Ever since magnetic strips were added to credit cards in the 1970s, their uses quickly ballooned due to the significant advantages they offered over physical cash. Pocket-sized, easily portable, secure, and with no intrinsic value of themselves, credit cards quickly won over consumers. But innovations in digital payments may spell the death of physical debit and credit cards as we know them, making room for the digital wallet.
A digital wallet, sometimes called a mobile wallet, is simply an electronic reproduction of the wallet in your pocket, sans cash. It can hold credit card information that you can use to instantly pay online or at physical vendors using a contactless payment processing device. It can also give you access to loyalty cards, plane and concert tickets, and just about anything of value you’d think to carry with you at all times.
Some apps that easily allow you to port your credit cards on your phone include Apply Pay, Google Pay, and Samsung Pay. Fitbit Pay and Garmin Pay are some examples of digital wallets for your smartwatch. Paypal and Venmo, popular money transfer services, can also be seen as digital wallets.
Current trends suggest that digital wallets are the future, trends that have only been amplified by the pandemic and its underlying physical restrictions. According to a recent survey from Chase Bank, 47% of respondents said they started or continued to use contactless options in 2021, with “more convenient” cited as the main reason.
“In the industry we are seeing ‘card holder’ change into ‘account holder’ as we move more toward a physical cardless world,” 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.
The trend is clear: physical cards are rapidly becoming obsolete, making room for the digital wallet and mirroring the meteoric adoption rate of other fintech innovations, such as digital paystubs.
“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.”
Not all consumers, particularly older ones, are comfortable quite yet with the technology. However, the pandemic seems to have spurred greater interest, and this can be seen in fewer cash transactions than ever. American consumers aged 65 and older paid by cash 26% of the time in 2020, down 7% from 2019, according to the Federal Reserve’s Diary of Consumer Payment Choice Study.
But looking even further down the rabbit hole, what could the future look like, even beyond digital wallets? The next step in payment processing may be using biometric authorization, such as fingerprints, iris scans, and facial recognition. And just like we now make purchases with internet-enabled devices, such as those from Amazon and Google, perhaps we’ll make purchases through cars and even refrigerators (think automatic grocery restocking based on the inventory inside the refrigerator).