVID-19 pandemic accelerated their usage as consumers and businesses looked for contactless payment options.
What’s the growth rate of digital wallets?
The digital wallet market is growing quickly, with projections indicating a growth rate of 15% every year for online transactions and 16% for point-of-sale transactions from 2023 to 2027.
What’s the future of digital wallets?
The future of digital wallets includes integration with “super apps” and increased adoption in places where they’re not yet common. These trends suggest digital wallets will continue to evolve, offering more versatile and comprehensive financial solutions.