Digital Wallets are Evolving – What Does This Mean for Financial Institutions?

The rise of digital wallet technology demonstrates a significant shift in consumer payments behavior, with solutions such as Venmo, Zelle, Apple Pay and PayPal dominating the market. In fact, over 3.5 billion people worldwide are using eWallets, and that number is expected to grow to 5.2 billion by 2026.

This shift in payments behavior makes sense – consumers are increasingly more confident in digital wallet security, and the convenience of digital wallets when making a purchase or submitting a payment is unmatched. When transactions are hassle-free and quick, it creates a positive experience that encourages repeat business. These benefits are something financial institutions across the U.S. are paying attention as the assess their instant payments strategy.

As the demand for instant and secure payments continues to rise, banks and credit unions have a unique opportunity to capture additional market share, improve customer products and experiences, and drive deposit activity.  

‍Let’s Start with the Basics: What Is a Digital Wallet?

Consumer adoption and use of digital wallets paints a picture of what today’s account holders want in a transaction experience. However, it’s important to note that not all digital wallets are the same, nor do they support the same use cases.  

One of the most popular digital wallets, the Apple Wallet, is an example of a phone wallet that stores different payment methods – primarily cards, to be used at point-of-sale (POS). Essentially, it’s an electronic wallet that keeps your cards, boarding passes, loyalty programs and even tickets for events all in one convenient location. As convenient as this is, not all POS systems accept Apple Wallet or “tap to pay” mechanisms, which can cause challenges for smaller markets in the U.S.

PayPal is another popular digital wallet solution. However, unlike Apple Wallet, PayPal functions almost like a bank, storing value in its platform to be spent on a variety of transaction types. Users are able to keep money in the platform to complete both peer to peer (P2P) and consumer to business payments. In addition to PayPal, there are other immensely popular apps, CashApp and Venmo, which operate much like cash transactions and are widely appreciated for the ability to quickly and easily send funds to a peer or small business.  

‍Consumer Want Instant Gratification

The ways in which users engage with these apps demonstrates a shift in customer preferences and rapid adoption of instant experiences. What does this mean for banks and credit unions?

Consumers are asking for instant payments, and their buying behavior reflects that. This shift in consumer payments preferences is disrupting traditional financial services players, as both merchants and consumers see benefits from the adoption of digital wallets.  

As more institutions integrate with the new faster payment rails, such as FedNow, a strategic focus on payments as a horizontal offering within banks and credit unions will be crucial for driving deposit growth and revenue. This is an area in which a strategic payments partner like Pidgin can help.

To learn more about trends in consumer behavior, A2A payments and how to integrate faster payments into your financial institution’s product offerings, check out our latest whitepaper, “A2A Consumer Behaviors: How FIs Can Capture Digital Wallet Market Share.”