Mobile wallets are becoming increasingly popular with consumers, but banks shouldn’t expect plastic cards to disappear anytime soon.
“It’s low-tech, but it’s also super easy. And muscle memory is a thing,” says Craig Lancaster, analyst and content specialist at Javelin Strategy & Research, who explored the idea of a cardless payments landscape in a recent report.
Digital wallets have gained traction in recent years following Apple’s groundbreaking attempt to improve consumers’ reliance on plastic cards. The COVID-19 pandemic helped move this process forward
Ninety-four percent of financial professionals view the mobile channel as essential to growing their payments business
A recent survey from Javelin found that 92% of respondents had used a physical credit card and 84% had used a debit card in the past month. There is also significant overlap when it comes to the use of physical cards and mobile wallets.
The main driver for consumers when making payments is convenience, says Keri Crane, director at Jack Henry and chair of the US Payments Forum. For some people that means paying with a telephone. For others, a plastic card is preferable, Crane said.
Several barriers exist when it comes to eliminating plastic cards in the US. These include the convenience of using a physical card and generational trends. In addition, some people, regardless of age, are not comfortable paying with their phones, and some merchants still do not accept digital wallets as a payment method.
Rodman Reef, principal of Reef Karson Consulting, said he was recently at a newer hotel in Chicago that did not accept contactless payments. Ironically, that particular hotel hosted a payments conference that he attended.
Because the U.S. government doesn’t regulate what types of terminals store owners must have, many merchants don’t have the most up-to-date technology, said Debbie Buckland, director analyst at Gartner. It’s more expensive to offer card-not-present technology and merchants, especially smaller ones, may not want to pay to upgrade, Buckland said.
That’s not to say that the use of virtual wallets won’t continue to grow over time. According to payment processor Worldpay, wallets accounted for approximately $3.1 trillion in global e-commerce spending and $10.8 trillion in global point-of-sale spending in 2023. By 2027, wallets are expected to account for more than $25 trillion in global e-commerce and POS transaction value.
Notably, Worldpay predicts that digital wallets in the US will surpass debit cards in transaction value for in-store payments by 2027.
Digital wallets could also gain traction as the movement toward digital IDs gains momentum, Lancaster said. As long as people are still required to have a physical driver’s license, there is less reason to opt for a fully digital payment experience, Lancaster said.
Some issuers offer consumers the option to print a physical card. Crane gives the example of a Jack Henry banking customer with a tech-savvy clientele who decided to offer this choice. But it is not yet a widespread practice in the industry, she added.
At some point, more issuers will decide to offer physical cards only if customers pay for them, depending on usage trends, says Reef, the consultant. “One of the ways to maintain profitability could be to charge for cards, but there will still be cards on the market,” he said.
There are certainly reasons for consumers to consider a switch to mobile wallets. Most people always have their phones with them, which can be a big time saver and convenience for someone who accidentally leaves a physical wallet at home after going to the store. Mobile wallets are also easy to use and there are security benefits too. For issuers, wider use of digital wallets can help reduce the cost of printing plastic, which also poses an environmental hazard, although some issuers are trying to mitigate this by using
“There’s no way I could travel without plastic being available to me,” Crane said. “I just wouldn’t feel comfortable with it and I believe that’s true for a lot of consumers today.”
In the near future, decisions about using mobile wallets versus plastic will likely depend largely on consumer choice, available payment methods and location. In Asia, for example, mobile phones are a very popular means of payment, Buckland said.
Eli Goodman, co-founder and CEO of Datos, said that to grow adoption in the U.S. there needs to be better marketing education from mobile wallet providers and merchants. Many people don’t realize this is an option for them or think about paying with their phone during checkout. People also need more education about what the contactless payment symbol at checkout represents. It’s something very simple that could boost adoption, he said.
“Over time, the number of physical cards will decrease [more] People will use digital wallets personally,” Buckland said. But it will be a while before physical cards completely fall out of favor. “If we can’t get people to routinely take reusable bags to the supermarket, how do we move forward? to make them only use mobile wallets?”
