Welcome to the era of the digital wallet.
Not sure what that is? In short, it’s technology that allows you the convenience of conducting transactions on your smartphone, computer or tablet without a physical card. When making an online purchase, for example, instead of typing in all the digits of your credit card, plus the expiration date and security code, you can access the card number through your digital wallet and make the transaction almost instantly. Or if you’re conducting business in person, you just scan your phone in front of a reader for payment without any contact.
Take a Look: Apple Pay and 4 Other Digital Wallets That Are COVID-Safe
Other Changes: Handshakes and More Office Rules Changed by COVID
During the COVID-19 pandemic, digital wallets have become even more popular, according to a recent survey from Chase that looked at consumers’ relationship with cash, savings and digital banking tools one year after the start of the pandemic. The survey found 47% of respondents started or continued to use contactless payment options in 2021 to avoid physical interactions amid the pandemic. Additionally, 73% of respondents said contactless payments were a more convenient form of payment.
“More and more consumers are expecting these digital options, and banks and fintechs will continue to supply them in order to stay competitive,” said Jerry Craft, a veteran of the credit card industry who now is the CEO of Corserv, which empowers banks and fintechs with payment programs. “In the industry we are seeing ‘card holder’ change into ‘account holder’ as we move more toward a physical cardless world.”
What Are Examples of a Digital Wallet?
A digital wallet is, more or less, an electronic reproduction of the wallet in your pocket — without the cash. It holds your credit card information, and it gives you access to your to store loyalty cards and even your airline and other tickets. An advantage is you don’t have to carry a variety of cards and documents and risk losing them, plus your payments are simplified.
Even if you haven’t dipped into digital wallets, you’ve undoubtedly seen the signs for them when checking out at a store or even your bank’s ATM. They include Apple Pay, Google Pay and Samsung Pay straight from your smartphones, Fitbit Pay from your Fitbit and Garmin Pay from your smartwatch. Money transfer services PayPal and Venmo also qualify as digital wallets.
While credit card accounts aren’t going to go away, we’re trending away from carrying actual cards.
“Digital wallets are here to stay. Apple, Google, PayPal, Goldman Sachs are investing billions of dollars to make conventional credit and debit cards obsolete. We already see this trend gaining traction in India,” said Nilesh Mehta, the founder and CEO of Independence Bridge Consulting in Philadelphia. “It’s not that technology has gotten much better over the past 10 years, it’s that these companies have been able to consolidate many popular features into a single device — think digital cameras and the iPod. The average American has several credit cards which are becoming a liability because they often lose them. Even banks are recognizing Americans enjoy the convenience these technologies have brought them and providing consumers with the option to use their credits on mobile apps is one of them.”
Will Credit Cards Become Obsolete?
That’s unlikely since people still need access to credit to pay for goods and services in many instances.
“Today most mobile wallet functions are tethered to a credit card or bank account, so there is little risk of them replacing credit cards in the current form,” said John Cabell, director of banking and payments at J.D. Power, a leading consumer intelligence firm. “And in fact, J.D. Power research shows that tethering a credit card to a mobile wallet increases satisfaction with the mobile experience.”
Of greater risk to the conventional credit down the road are the emerging payment platforms that can replace credit card usage. Among them are “buy now, pay later” services that retailers are introducing. Target announced Oct. 6 that it was adding the option through a partnership with Affirm and Sezzle to allow customers to extend the payments on certain purchases in lieu of using credit cards. Other retailers, including Walmart and Amazon, allow for similar payments.
“These services bypass the need for a credit card and provide an alternate method of making a payment. In fact, nearly half of customers using buy now, pay later installment loan services express they would have used a credit card for the transaction as a second choice,” Cabell said. “As these payment methods rise in popularity, so does the threat to credit cards.”
Advantages and Disadvantages
The benefits of digital wallets revolve around convenience and flexibility, said Len Covello, the chief technology officer at Engage People, a global loyalty program.
“Having access to all payment options in a single digital wallet makes it easier for consumers to pay with their preferred method during any given transaction,” he said. “For example, through digital wallets, consumers can manage all of their loyalty points across various loyalty programs, and in some cases, spend those loyalty points at whichever retailer they choose.”
A disadvantage? Not all consumers, particularly older ones, feel comfortable quite yet with the technology and are having to catch up with the help of grandchildren, for instance. But the pandemic seems to have spurred greater interest in paying in ways other than cash for seniors.
Consumers 65 and older paid by cash 26% of the time in 2020, down 7 percentage points from 2019, according to the Federal Reserve’s Diary of Consumer Payment Choice Study. Cash was still the preferred method of payment for the age group.
More From GOBankingRates
More From GOBankingRates
Last updated: Oct. 8, 2021
This article originally appeared on GOBankingRates.com: Will Digital Wallets and Payments Replace Credit Cards?