In an increasingly competitive area, wallets need to add value and drive a great experience for consumers.
In today’s day and age, consumers have come to expect digital wallets that are speedy, secure, personalised, and ultimately, facilitate their various tasks and transactions.
When it comes to payments, there is a myriad of digital wallet options available from those offered by card networks (e.g. Mastercard, Visa), alternative payment providers (e.g. PayPal), and major retailers (e.g. Amazon) to those offered by traditional banks and credit unions.
In a recent study conducted by ath Power Consulting, findings revealed that banks and credit unions are the most favoured providers of digital payment services, with 2 out of 5 (40 per cent) consumers saying they would prefer to use them over other providers. In contrast, half as many (20 per cent) would choose an alternative payment provider, and another 20 per cent have no preference whatsoever. Only 14 per cent say they prefer using a card network to make digital payments.
Banks and credit unions also lead the pack when it comes to consumers feeling they keep their payment transactions and personal data safe and secure, with 87 percent of consumers saying they have trust in them. Payments providers like PayPal are the next most trusted at 62 percent, followed by card networks at 57 percent.
These financial institutions are certainly in a strong position to leverage the revenue opportunities presented by digital wallets, but many are not taking full advantage of them. ath Power found that almost half of smartphone users (48 percent) have at least one digital wallet app installed on their phone, however a majority (58 percent) of consumers have never used a digital wallet.
By encouraging greater adoption of digital wallets, there is potential for banks and credit unions to derive considerable gains. In a recent MasterCard study, it was shown that digital wallet engagement helps drive greater card usage, particularly during the first four months after customers begin using a digital wallet.
During those early months, average spending on the card uploaded to the wallet rises by more than 20 percent. It was also found that the majority of digital wallet users fall into higher value customer segments. These are the customer segments that have the greatest spending volume, the highest frequency of card use, and broadest card use by merchant category. This means that digital wallet customers are typically among the highest spending customers in a card portfolio and suggests that digital wallets may be a means for banks to better engage with higher spending, more affluent cardholders.
When a bank’s customers adopt digital wallets, there is clear potential for the bank to derive tangible benefits. Perhaps more importantly, digital wallets can help banks and credit unions remain relevant to consumers — and therefore compete with non-bank disrupters — as purchase activity continues to migrate to digital channels.
So how can financial institutions encourage their customer base to use their digital wallet applications?
Promote Security: When asked why they have not used digital wallets, the number one reason cited by non-users was “security concerns”. Banks and credit unions should be far and away leveraging the trust consumers have in them, and better explaining the security features of their digital wallet applications. Education on tokenisation could certainly eradicate the fear that some non-users have, and persuade them to use their app.
Use Targeted Offers and Promotions: Financial institutions can encourage digital wallet adoption by personalising offers based on a customer’s location, shopping patterns, preferences, and demographics.
Create a Millennial-Friendly Customer Experience: Banks and credit unions should engage customers by integrating with technologies like Amazon Alexa, Apple’s Siri and Face ID facial recognition, Google Assistant, Facebook Messenger and wearables.
Reward Customers: The ultimate goal is to become your customers’ default digital payment app. So whether it is in the form of rewards points, a credit towards a future purchase, or otherwise, reward your customers for their loyalty.
As innovation in digital payments moves forward, banks are at risk of losing wallet-share to non-bank competitors. They must put a major focus on delivering a next-gen customer experience and becoming the digital wallet app of choice if they are going to stay in the game.