E-Wallets: The Evolution of Payments

The use of cash continues to decline in modern society, with notes and coins seen as increasingly archaic in the payments world; meanwhile, digital wallets – also known as e-wallets – are booming.

E-wallets are essentially apps for financial transactions that can be run through mobile devices. They store payment information and passwords securely, so users can pay via these devices instead of carrying payment cards.

Setting one up couldn’t be easier: the user downloads the app; enter credit card, debit card or banking information; and then uses the device as a contactless payment portal through tap-to-pay technology.

E-wallet technology innovations

According to reports, the very first e-wallet – established as far back as 1997 – was linked to the first digital payment system. Coca-Cola built a payment system that made it possible to make transactions via text message, so they could buy soft drinks via their mobile phone. This event was the starting point for the modern e-wallet, although the systems and solutions used today operate at multiple levels, such as online and point of sale.

Current innovations used by mobile devices and digital wallets are:

• Magnetic Secure Transmission (MST): Using the same technology generated by a magnetic card stripe, mobile devices generate the encrypted field that is the point of sale, which can be read by digital payment machines.
• QR Codes: Quick response codes are matrix barcodes that use your wallet’s scanning system to initiate payment.
• Near Field Communication (NFC): A technology that enables two smart devices to engage and share information via electromagnetic signals. Each unit must be within approx. 4 cm from the other to perform a transaction.

The benefits of e-wallets

At this point, the benefits of using e-wallets should be pretty clear, but with one crucial factor that trumps the rest – namely security. When customers enter their card details through an online portal to buy an item online, there is a risk that it is an unsafe site, a scam to steal card details and then drain bank accounts.

E-wallets allow users to store a small amount of money electronically, so that even if a fraudster tries to steal the details, there is no risk of an account being drained of funds.

They are also easy to open and practical to use, as customers do not have the additional responsibility of carrying a payment card. Additionally, they are very useful for international travelers as they are not tied to a specific country or location.

Essentially, e-wallets are the natural evolution of the digital payment space. According to Brad Hyett, CEO of phos – a UK-based fintech specializing in point-of-sale (PoS) innovations for merchants – contactless payments have provided an easy, convenient and secure way to pay for goods in-store.

He says: “As contactless payments become more popular, the financial services industry must address the challenge of ensuring merchants are equipped with the right payment solutions to accept payments securely, efficiently and easily.

“Contactless payments grew by 12% in 2020, spurred by consumers looking to reduce the use of cash to prevent the spread of COVID-19 and the demand for convenience; the ease of contactless card or e-wallet payments has proven to be the preferred option .

“Over the next five years, we will see consumer-driven consolidation of payment options become the norm. With cards, BNPL, open banking services, crypto and loyalty cards all become widely available in all transaction channels.”

Hyett adds: “Consumers want to be able to use their preferred payment methods and it is critical that businesses are equipped with the right solutions to meet these growing needs.”

Super e-wallets and data collection

Along with super apps comes the concept of super e-wallet. No longer just a one-trick payment pony like its predecessor, the super e-wallet offers a variety of payment services to the user. What it also does is provide lots of data about the customer, apparently helping fintech companies create personalized services for their users.

They have a variety of digital payment use cases, including storing electric car key information, membership cards, gift cards, event tickets, travel tickets, user’s driver’s license. and more. E-wallets are also increasingly being used to trade cryptocurrencies – their introduction has enabled people to use a wide range of financial services that were previously not open to them. In this way, e-wallets have contributed to increasing financial inclusion.

The super app e-wallet concept has taken off in Asia, in particular, where the number of unbanked people is high but mobile adoption is still higher. OMG Indonesia’s Deependra Shekhawat recently said: “With Indonesians integrating e-wallets into their daily lives and using the same environment for different purchases and purposes, tracking their digital footprints becomes easy.”

TSLA’s Eunice Tan, meanwhile, points out that the increasing rate of e-wallet adoption is rooted in the belief that it presents a more glamorous lifestyle. “For many young people in Asia, virtual banking and e-wallets represent excitement, ambition and a gateway to living life more richly.”

E-wallets and CBDCs

As the global financial market becomes increasingly integrated, regulated and borderless, the case for e-wallets has grown. CBDCs will be a primary resource for e-wallets once their worldwide introduction begins in earnest.

China is leading the charge with this technology. In October 2020, for example, the government had already started piloting its digital yuan, giving 50,000 residents of Luohu District 200 yuan each in a digital wallet to test the transaction process and the new digital currency. The digital wallets were distributed via iShenzhen – a publicly operated blockchain app for public services.

China’s digital currency has been in the pipeline for the past eight years; it is currently available to users in 23 cities across China, allowing millions of users to register through a variety of commercial banks.

The future of digital wallets

A CBS Insights research report predicts that the e-wallets and super apps trend will see the market increase in value, from a conservative US$1tn to $7tn by 2027.

Many recognized studies show that by 2024 a third of the world’s population will use digital wallets. Not only that, but these e-wallets will merge with the super app movement, while the current single-function payment apps will eventually disappear as users opt for multi-function transaction solutions.