Will digital wallets and payments replace credit cards?
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Welcome to the era of the digital wallet.
I’m not sure what it is? In short, it’s a technology that allows you to make transactions on your smartphone, computer or tablet without a physical card. When making a purchase online, for example, instead of entering all of your credit card digits, along with the expiration date and security code, you can access the card number through your digital wallet and complete the transaction almost instantly. Or if you’re doing business in person, you just scan your phone in front of a reader for contactless payment.
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During the COVID-19 pandemic, digital wallets have become even more popular, according to a recent investigation by Chase that examined consumers’ relationship with cash, savings and digital banking tools a year after the start of the pandemic . The survey found that 47% of respondents started or continued to use contactless payment options in 2021 to avoid physical interactions amid the pandemic. Additionally, 73% of those surveyed said contactless payments were a more convenient form of payment.
“More and more consumers are waiting for these digital options, and banks and fintechs will continue to provide them in order to stay competitive,” said Jerry Craft, a credit card industry veteran who is now the CEO of Corserv, which empowers banks and fintechs with payment programs. “In the industry, we are seeing the ‘cardholder’ transform into the ‘account holder’ as we move more towards a physical world without a card.”
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What are the examples of digital wallet?
A digital wallet is, more or less, an electronic replica of the wallet in your pocket – without the money. It contains your credit card information and gives you access to your loyalty cards to store and even your plane tickets and the like. One advantage is that you don’t have to carry a variety of cards and documents and risk losing them, and your payments are simplified.
Even if you haven’t delved into digital wallets, you have undoubtedly seen the signs of them when checking out in a store or even at your bank’s ATM. They include Apple Pay, Google Pay, and Samsung Pay straight from your smartphones, Fitbit Pay from your Fitbit, and Garmin Pay from your smartwatch. PayPal and Venmo money transfer services are also considered digital wallets.
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While credit card accounts aren’t going away, we tend to stay away from real cards.
“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 are already seeing this trend gain ground in India, ”said Nilesh Mehta, Founder and CEO of Council on the Independence Bridge in Philadelphia. “It’s not that technology has improved a lot over the past 10 years, it’s that these companies have been able to bundle a lot of popular features into one device – think digital cameras and the iPod. The average American has several credit cards that become a handicap as they often lose them. Even banks recognize that Americans value the convenience these technologies have brought them, and offering consumers the ability to use their credits on mobile apps is one of them. “
Will credit cards become obsolete?
This is unlikely since people still need access to credit to pay for goods and services in many cases.
“Today most of the functions of the mobile wallet are tied to a credit card or bank account, so there is little risk that they will replace credit cards in their current form,” said John Cabell. , Director of Banking Services and Payments at JD Power, a leading company in the field of consumer intelligence. “And in fact, research from JD Power shows that tethering a credit card to a mobile wallet increases the satisfaction of the mobile experience.”
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Emerging payment platforms that can replace the use of credit cards pose an increased risk for conventional credit. Among them are the “buy now, pay later” services that retailers are introducing. Target announced on October 6 that it was adding the option through a partnership with Affirm and Sezzle to allow customers to extend payments on certain purchases instead of using credit cards. Other retailers, including Walmart and Amazon, allow similar payments.
“These services eliminate the need for a credit card and offer an alternative method of payment. In fact, nearly half of customers using Buy Now, Pay Later installment loan services say they would have used a credit card for the transaction as a second choice, ”Cabell said. “As these payment methods increase in popularity, so does the threat to credit cards. “
Advantages and disadvantages
The benefits of digital wallets revolve around convenience and flexibility, said Len Covello, chief technology officer at Engage people, a worldwide loyalty program.
“Having access to all payment options in a single digital wallet makes it easier for consumers to pay with their preferred method in any given transaction, ”he said. “For example, with digital wallets, consumers can manage all of their loyalty points in various loyalty programs and, in some cases, spend those loyalty points at the retailer of their choice. “
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A disadvantage? Not all consumers, especially older ones, feel quite comfortable with technology yet and have to catch up with the help of their grandchildren, for example. But the pandemic appears to have sparked greater interest in older people paying other than cash.
Consumers 65 and over paid cash 26% of the time in 2020, down 7 percentage points from 2019, according to the U.S. Federal Reserve’s Diary of Consumer Payment Choice study. Cash was always the preferred method of payment for the age group.
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Last updated: October 8, 2021