Saturday , May 27, 2023

The Rise of Digital Wallets: Plan Now or Plan to Fail

Digital wallets are taking on new meaning as merchants grapple with how to stay relevant with consumers’ preferred ways to pay. With the total number of digital-wallet users expected to exceed 5.2 billion globally by 2026, wallets benefit consumers and merchants alike, offering swift payments and convenience that expedite the payment process.

But merely delivering digital-wallet payment options in a market dominated by various players is more complex than turning a payment method on at checkout. Costs and development and integration hurdles create complexities. The key question for merchants: what is required for success without succumbing to payment challenges along the way? The answer starts with understanding the wallet environment, integration, and orchestration.

The digital-wallet landscape has transformed over the years, driven by the growth in e-commerce, the ubiquity of mobile devices, and the continued rise of consumer demand for convenient payment methods. While many buyers will abandon a cart if they fail to see their preferred payment type, offering consumers their preferred payment methods, such as wallets, can be tricky.

Lunn: “Getting on board with digital payments can be something other than a veritable trainwreck.”

In a market with giants like ApplePay, GooglePay, PayPal, and more, merchants must contend with demographic preferences. For example, Gen Z shoppers, with less disposable income, prefer digital wallets, while Baby Boomers and Gen X consumers tend to use credit and debit cards. Regional preferences for digital-wallet usage must also factor in when targeting mobile-centric economies. China ranks highest in digital-wallet usage, with 45% of adults using the payment method daily. By contrast, only 8% of adults use digital wallets daily in the U.K.; in the U.S, it’s 6%.

Targeting the right customer is not the only consideration. Merchants must prepare for and adapt to new digital-wallet options and innovations as technologies advance. Take Zelle’s recent announcement of its intention to build a wallet called Paze to compete with the likes of PayPal and Venmo. And Coinbase just announced a wallet-as-a-service for businesses looking to offer Web3 wallets to their customers.

More and more companies are developing digital wallets, and merchants that want to keep up with these offerings would be well-advised to plan now—or plan to fail.

While adding new digital-wallet services and options is a must, many connect to backend systems through discrete application programming interfaces. Few of these are designed to work alongside one another while many can require months of negotiation with individual payment service providers (PSPs). This lack of easy integration forces merchants to build backend infrastructure and frontend functionality to stitch payment methods together.

Multiply the cost and resources required to add one payment type—given that developers with the skill set and wherewithal to integrate and code these payments are in short supply—and it’s easy to appreciate the cost constraints and internal development challenges that can stress a merchant’s bottom line. 

Investing in talent and technology from the start sets up a pathway toward greater market success. So then, for a merchant, the question becomes how to keep up with supporting digital-wallet payments and investing in their potential when nothing is ever guaranteed.

Executing the offering of digital wallets requires payment orchestration, along with the right tools and technology. Over the last decade, cloud technology has advanced to the point where cloud-native payment orchestration platforms (POPs) are the “digital gold dust” that easily enables the addition and management of multiple payment methods.

A POP acts as the foundation for all current and future payment types, making it easier for merchants to offer digital wallet options at checkout, enter regional markets, and scale for international e-commerce success. Merchants that leverage cloud-based POPs can plug in their systems through one universal API, without code or complex negotiations with PSPs.

As a result, adding advanced payment methods requires no code, and workflow automation becomes easy, with minimal developmental resources and in just a few clicks.

The right orchestration platform allows merchants to experiment with new payment types and test specific payment methods. For instance, merchants can immediately add GooglePay to their checkout without the eight-month integration cycle associated with adding a new wallet. If GooglePay doesn’t perform to a merchant’s expectations, it can quickly be taken down, and a new digital wallet option can be spun up—guaranteeing flexibility and agility. Merchants can even create dynamic filters based on variables such as country, cart, and currency to target the right consumer with the right payment option.

Getting on board with digital payments can be something other than a veritable trainwreck. With the right strategy, targeting, and POP, navigating the wallet landscape can become a breeze now and in the future.

John Lunn is the founder and chief executive of Gr4vy Inc., San Mateo, Calif.

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