DIGITAL WALLET – IS IT NECESSARY FOR YOUR ECOMMERCE WEBSITE?

Online shopping is growing exponentially, as are digital payments. Today’s consumers love the ease of finding just about any product online and having it delivered to their doorstep in a relatively short period of time. However, like physical retail businesses, eCommerce doesn’t come without challenges. And the biggest of them is cart abandonment.

Typing credit card and address information on a mobile screen can be annoying, inconvenient, and time-consuming for online shoppers. Once they find a desired product, people want to complete their purchase as quick as possible, which is why we are seeing a growing interest in digital payments.

For eCommerce merchants, it is important to minimise the friction at checkout in order to increase conversion rates, and digital wallets help you just do that.

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WHAT IS A DIGITAL WALLET?

A digital wallet is an in-app or cloud-based payment system that allows consumers to securely store their credit card or other payment details so that they can make online transactions across different websites or physical stores without the need to give away their confidential payment details.

A digital wallet works just like your physical wallet—it allows you to store your credit cards, debit cards, cash, and other personal or financial information only virtually. With all your payment credentials in one place and easily accessible on the cloud or in an app, you can conveniently pay for your purchases from your mobile phone or even your laptop or PC. Some of the most popular examples of digital wallets include Amazon Pay, Google Pay, Apple Pay,, and Samsung Pay.

Most e-commerce websites today offer a digital wallet feature to ensure quick and hassle-free checkout for their customers. Some eCommerce businesses have their own digital wallet built into their website; others simply collaborate with third-party companies that provide digital or mobile wallet services, e.g., Paytm, Paypal, Stripe, Adyen, etc.

HOW DIGITAL WALLET WORKS?

Digital wallets have an easy set-up process and function. Digital wallet software is traditionally installed on a smartphone device via an app but can also be accessed directly through an eCommerce website or online platform.

A digital wallet typically requires the user to download a mobile wallet app on their smartphone. Then you need to create an account, adding your personal information, payment information, and any other verification details needed.

Once your bank verifies your payment details, you can start using your digital wallet app to make online payments wherever you want with a single tap or click.

To allow payments at physical stores, mobile wallets use a technology called near-ffield communication (NFC). POS terminals that support payment via digital wallets have a contactless payment symbol on them; to make a payment, you need to simply point your smartphone close to that symbol and scan a QR code, enter a password, or tap the required button to confirm the payment.

What Can I Store in a Digital Wallet?

Digital wallets allow users to store and access different types of electronic information on demand through an app or device. These include credit cards, debit cards, identity documents, health fund cards, loyalty and gift cards, event or movie tickets, boarding passes, and even e-keys for homes, cars, and hotel rooms. 

However, every digital wallet does not support every type of information as these items must be programmed specifically, enabled, and authorized. This depends on the issuing bank, ticket provider, the wallet chosen, or the mobile device’s brand. 

Additionally, with the evolving trend of digitising government IDs and documents, these items are mostly stored in dedicated apps and are frequently restricted from being added to phone wallets to maintain security.

Types of Digital Wallets

Digital wallets are categorised based on their accessibility and usability. Ideally, there are three main types:

• Closed Wallets: These wallets are used exclusively within a specific company or brand. Users can store funds, make purchases, and receive refunds, but only within the company’s ecosystem. For example, wallets from eCommerce platforms (like Amazon Pay or Ola Money) allow users to make transactions within their platform only.
• Semi-Closed Wallets: Comparatively more flexible than closed wallets, semi-closed wallets can be used at multiple merchants. They are restricted to businesses that have an agreement with the wallet provider. While users can store money and make digital transactions, they cannot withdraw cash or transfer funds to a bank account. For example, MobiKwik.
• Open Wallets: These are issued by banks or financial institutions and offer the highest level of flexibility. Through this, users can purchase at any merchant that accepts digital payments, transfer money between wallets or bank accounts, and even withdraw cash from ATMs. These wallets are similar to traditional bank accounts but are digital. For example, Google Pay and Apple Pay.

These wallets serve different needs, from brand-specific purchases to universal financial transactions. 

BENEFITS OF DIGITAL WALLETS

1. Fast Payment

A lengthy checkout process where customers have to select a payment mode and enter payment details every time can be a turn off. A digital wallet feature eliminates the hassle of repeatedly providing credentials for each transaction and automatically deducts the amount from the saved card or the wallet credit itself, cutting the cumbersome process short and saving customers’ time.

2. Increased Convenience

Rather than spending time digging a card out of your chunky wallet crammed full of credit/debit cards, cash, driver’s license and IDs, you can simply hold your smartphone close to a payment terminal in a store and check out in a few seconds. Digital wallets also streamline online transactions, allowing you to complete your purchases at online stores in minimal clicks. Besides, a lot of people would love the convenience of not having to lug around a bulging wallet brimming with cash and cards.

3. Reduced Cart Abandonment

Payment through a digital wallet hardly takes any time and effort, leading to a smoother and faster checkout. So when customers leave your ecommerce website or physical store with a pleasant, seamless shopping experience, they are more likely to return for more, resulting in customer retention.

Moreover, by simplifying the checkout process, eCommerce merchants make sure that more shoppers can complete their purchase, eventually reducing cart abandonment rates. According to eCommerce statistic data, 21% of shoppers who abandoned their carts thought the checkout process was too long or confusing.

4. Reduced Transaction Fees

By issuing a credit card of their own which can be used via an e-wallet, merchants can lower bank transaction fees. It is pretty much like a gift card offered in physical stores, only the card works virtually and there is no cost for issuing a plastic version. Since the card is digital, it leaves the bank out of the payment loop, reducing transaction fees.

5. Enhanced Security

If you have ever lost your physical wallet, you must know the pain of deactivating and replacing all cards; not to forget, the lost cash cannot be recovered. Paying through a digital wallet negates this problem, providing you peace of mind. Even if you lose your phone, the person who steals it will need to first break into your phone password and then further Face IDs or password used to protect your digital wallet app.

How Do I Make Payments Using a Digital Wallet?

Making payments using a digital wallet is quick and seamless. Follow the below-mentioned steps to make payments:

• Choose Your Digital Wallet: First, you need to choose the digital wallet that suits your needs. Most smartphones feature a built-in option such as Google Pay or Apple Pay. You can also download third-party wallets from the app store.
• Add Your Payment Method: Next, you need to link your credit/debit card (like Visa or Mastercard) to your wallet. There are digital wallets that allow you to preload funds, functioning as an e-wallet for more convenience.
• Activate Your Wallet: While purchasing, open your digital wallet on your phone by tapping its icon or using the shortcut key on your device. Your phone can make contactless payments if your store has the right equipment.
• Make the Payment: Hold your device close to the payment terminal and your phone and the terminal will communicate automatically. You will receive a confirmation message once the payment is approved.
• Alternative Payment Methods: In case your wallet doesn’t support direct tap payments, you can complete the transaction using QR codes, unique payment links, or in-app transfers, depending on your wallet’s functionality.

Whether in stores, online, or in peer-to-peer transactions, following these tips, digital wallets can offer a fast, secure, and convenient way to pay.

Pros and Cons of Digital Wallets: Is It the Right Choice for You?

Although digital wallets are convenient, secure, and offer financial inclusion, they also come with some drawbacks. 

Pros:

• Better Security for Financial and Personal Information: Since digital wallets encrypt your credit card details and identification, the scope of getting exposed to fraud and authorised access gets minimised, compared to carrying physical cards.
• No Bulky Wallets: Since payment methods and IDs are stored in your smartphone, you can leave your physical wallet at home. This minimises the risk of losing cash or cards.
• Expand Access to Financial Services: Digital wallets are an alternative to traditional banking, especially for individuals living in underserved or unbanked areas. There are online-only financial institutions that make it easy to store, send, and receive money without requiring a physical bank branch.

Cons:

• Not Universally Accepted: Despite the growing popularity of digital payments, smaller businesses or rural areas may not be well-equipped to support them. Hence, you might still need a physical card or cash in some situations.
• Dependent on Internet and Battery Life: In situations where your phone runs out of charge or you are in a location with poor connectivity, your digital wallet might not function. This would make payments impossible until your device is powered up and connected.
• Risk of Identity Theft or Fraud: With digital wallets, there is always a risk of exposing your financial information in case your mobile device doesn’t have a strong password or biometric authentication. At the same time, a digital wallet from any unverified provider increases the risk of data breaches.

Security Features of Digital Wallets

As stated above, digital wallets have advanced security measures to protect your financial and personal information. Here’s how they keep your transactions safe:

• Data Encryption: To protect your sensitive data, digital wallets use encryption technology. Encryption converts your credit card details, bank account information, and personal credentials into secure codes. This makes it almost impossible for hackers to intercept or misuse them.
• Tokenisation for Secure Transactions: Tokenisation is a process that replaces your card number with a unique, randomly generated token. Hence, instead of storing or transmitting your actual card details, digital wallets use tokenisation. This token is used for transactions and ensures that in instances of a breached system, your financial information remains protected.
• Biometric Authentication for Added Security: Digital wallets require biometric authentication like fingerprint scanning or facial recognition before payment processing. This adds an extra layer of protection and ensures that only you can authorise transactions, even if your phone is stolen or lost.
• Multi-Factor Authentication (MFA): Several digital wallets implement MFA. This involves multiple verification steps such as a one-time password (OTP), PIN, or security question. This makes authorisation access more difficult.
• Remote Device Lock and Erase: In case you lose your phone, you can lock or wipe your digital wallet remotely through device security features like Find My iPhone (Apple) or Find My Device (Android). This prevents unauthorised access.

Wrapping Up,

Digital wallets may be relatively new in the eCommerce industry, but are rapidly gaining popularity for the convenience of payment they offer to customers and increased sales & lower cart abandonment benefits to merchants. Especially, the social distancing and lockdown restrictions imposed in the wake of COVID-19 pandemic have made it difficult for shoppers to move out and pay physically with cards or cash for their purchases. This caused more people to switch to online shopping and embrace contactless payments through digital wallets.

Moreover, statistics indicate that digital wallets will continue to grow by CAGR of 12% to reach $6.7 trillion in 2023.

So, if you do not already have a digital wallet feature in your Magento e commerce website, you are missing out on a lot of potential customers and sales. It is advisable to work with a certified Magento agency to integrate a digital wallet system into your eCommerce website or app.