The Future of Money: Mobile Payments and Digital Wallets
Digital payment systems are a transformative force in fintech, and have completely changed the way people transact their finances. No longer confined to cash, cheques and cashiers, the global population can now take charge of their finances from their pockets. In just a few taps, bills get paid, cheques are deposited and shopping is paid for. The era of physical money is slowly coming to a halt while digital transactions become the norm. In this article we will talk more about the future of digital wallets, and what this means for the fintech space.
When Did It All Shift?
Digital payment systems and mobile wallet apps aren’t exactly new. But they are definitely gaining traction. So when did it all begin? Unbeknownst to many, the first digital wallet was created by Coca Cola in 1997! They launched a few vending machines in Helsinki that allowed customers to buy a can of Coke via text messages. While this is quite different to what we now understand as a digital payment, it is believed to be the first attempt at doing it.
Google became the first company to launch a mobile wallet app in 2011, followed by Apple’s Passbook in 2012, and some years later, Apple Pay, now considered one of the most prominent players in online transactions.
The last available estimate on global Apple Pay users states that more than 500 million people have Apple Pay activated on their iPhones.
Why is it so popular? Put simply, it’s convenient, safe, easy, hassle-free and a more effective way of managing money and cards.
China’s Model – Our Future
China is leaps and bounds ahead of the rest of the world when it comes to a cashless future. By examining what they’ve achieved, we can gain greater insight into future possibilities ahead of us. China currently has two new payment systems run via two big tech firms dominating how people transact – both of which are built on digital wallets and QR codes. This system largely disintermediates banks from transactions, and allows for an alternative payment ecosystem to develop between consumers and merchants. There are now over a billion users on each platform, and has essentially replaced the use of cards and cash. It even allows people to gift money, give to the homeless and complete everyday transactions without ever going to a cash machine. You can read more about this here.
Enhanced Security and Fraud Prevention
For end customers and organisations alike, digital wallet applications and online transactions can enhance financial security and detect fraud more accurately. On the other side of the coin, there are valid concerns about new safety issues that could emerge as technology grows.
As a plus, advanced encryption and authentication mechanisms make sure that the user’s sensitive financial data remains secure. Furthermore, biometric authentication methods, such as face recognition and fingerprint scans, give customers and organisations extra security in the case of theft or fraud attempts. With digital wallets being quite literally in customers’ pockets, users can monitor their transactions in real-time, empowering them to see fraudulent or unusual activity as it happens, and even receiving notifications when transactions occur. This allows for a fast response to fraud, compared to twenty years ago when you’d have to wait for a paper bank statement.
The downside is, cyber hackers and fraudsters are not stupid, and are frequently updating the ways they can access digital information on both organisations and customers. Sending a text to a customer pretending to be from a fintech app they’re using (such as a banking app, a credit checker or transaction app like Paypal) in the hopes they reveal their log-on details is one method hackers can use. Alternatively they might target the source – the fintech app itself – compromising data of potentially thousands of customers and potentially creating a stream of lawsuits for that company to face.
Keeping up-to-date with the latest tools & practices will help your FinTech firm stay secure.
Integration and Interoperability
Integration and interoperability refers to various payment methods, financial institutions and banks working together to create a streamlined process for the customer. The easier it is for someone to transact, the better the customer experience is the more business that customer will bring you. This integration enables users to link multiple accounts and payment methods, giving optimal flexibility and ease. We are seeing more of this occur, with websites, apps and other platforms embracing multiple ways to connect with other organisations to offer maximum choice and compatibility.
AI and Personalization
AI is everywhere and only set to become more integrated in our lives. AI wallets leverage algorithms to analyse customer behaviour, their financial preferences, and spending patterns. This means that wallets can create customised recommendations, such as discounts and financial advice, to make the user experience more personal and engaging.
Predictive analytics also helps to prevent fraud, so that unusual behaviour is picked up on instantly.
Sustainability is a huge topic right now and one only set to grow as the world becomes more environmentally conscious. The fintech industry is embracing its responsibility to reduce its carbon footprint. Going online means less paperwork, less cash, less printing and therefore fewer emissions. Each debit card transaction contributes just 0.00378 kgCO2e to climate change. That means cashless transactions have a very small impact on the planet. Cash on the other hand has a huge carbon footprint given the energy needed to produce it, the harmful chemicals during the manufacturing process and the emissions in transporting cash.
Fintech can go one step further and offer environmental incentives to customers for using their apps, such as a partial donation being made to a charity. This trend will grow as people continue to become more environmentally aware.
The Bottom Line
Mobile payments and digital wallets create seamless transactions, better personal security for customers, and more personalised and empowering experiences.
For those working in fintech, staying on top of these trends and developments can help you to minimise risk, stay environmentally conscious, offer the best technology to customers, and maintain an excellent reputation in the fintech landscape.
We utilised the power of open banking payments to help individuals who are challenged with cashflow. Read more about AppCash
Call us now to discuss how we can streamline your fintech processes using mobile payments and digital wallets.