Digital wallets have emerged as a transformative force in how people pay for things in recent years as digital technology, especially via mobile phones, has accelerated in the 21st century. The first ever digital wallet is widely accepted to have been created by Coca-Cola in 1997 in Helsinki, enabling consumers to make purchases at a vending machine via text message. Nearly three decades later we are seeing a rapid shift in consumer behavior as the once niche technology reaches maturity and establishes itself in the mainstream.
Digital wallets are reshaping the landscape of commerce in the UK. By exploring the rise of this technology, we can also look to see how digital wallets could be fueling growth, consumer confidence, and its broader impact on retail and commerce.
Digital wallets reach the mainstream
Digital wallets are applications that store payment information and can be used online or in stores to quickly transmit payment information either through a simple click of a button or by tapping a device to a payment terminal. These wallets are often funded by linking the app to a credit or debit card or even directly to a bank account.
Digital wallets have evolved from being a novel concept to a ubiquitous payment method in the UK. By 2027, digital wallets are expected to account for half of all ecommerce platform spending in the UK, totaling an impressive £203.5 billion in total transaction value. Additionally, usage of digital wallets at UK point-of-sale (POS) is projected to more than double, rising from 14% to 29% of transaction value by 2027 showing the meteoric rate of adoption. But if this technology has been around since 1997, then why is it only recently seeing such growth?
James Fry is Head of Strategic Expansion, Worldpay
Innovation is a driver of change
While there was novelty in making payments via text message to buy a soda, the impressive rise of digital wallets and mobile payments is really the confluence of several highly advanced but disparate technologies becoming commonplace. For example, biometric authentication, such as fingerprint or facial recognition, in smartphones has significantly enhanced the security of digital transactions. Furthermore, near-field communication (NFC) technology, which has allowed UK consumers to make contactless payments for a long time, has also been embedded in smartphones, allowing people to use their devices to pay for things in person.
As these technologies have been woven into smartphones and as smartphones have found a place in nearly every Briton’s hand, people are discovering the beautiful convenience and simplicity of digital wallet payments.
Consumer confidence is the foundation of behavioral shifts
The familiarity with and maturity of these technologies has reached a tipping point for UK consumers instilling them with the confidence to explore new payment methods like digital wallets. The shift in behavior is significant especially when you consider the size of the UK e-commerce market which is the world's third-largest and expected to continue growing at a 7% compound annual growth rate (CAGR) through 2027. Digital wallets will account for half of all online and 37% of in-store purchases by transaction value by 2027, showing how, as consumers become more comfortable with digital wallets, their usage will continue to grow rapidly.
How digital wallets change retail
The adoption of digital wallets is not only changing how consumers pay for goods and services but also influencing retail strategies. We are seeing now that merchants are investing in advanced payment strategies online, offering a wider array of embedded payment options to meet customer preferences as well as upgrading their payment terminals in stores to accept more payment types like digital wallets. As merchants look for every competitive advantage available to them, their strategies are increasingly looking to offer consumers more conveniences like enabling digital wallet acceptance across all channels.
The rise of digital wallets: Summary
In conclusion, the rise of digital wallets in the UK represents a significant shift in the way people shop and buy goods and services. As technology continues to advance and consumer behavior evolves, digital wallets are poised to become the dominant form of payment in the country and across the globe. Retailers and businesses that embrace this change stand to benefit from the convenience and security that digital wallets offer, positioning themselves at the forefront of the UK's payment revolution.
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