Tapping from 6 Feet Apart: The Evolution and Rise of the Mobile Wallet Following the COVID-19 Pandemic
Pay It Backward: The History of the Mobile Wallet
Only three decades ago, the concept of making monetary transactions using a mobile device was completely non-existent. However, all of this changed in 2011 when Google introduced Google Wallet, making it the first major company to provide a mobile wallet. Users could make payments, earn loyalty points and redeem coupons, using a technology known as near field communications. In the following year, Apple Passbook, an app that allowed users to store boarding passes, tickets, and coupons, was launched. In 2014, Apple Pay was announced with Apple’s new app, Apple Wallet, which offered users the extended platform to now store credit cards, debit cards, and prepaid cards. Now, in 2020, the use of digital wallets has become more popular than ever and continues to grow exponentially.
Why has the use of digital wallets exploded?
The digital wallet offers users the ability to carry all of their debit, credit, and loyalty cards in their phone. For example, with Apple Pay, the app links to the user’s accounts, removing the need to physically carry the payment cards. Plus, people are constantly forgetting their wallets at home or in their car, but they rarely leave anywhere without their phone.
Through digital payments, you can complete a transaction in a matter of seconds using a digital wallet by tapping the smartphone at the checkout terminal.
Digital payment offers more enhanced security than any other means of payment. Unlike the physical wallet, digital wallets are usually password protected. Additionally, when the payment is made in-person or online, rather than providing the company with your card number, the transaction exchanges a unique transaction identifier which can help enhance the security of your data.
From Cash to Digital: the Pandemic Catalyst
The turn of the decade was followed by an unprecedented global shutdown due to the COVID-19 pandemic that has affected the lives of billions. As the virus spread, economies began to collapse and governments sanctioned shelter-in-place orders, forcing many businesses to re-evaluate their transaction models to accept payments from smartphones. Additionally, the virus has led to the rise of digitality and this progression has been prominently seen in the financial industry.
As contactless payment has become the norm, cash no longer has the upper-hand. In September 2020, Terry Angelos, SVP Global Head of Fintech at Visa shared how Visa uses innovation to incorporate technologies such as crypto and blockchain, into its operations. According to PSCU, with COVID-19, Card-not-present (CNP) transactions have experienced an uptick, with debit CNP volumes up an average of more than 40% year over year and credit volumes up 15%. Even before the pandemic, shifting consumer preferences were becoming apparent in the digital space, with more consumers adopting online banking, downloading payments apps, and changing how they interact with their financial institutions. Hence, digital payment may remain permanent as the COVID-19 pandemic has accelerated its integration into people’s lifestyles.
Cold Hard Reality: Who Gets Hurt When the World Stops Using Cash
Here’s the COVID-19 reality: You place your usual coffee order through the Starbucks app, pick out a new pair of jeans with just a tap of your phone, and use Amazon Go to get groceries delivered to your doorstep. All this completed in a matter of seconds and without the extra weight of cash and coins in your pockets. However, as convenient as it sounds, the drawbacks of a cashless society outweigh the benefits.
As businesses across the United States are going cashless with their transactions, smaller companies are especially at a competitive disadvantage. Why? To put it simply, smaller business often have less established foundations and consumer markets, as well as the lack of an economic moat. This means when change — big or small — occurs in the market, the business lacks the advantage over its competitors to help protect its market share and profitability. Putting COVID-19 back into the picture, these smaller business lack the digitality and adaptability to the new technology being used, and thus, they must exit the market. However, not are the businesses being affected, but also consumers who do not have bank accounts or credit cards.
Consumer advocates argue that companies who reject cash disadvantage two main demographics, namely:
- People who lack bank accounts;
- People who are wary of a loss of privacy and vulnerability to hacking with electronic payments, or simply prefer cash.
In 2019, about a quarter of American adults were unbanked or underbanked, meaning they lacked a bank account or had one, although the Federal Reserve found that substitutes such as check-cashing services were also used. These people are likely to be in a minority racial or ethnic group, have lower incomes and be less educated.
Tackling the former problem, some states, including New Jersey, California, and New York implemented the law that mandates acceptance of cash. However, as the pandemic grew worse, it has become more difficult to comply with this law. This is because an increasing number of restaurants and stores began offering the option of online ordering and digital payment to reduce physical interaction and the risk of infection, which has led them to have less physical cash. Moreover, due to the city lockdowns, coin shortages have occurred city-wide, which makes it difficult for stores everywhere to give change. As a result, the overall physical cash flow in the economy has diminished, which further increases the incentive for businesses and consumers to go cashless.
Money on My Mind: Adapting to the Rise of Mobile Wallets
The COVID-19 crisis offers a sudden insight into a future world, one in which digital has become crucial to any interaction, forcing organizations and consumers to adapt and change their models overnight. A world in which agile approaches to working are a prerequisite to meeting daily changes to customer behavior. Nonetheless, if a silver lining can be found, it would be the falling barriers to spontaneity and experimentation that have arisen among customers, markets, regulators, and organizations. So how can we make the most of this situation? The solution to adapting to the increased use of digital wallets is knowing your resources. Social media has never been more convenient than now. From Facebook Marketplace to Shops on Instagram, the solution to all your retail needs are held in the palm of your hands. Furthermore, as these marketplaces are built on social platforms, buyers and sellers can communicate efficiently to complete their transactions. Moreover, an increasing number of consumer retail companies, such as Starbucks, UberEats, and Zara have promoted and updated their applications to better cater to the needs of their demographics during the pandemic. Ultimately, the key to surviving this transition to digitality as a consumer is to know and love your phone.
The Two Cents
Living in a worldwide pandemic means a lot of change, especially for the economy, which ultimately affects everything and everyone. But with advanced technology, our lifestyles haven’t been limited by much. While some have been living this lifestyle prior to the pandemic, others have been struggling to adapt to the increased digitality of our world. As such, a cashless society might not be as good of an investment as it sounds. Overall, although the rise of the digital wallet has drastically increased in the past nine months and increased the convenience of transactions, it may create more drawbacks in the economy than benefits.
Author: Carrie Lu