Digital wallets, also known as virtual wallets, are becoming increasingly popular worldwide. In fact, the technology is anticipated to eventually replace the standard method of carrying credit cards in a physical wallet or purse.
This is exciting news for merchants because it will ultimately make it much easier and quicker to process credit card transactions, and these wireless payments can also verify the identity of the digital wallet holder. In addition to ease-of-payment, mobile transactions offer merchants more ways to engage customers by allowing applications such as reward points, discount offers, and promotional messages to be easily placed on the users phone at the right time for the sale.
What Exactly is a Digital Wallet?
The term “wallet” refers to any software that involves payment mechanisms on a mobile device. A digital wallet enables smartphone or tablet users to access all of their pertinent financial information from their device anywhere they have signal. In other words, instead of placing their license, credit cards and cash into a wallet that they carry in their back pocket, each person can have all this data stored securely on their phone.
This information can then be easily transmitted to the merchant’s credit card processor at the point-of-sale. Although there is always the risk that an individual could lose their smartphone, it is still considered to be much safer than dealing with potential pickpockets, or situations when someone’s magnetic stripe card is cloned after it is swiped. Because no physical card is actually be presented in a mobile wallet transaction, it becomes much more difficult for thieves to get their hands on sensitive data.
How do Wireless Payments Work?
Digital wallets transfer data via a process called near field communication (NFC). This technology uses radio waves, and it works whenever the smartphone taps or comes near a credit card terminal that has the ability to accept wireless payments. Gas stations have been using a similar method for many years at the pump, and the speed of paying for something with a simple tap has made the technology very successful. Major brands like Starbucks, Apple, Gap, Disney, and Nordstrom are already on board providing mobile payment options for their customers. Next time you’re in line at Starbucks and see someone wave their phone past the customer-facing scanner, you will know a mobile payment just happened.
What are Some Examples of Digital Wallets?
Google Wallet is a prime example of this technology, and it has become popular due to the strength of the Google brand. With Google Wallet, individuals can easily store all of their credit card information in their smartphone, and they then use their phone on applicable credit card terminals to complete their purchase. Google Wallet can also be used to store coupons and other offers, makeing the entire process faster and more eco-friendly.
Cell phone providers are also stepping up to the challenge of creating reliable virtual wallets. For example, Boost Mobile has been testing the technology for Android users in three markets, and they recently announced that the service will be available nationwide by the end of the year. There are over a hundred digital wallets being offered currently, with each vendor searching for solutions that will help their product rise to the top. The market for digital wallets is still very young, and as merchants and customers alike become more familiar with the benefits of the technology, it’s going to be exciting to see this product mature.
How can Customers Benefit from Digital Wallets?
It is much easier for a customer to have everything stored in one place than to bring a stack of credit cards and coupons with them to the store. For this reason alone, many consumers have already made the switch to Google Wallet, or similar app. Customers want a more secure and comprehensive method for keeping all their payment data at their fingertips. This technology can also help prevent consumers from forgetting their credit card after it has been swiped. It’s a bad feeling when you don’t know if your card is still at the resturant you ate at last night or in the hands of someone checking out at Best Buy right now.
Integrated and highly effective loyalty programs offer one of the greatest immediate advantages of mobile wallet applications to customers and merchants. This is what Starbucks is doing, and it’s working extremely well. Business owners are acknowledging that the modern loyalty program must go beyond a paper-punched card (that always gets lost before a reward is earned anyways!). As smartphones become more and more commonplace, technology is available to help keep track of customer loyalty points. This is key, because customers are expecting their merchants to remember them, and remember their purchases. A comprehensive point-of-sale tracking system is required to deliver this level of service to your customers, and the mobile payment option is an imperative component to delivering this level of service. Customers already use their phones for everything else under the sun, and when you try and hand them a plastic loyalty card the response is, “umm…everyone else just sends them to my phone, can you do that?”
Simply tapping a smartphone against a credit card terminal is “cool” and hassle-free. But beyond the “cool” factor, more robust security features actually make this technology safer. Data is encrypted from the moment it leaves the users smartphone. Additionally, consumers will be given a sense of security by using one of these virtual wallets because they will not be exposing their physical credit card to anyone, or swiping their traditional magnetic stripe card. Would you guess that “cloning” of magnetic stripe cards has become the number one form of card fraud? As fraudsters continue to prey on vulnerable magnetic stripe cards, consumers will demand more robust security features provided by new technologies.
From a business owner’s standpoint, it is essential for each new technology to be worth the applicable financial investment to upgrade their existing point-of-sale system. Fortunately, the pros of virtual wallets vastly outweigh the cons. One of the major perks for any business is that there will be less physical interaction with credit cards, and this can help reduce a merchants potential liability. The EMV mandate from the major card issuers states that by October of 2015, all merchants in the U.S. must have their systems updated for EMV ready and contactless terminals. The major card issuers are pushing contactless technologies specifically because they offer more secure channels for payment. Another perk is that digital payments tend to be received and processed more quickly than manually swiping a card. Every second that is saved will make it easier to speed up the checkout process, helping you as a merchant deliver cutting edge service to your customers even during the busyiest season.
The fact that virtual wallets can verify the user’s identity at the same time that the payment is received is definitely a good reason for business owners to embrace this technological advancement. Accepting virtual wallets will also give customers the impression that the business owner stays up to date with all of the latest electronics, and this can increase consumer confidence in the products or services that the company. This improved brand conficene means customers will be coming back!
Are There Cons of Offering this Technology?
One issue still facing the widespread adoption of mobile wallets is the lack of near-field-communication (NFC) capabilities on consumer phones. Simply put, lots of smartphones do not have the ability to make complete digital payments. They can all facilitate the loyalty programs and redeem digital coupons, but can’t facilitate a credit card charge through the phone. The good news is phone carriers and merchant procesing equipment providers are working quickly to solve this. It is estimated that by 2016, 46% of all mobile phones will have NFC, making them capable of mobile payments. A company called DeviceFidelity is already developing an NFC sleeve for the iPhone so their should not be a problem for iPhone users to facilitate digital payments in the very near future. AT&T, T-Mobile, and Verizon Wireless are already gearing up to provide close to 20 mobile payment ready devices by the end of the year.
As with any other electronic device, it is possible that store owners will experience occasional glitches with the software. For example, the wireless system could temporarily stop working or the credit card machine might not be able to recognize the necessary information from a customer’s smartphone. However, issues of this type currently happen with the process of running physical credit cards, so it is unlikely that this potential problem would be a deal breaker for most businesses.
As digital wallets become more commonplace, owners will have to ensure that they have the proper security measures in place to protect the information that is being transmitted via NFC. After all, hackers will eventually discover a way to steal credit card information from machines that are not properly protected. Fortunately, virtual wallets have the ability to be safer than magnetic stripe card readers, so business owners should not let the fear of hackers get in the way of implementing this technology.
How Quickly will Consumers Embrace this Payment Method?
Although virtual wallets are becoming popular around the world, they are currently more popular in Japan than anywhere else. However, this trend is not likely to continue for much longer. After all, 50 percent of American consumers already have a smartphone, and several banks now offer virtual wallet apps. Therefore, it is highly likely that this technology will be in place in most businesses within the next few years. As more major brands roll out their own mobile payment systems, and consumers become more aware and comfortable with the benefits of the technololgy, demand will increase quickly. In order to keep up with the competition, it is definitely a good idea for business owners to consider accepting this form of wireless payment soon, and having it in place will make it easier to attract consumers, build confidence in your brand, and keep shoppers coming back.
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Your MBN Team