The global mobile wallet market size stood at $142.2 bln in 2022 and is projected to grow to $387.8 bln by 2028, according to IMARC Group. Digital wallets are growing in popularity as they allow merchants and consumers to transact directly without employing the services of traditional financial institutions and intermediaries. For example, Block Inc. (formerly Square) had to pay around 60% of all customer transaction fees to third parties in 2022. If they worked directly with clients, they would avoid unnecessary expenses.
Read our article to find out what a digital wallet is, how it works, what advantages and disadvantages it has, how to build a successful e-wallet, and what features it should have.
Digital Wallets: Advantages and Disadvantages
An e-wallet is software that allows you to store money and payment information in digital form. Mobile wallets are usually presented in the form of applications that are installed on a smartphone, PC, smartwatch, and other gadgets. Simply put, this is the digital equivalent of a physical wallet, eliminating the need to carry a wallet, payment cards, and cash.
Benefits of Digital Wallets
E-wallets provide a number of advantages over traditional ways of storing and transferring money. Some of the most notable benefits include:
Convenience
Digital wallets provide a convenient way to store, send, and receive money. They can be used to make fast transactions that are processed in real-time, making them convenient for online payments as well as transferring money between countries. The global digital payments market stood at $96.19 bln in 2022 and is expected to grow to $111.11 bln in 2023 at a CAGR of 15.5%.
Security
E-wallets are protected by a password, pin, or other security measures, making them more secure than traditional methods of storing money. In addition, many digital wallets use data encryption and other security technologies to protect your personal and financial data. The Identity Theft Resource Center considers digital wallets to be safe thanks to up-to-date security measures.
Low fees
Digital wallets usually have low money transfer fees, making them more profitable than traditional money transfer methods, such as bank transfers and credit cards. For example, banks charge $16 to $35 for domestic and international transfers, while Venmo, one of the well-known digital wallets, charges a 1.5% fee.
Availability
These solutions can be accessed anytime and anywhere in the world. You can send and receive money at any time of the day, even when banks and other financial institutions are closed.
Wide range of choice
There are many digital wallets out there and you can choose the one that best suits your needs and preferences. They can be used for a variety of purposes, including online shopping, paying bills, transferring money to other countries, and more. The Juniper Research experts expect the number of digital wallet users to exceed 4.4 billion by 2025.
Disadvantages of Digital Wallets
Despite the many advantages, e-wallets also have some disadvantages:
Security risks
Despite all security measures, digital wallets, like any other online services, become the targets of hacker attacks, which can lead to the leakage of personal and financial data. For example, in 2022, hackers stole almost $4 bln of cryptocurrencies stored in digital wallets. Also, if you forget your password or pin, you may lose access to your money.
An Internet connection is required
You need Internet access if you want to use digital wallets. There are a lot of countries and regions with poor Internet connectivity, where e-wallets can be unavailable.
Not all merchants accept digital wallets
Even though the number of merchants accepting digital wallets is growing, there are still places where they are not accepted. This may limit their usability.
Limits on maximum amounts
Digital wallets can have limits on the maximum amounts that can be sent or received in one transaction. This may limit the use of digital wallets for large transactions. For instance, the daily maximum total transaction amount in Google Pay is $2,500.
Fees and currency exchanges
Some digital wallets can charge transaction and currency exchange fees, which can increase the cost of using these wallets.
Difficulty of use
Some mobile wallets have a high entry threshold for new users, which can make wallets difficult for some people to use. Deloitte found that Americans are reluctant to use digital wallets because they are concerned about security and because they need to learn more about the benefits of the technology.
What Are Digital Wallet Trends in 2023?
E-wallets are becoming more and more popular as they allow people to make fast and secure online transactions. Let’s look at the trends that govern the development of the payment industry:
Mobile wallets
There are 6.92 billion smartphone users worldwide, which is 86.22% of the world’s population. The rise in smartphone and mobile app usage is driving the growth in the popularity of mobile wallets. Most major banks and financial companies (e.g., Bank of America, Wells Fargo, JPMorgan, and others) have already offered their mobile wallets.
Cryptocurrency wallets
With the development of cryptocurrencies, there is a need for wallets that can store and manage cryptocurrencies. Crypto wallets can be either cold, which means they are stored offline, or hot, which means they are always online. According to Grand View Research, there were 84.02 million crypto wallet owners worldwide as of August 2022.
Multi-currency wallets
Wallets that support several currencies are becoming more and more popular. They allow users to store and manage a lot of currencies in one place, making their lives easier.
Use of blockchain technology
Blockchain is a technology that allows you to create distributed databases that can be used to store information about online transactions. Some digital wallets are already using blockchain technology to improve the security and transparency of transactions. There are Electrum, Jaxx, Samurai, and other solutions.
Biometric authentication
Some digital wallets have already used biometric authentication, such as the face or fingerprint recognition to keep users safe. It also makes using wallets more convenient as users don’t want to remember complex passwords. For example, “123456” is the most commonly used password.
What Concerns Are Associated with Digital Wallets?
While digital wallets provide many benefits, there are some risks associated with using them. Some of the most common concerns include the following:
Security
One of the main concerns associated with the use of digital wallets is security. If attackers gain access to your wallet or data, they can transact on your behalf or steal your savings. Thrive asked users why they are slow to adopt digital wallets. 46% of respondents were concerned about security.
Low fraud protection
Unfortunately, online fraud is a common problem and digital wallets are no exception. While many wallets have fraud protections, such as two-factor authentication, there are still cases where scammers can gain access to your wallet.
Misuse
Another concern is the misuse of e-wallets. If you’re not familiar with the technology of digital wallets and don’t understand how they work, you can make mistakes and lose your money.
Regulation
Since digital wallets are a relatively new type of financial instrument, legal regulation in this area is still at an early stage of development. Some governments and regulators may restrict the use of digital wallets, which may affect their popularity and stability. For example, financial companies in China can’t make crypto transactions.
Possibility of loss of access
If you forget your password or lose access to the device where your e-wallet is installed, you may lose access to your money. Therefore, it’s important to take precautions and keep your wallet in a safe place.
What Features Should a Successful Digital Wallet Have?
According to Checkout.com, 43% of US customers used digital wallets in 2022. What should a digital wallet be like for consumers to choose from? Features of a successful e-wallet may include:
Ease of use
A mobile wallet should be easy to use and have an intuitive interface. This will provide usability for users.
Safety
A digital wallet must have a strong security system to protect the personal and financial data of users. This includes the use of encryption, two-factor authentication, and other modern security methods.
Opportunities for multiple payment systems
An e-wallet should support multiple payment systems and currencies for user convenience, including cryptocurrencies, payment cards, etc.
Wide coverage of merchants
A successful digital wallet should have a wide reach of merchants that accept it to allow users to make payments.
Reasonable fees
A mobile wallet should have reasonable fees for customers to make it more attractive to use.
Reliability and support
A digital wallet must have a high level of reliability and quality support so that users can be confident in its operation and be able to quickly resolve any possible problems.
How to Develop a Digital Wallet?
Juniper Research predicts 60% of the world’s population to use e-wallets by 2026. Therefore, now is the best time to create a digital wallet. The Elinext team has launched many financial and banking solutions to the market. Our experts are ready to share their knowledge and experience with you. They prepared a brief guide on the development of digital wallets. The development process includes the following steps:
Step 1: Research
At this stage, market research, competitor analysis, user needs, and features are determined. This allows you to set the requirements for a future digital wallet and develop a concept.
Step 2: Design
Then you will create the design, user interface, and functionality of your e-wallet. Your task is to develop algorithms and identify the technologies and software components required to implement the functionality.
Step 3: Development
Then developers write code, create software, do tests, and remove bugs. They define the technological infrastructure and ensure the security of the wallet as well.
Step 4: Testing
Then testers will check your digital wallet on different devices, operating systems, and platforms, while the development team identifies and fixes bugs, as well as improves the app performance.
Step 5: Release
When the mobile wallet is successfully tested, it’s ready for release. You can publish it on your website or any app platform like Google Play or the App Store.
Step 6: Support and update
When the digital wallet is released, you will continue to support its operation and improve its features in accordance with user needs and market changes. You can add new features and integrate them with other platforms and services.
If you need more details about the development process, programming languages, development tools, market trends, and so on, our specialists will be happy to answer all your questions.
