The adoption of digital wallets in the Middle East is expected to soar from 564 million now to 969 million by 2028. Moreover, it is anticipated that around 3.7 billion wallets were in use globally, carrying out $8.8 trillion worth of transactions, by the end of 2023.
These were some of the findings in Visa’s latest report titled “Digital Wallets: In pursuit of a profitable business model”.
Apart from the advent of digital wallets, the report also talks about how different geographies traversed different routes in adopting the payment platform.
For instance, in Europe and North America, smartphones and digital apps are a part of normal life, and digital wallets are now part of person-to-person (P2P) apps, which let people send money to businesses and each other, and have increased the everyday convenience of money movement.
Meanwhile, in Asia, the report highlights how “several countries jumped an evolutionary step by effectively going from a cash economy to one dominated by digital wallets”.
The progression occurred because of the rapid rise of mobile phones and cheap internet access, which helped individuals send and store money as well as use their phones to buy goods and services.
“There’s also a growing generational preference for digital wallet adoption among younger generations. A recent survey from Thunes found that 41 percent of the surveyed Gen Z in the Philippines owned a digital wallet, whereas only 24 percent had a traditional bank account.”
A global phenomenon
Digital wallets have become a global phenomenon, aiding users in storing funds, making purchases, and monitoring their expenses through mobile devices. Their design and structure prioritize mobile usage and offer convenience by incorporating various services into a single app. These services include P2P payments, card provisioning, merchant payments, food delivery, and other financial services. Additionally, digital wallets often boast user-friendly experiences and, in some regions, they serve as the most accessible financial tool for customers.
Read more: Visa bolsters fraud protection with three new AI-powered solutions in Visa Protect suite
According to the report, one of the notable advantages of digital wallets is that they do not necessarily require a traditional bank account. Consequently, these wallets have gained popularity among unbanked and underbanked populations, serving as a gateway to future financial products. A study conducted by Juniper Research suggests that over 60 percent of the global population will be using digital wallets by 2026.
Simplifying cross-border payments with digital wallets
Digital wallets have also simplified cross-border payments. Visa Direct, for example, offers straightforward cross-border solutions by leveraging a vast network of more than 3.5 billion card credentials and 2 billion bank accounts. Cross-border payments have found a prominent use case in digital wallets. By utilizing either card or wallet credentials, digital cross-border payments have become more transparent in terms of costs. Consequently, this has reduced the total fees associated with international payments for economically vulnerable communities around the world.
As demographics continue to evolve, cross-border payments to and from digital wallets play an increasingly crucial role. These payments provide a simpler, safer and more convenient means for migrants and immigrants to access financial services.
In this regard, Walter Lironi, head of Advisory and Value-Added Services, CEMEA, Visa, said, “At Visa, we believe access to the digital economy drives inclusive economic growth for everyone, everywhere – and digital wallets can help us reach the 700 million people across CEMEA who lack access to formal financial services.”
Other advantages
According to Lironi, digital wallets offer other several key advantages:
- Convenience and Lifestyle Integration: Digital wallets like Apple Pay, PayPal, WeChat, and Alipay provide a seamless and frictionless payment experience, integrating with key ecosystems such as eCommerce and travel.
- Financial Inclusion: For the unbanked and underbanked segments, digital wallets serve as substitutes for traditional bank accounts, enabling access to basic financial services and facilitating greater financial inclusion.
- Empowering Entry Point: Digital wallets act as an entry point to the financial system for unbanked individuals in emerging markets, offering opportunities to access financial products and services that positively impact their lives.
- Multiple Services in One: Digital wallets allow users to store funds, make person-to-person (P2P) payments, pay merchants, track spending, and access other financial services, all within a single application.
- Growth and Market Potential: The number of digital wallets is projected to increase significantly, particularly in the Middle East and Africa, offering a promising avenue for electronic payments and financial inclusion.
- Formal Financial System Access: Digital wallets can bring unbanked and underbanked individuals into the formal financial system by providing access to electronic payments and serving as a gateway to more complex financial products like remittances, loans, and investments.
Expanding reach
Lironi highlighted that in order to help drive financial inclusion Visa is “partnering with a diverse range of stakeholders – including governments, fintechs, NGOs, and mobile network operators – to support small businesses in digital transformation; women entrepreneurs in accessing the digital economy; and students for learning invaluable, lifelong lessons in financial education”.
According to Visa’s digital wallets report, partnerships play a crucial role in facilitating global connectivity among digital wallets. For instance, Visa has collaborated with Thunes, a provider of cross-border payments infrastructure. Thunes enables users to send and receive money internationally through 79 digital wallet providers. By integrating Thunes’ B2B payments platform with Visa Direct, the partnership introduces a send-to-wallet capability to the existing network of wallet providers connected to Thunes.
This partnership empowers Visa Direct to extend its reach to digital wallet endpoints in 45 countries and territories. As a result, Visa Direct’s overall reach expands to encompass nearly 7 billion endpoints, including over 3 billion cards, more than 2 billion accounts, and 1.5 billion digital wallets spread across 190 geographies.
This development enables financial institutions, governments, fintech companies, and money transfer operators to enhance financial inclusivity for consumers and small businesses in markets across Africa, Asia, Latin America, Central & Eastern Europe, and the Middle East. These regions have a strong preference for wallet-based payment methods.
Growing partnerships
Visa has also entered into a collaboration with TerraPay, a global payments network specializing in instant money transfers for financial institutions and large corporations across Asia-Pacific, CEMEA, and LAC regions. This partnership capitalizes on TerraPay’s extensive network of digital wallets, which are connected to 86 wallets in 44 markets, reaching over 2 billion individuals and small businesses.
By partnering with TerraPay, Visa gains increased access to wallets for its Visa Direct service. Furthermore, TerraPay gains access to Visa’s array of services such as cards, tokens, and other value-added offerings, which enhance the overall transaction experience. Additionally, TerraPay will utilize Visa’s card and account network for specific corridors.
To foster market expansion and drive innovation in the industry, Visa has made strategic investments in both Thunes and TerraPay. These investments aim to support the growth of these companies and facilitate further advancements in the payments landscape.
Visa and U.K. fintech innovator Paysend are also joining forces to enhance person-to-person payments. Their latest strategic collaboration aims to enable Paysend customers worldwide to send money in real-time to eligible Visa cards and accounts across 170 countries and territories. By leveraging Visa Direct, Visa’s cutting-edge real-time money movement network, the partnership seeks to transform international money transfers. This initiative builds upon the initial collaboration between the two companies, which was announced in February 2022 and allowed Paysend’s customers in the U.S. and U.K. to send money domestically and internationally to eligible Visa cards.
Customer convenience
Small businesses are increasingly embracing digital wallets, recognizing the advantages they bring in managing cash flow more efficiently. These businesses understand that their customers prefer the convenience of using digital wallets for quick and effortless payments, eliminating the need to repeatedly enter payment information for each transaction. Consequently, businesses that fail to adopt digital wallet options risk losing customers to competitors who do offer this payment method.
The global volume of digital wallets is expected to reach a staggering $12 trillion annually by 2028.
Security challenges
Furthermore, Lironi pointed out the security challenges associated with new digital technologies, including digital wallets. To address these concerns, Visa employs several strategies:
- Acceleration of digital wallets with tokenized payment credentials: Tokenization is considered the most secure technology in the industry and forms the foundation for a superior digital payment experience. By utilizing tokenization, the risk of fraud can be significantly reduced. Studies have shown that transactions employing tokenization can experience a fraud rate reduction of 30-50 percent compared to those that do not.
- Device-based commerce: Device-based commerce, where transactions are initiated and authenticated through the user’s device, is expected to continue growing.
- Adoption of tokenization in the CEMEA region: Currently, 39 percent of Visa transactions in the Central Europe, Middle East and Africa (CEMEA) region are tokenized. Furthermore, there has been a 59 percent growth in issued tokens over the past year, with the total number of tokens exceeding 300 million.
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