There has been a debate about virtual wallets playing a crucial role in the payments system as a result of the ‘war’ that has been raging in recent months. The popularity of virtual wallets is evident, whether they are an eWallet (which uses money transferred into it) or a digital wallet (which connects to a payment card).
According to Juniper Research, 60% of the world’s population will use digital wallets by 2026. Virtual wallets may have the potential to become a major participant as the payments system landscape expands, but is that really the case? Will they influence how payments are made in the future, or are they just a fad that will soon pass?
Adoption on a global scale
According to Facts & Factors research, mobile payments will be worth $607.9 billion globally by 2030, increasing at a CAGR of 35.5% between 2023 and 2030. However, not all data sources support this figure. For instance, data gathered by GlobalData outperforms the estimates made by Facts & Factors, with projections that the global market will be worth over $5 trillion by 2027.
Despite this discrepancy, all researchers agree that the use of virtual wallets will increase significantly over the next few years. There is an undeniable enthusiasm for virtual wallets, and a host of advantages are propelling their broad acceptance. With ease, enhanced consumer experiences, and a thriving e-commerce and e-retail scene, they are gaining ground.
A global potential
Deloitte’s latest research shows that almost all developed countries have smartphone penetration rates of over 90%, and that each one can support a virtual payment wallet. However, except for China, less than 15% of people in these countries currently use a smartphone to make payments. This is due to concerns about security and the perceived lack of benefits.
Yet, this unrealised potential suggests that, once these issues are resolved, virtual wallets might become commonplace and widely used, revolutionising the way we conduct payments. Some places are moving quickly while others are taking their time to catch up to this financial revolution as it develops.
The usage and growth of mobile wallets have been experiencing rapid growth and adoption worldwide, with each region experiencing varying levels of usage and growth. Let’s take a closer look at how mobile wallets are being used and their growth rates in different regions.
Africa
Since traditional banking is not widely available in Africa, virtual wallets have become incredibly popular. Virtual wallets have a big possibility to fill the vacuum left by the absence of banking infrastructure and financial services in many African nations.
A World Bank analysis claims that since 2014, the number of mobile money accounts in sub-Saharan Africa has increased by more than 20% annually. Over 80% of the population in Kenya now uses mobile money services, making it the most popular method of payment.
As more individuals have access to mobile phones and the internet, it is anticipated that the use of mobile wallets in Africa will increase over the coming years.
Asia
Another continent where virtual wallet use has grown significantly is Asia. Virtual wallets have assimilated into daily life in nations like China and India. Over 85% of Chinese consumers use virtual wallets for transactions, making mobile payments the dominant payment method in China.
Demonetisation initiative brought by the Indian government in 2016, despite all its flaws and unruly implementation, resulted in a rise in the use of virtual wallets. As more users move to use digital wallets for their payments and as virtual wallets become more seamlessly integrated into other online services, the market for virtual wallets in Asia is anticipated to continue expanding.
Europe
In comparison to other continents, Europe has been slower to adopt virtual wallets. However, due to factors like the expansion of e-commerce and the popularity of contactless payments, virtual wallet acceptance has been steadily rising in Europe in recent years. Mobile payments are gaining popularity in nations where cash usage is falling, like Sweden. By 2024, it is anticipated that mobile payments in the UK will have exceeded $187 billion, thanks to the rise of contactless payments and the growing acceptance of mobile payments among younger customers.
North America
Virtual wallets are becoming more and more common throughout North America, especially in the United States. The popularity of mobile wallets has been fuelled by elements including the expansion of e-commerce, the practicality of contactless payments, and the rise in the number of businesses that accept mobile payments.
By 2023, it is anticipated that mobile payments in the US will exceed $3 trillion. Although many consumers still favour using conventional payment methods, North America has lagged behind several other regions in the usage of mobile wallets.
South America
Virtual wallets are also becoming more and more common throughout South America. Mobile wallet usage has increased significantly in recent years in nations like Brazil and Mexico. From 2020 to 2025, mobile payments in Brazil are anticipated to expand at a compound annual growth rate of over 27%.
The acceptance of mobile payments in Mexico has been fuelled by factors including the expansion of e-commerce and the rise in the number of businesses that accept them. As more people in South America migrate to using digital payments, it is anticipated that the adoption of mobile wallets will increase.
Big tech is normalising virtual wallets
Experts anticipate a rise in the popularity of virtual wallets among consumers as major internet ventures push for their wider use. Consumers are becoming accustomed to these practical choices thanks to the user-friendly platforms offered by industry titans like Apple and Google. Additionally, as more companies accept mobile payments, such as Netflix and public transit, the use of virtual wallets is starting to become the norm.
Apple, which is renowned for its sophisticated designs, is causing a stir in the virtual wallet market with its well-liked Apple Pay. With 85% of US retailers accepting, it has established itself as a major player in the scene of online payments. Although Apple Pay in-store transactions took a little to catch on at first, this is already changing.
Apple Pay’s potential to rule the payments industry outside of AsiaPac is apparent, despite the fact that its 535.8 million users in 2022 were still far behind WeChat. Apple is on track to overtake competitors in the world of payments as the revolution in digital wallets gains momentum.
Riding the virtual wallet wave
More than half of people worldwide currently own and use a mobile wallet, according to a 2022 research from ACI Worldwide titled Prime Time for Real Time. However, some analysts believe that the usefulness of virtual wallets has hit its limit. Despite these reservations, the tide appears to be shifting in favour of digital wallets as the importance of their usability in making payments increases.
In the virtual wallet market, banks have a strategic incentive to compete with ‘Big Tech’. Banks should prioritise identities and broaden the ecosystem surrounding their wallet rather than concentrating only on payments. Virtual wallets could change payments in this way, tying them directly to the identity of the user and possibly assisting Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures.
Consumer trust in virtual wallets will grow as they become more widely used, but this trust can only be maintained with strong security measures across real-time and instantaneous payment rails. The importance of anti-fraud measures increases when it comes to safeguarding users’ private data and financial activities.
Security is the key here
While mobile payments and virtual wallets seem destined to become an integral—possibly even ubiquitous—part of the payments ecosystem, the surge in their popularity has also caught the eye of cybercriminals. Security is crucial no matter the type of wallet being used.
Virtual wallets are vulnerable to abuse by cybercriminals, who may use dishonest methods to steal money or private information, just like any other digital payment mechanism. Transactional, real-time fraud checks must become an essential component of the virtual wallet experience in order to protect users and the payments industry.
No matter where the payment journey starts or finishes, strict security measures must be put in place to guarantee consumer safety and confidence in this game-changing payment technology.