In the past decade, digital wallets have emerged as a disruptive force in the financial industry. Wallet companies offer a convenient way for consumers to pay for goods and services using their mobile devices, but they also pose a threat to traditional banking institutions by cutting into their profits from credit cards and other payment methods. Meanwhile, wallet companies are innovating new ways of storing currencies and cryptocurrencies that could eventually replace traditional banks entirely.
In this article, we explore how wallets companies are affecting traditional banking institutions now and how they may shape the future of money transactions worldwide.
The Rise of Digital Wallets in the Financial Industry
Digital wallets are changing the way people interact with each other and purchase goods and services. Digital wallets are defined as any service that allows consumers to make payments directly from their mobile phones, without using a bank account or credit card. These services provide the convenience of making transactions without having to carry cash or credit cards, but also have many downsides, such as high fees for transactions.
Digital wallets are becoming significantly popular in emerging countries like India where traditional banking systems have not been fully established yet (Rajan & Vijayakumar 2018). According to GlobalData’s Consumer Payments Forecast Report 2020-2023 (2018), there will be over 6 billion active digital wallet users by 2021; this is an increase of almost 4 billion users from 2017 (GlobalData 2018).
Advantages of Digital Wallets for Consumers and Businesses
The most obvious advantage of digital wallets for consumers and businesses is the convenience that they provide. Digital wallets are easier to use than traditional banking methods, making them more convenient for both parties.
For example, you can use your digital wallet at any time of day or night and in any location that’s convenient for you. You don’t need to go inside a bank branch or ATM to make a deposit or withdrawal, nor do you have to wait in line at an out-of-the-way location if there aren’t any nearby banks around.
This makes them more convenient than going through physical paperwork with bank tellers in person—something that many people find burdensome because of their busy schedules or social commitments during the daytime hours when most financial institutions are open for business.
Wallet Company Innovations and their Impact on Traditional Banking
As a result of the changes brought by wallet companies in the banking landscape, traditional financial institutions are exploring new opportunities to innovate. These include:
- Offering new products and services
- Improving customer experience
- Increasing revenue by getting more customers on board and increasing their usage
- Decreasing costs through automation or outsourcing
The impact of Digital Wallets on financial institutions
Digital wallet companies are making a significant impact on the financial industry by challenging traditional banks and offering new services. They are bringing in new customers, changing the way consumers think about their finances, and providing competition for banks.
In recent years, digital wallets have become more than just an app on your phone to make payments or store information. Digital wallets can now offer a variety of features that can help users manage their finances better by allowing them to pay bills or transfer money between accounts at any time, wherever they are.
Wallet companies are also expanding into other areas such as lending and insurance services; they’re offering credit cards with rewards programs that include cashback offers or discounts when using the card at certain stores; they’re lending money directly to customers through peer-to-peer loan networks; and they’re even developing investment products such as ETFs (exchange-traded funds) — all while continuing to provide traditional payment services like direct debit payments through mobile apps or online banking portals.
Challenges for Wallet Companies: Security and Regulatory Compliance
However, not all wallet companies are created equal. Some have an advantage when it comes to security and regulatory compliance because they are backed by large financial institutions or other wallet providers.
For example, the Abra app was developed by a former Wall Street executive who wants to take on Western Union and MoneyGram with its XRP-backed crypto transfer solution. Abra has onboarded banks such as Bank of America Merrill Lynch, and Citigroup as partners to help scale their platform and provide more services for users.
Another challenge for wallet companies is scalability; they must be able to scale their service appropriately without sacrificing security measures like KYC/AML processes (Know Your Customer/Anti-Money Laundering) or P2P lending requirements (Peer-to-Peer lending).
Traditional banking institutions often struggle with these issues because they were built decades ago; however new startups are leveraging newer technologies such as cloud computing services which allows them not only to provide seamless experiences but also to meet regulatory requirements while scaling up at the same time.
Digital wallets are a revolutionary technology that has the potential to disrupt traditional banking. However, it is important to note that this new technology is still in its infancy stage and faces many challenges along the way.
While wallet companies can provide a better consumer experience than traditional banks, they still need to address security concerns and regulatory compliance issues before they can become fully operational.