Smartphones have changed how we interact, connect and do business. According to the Pew Research Centre, 85% of the American population own a smartphone and 97% now own a cellphone of some kind.
It is evident that mobile phones are no longer a luxury item but a necessity, so much so that it is often the first thing that we pick up when we wake up and the last thing we touch before going to bed.
Mobile apps or the mobile application software designed to be used in mobile devices or tablet computers are the lifeblood of smartphones. Everyone has apps these days. Banks, websites, TV shows, multinational companies, even your local food delivery services conduct their businesses through apps.
You must have heard the popular saying, "There is an App for everything". With a few tabs on these smart devices with an internet connection, we can order food, read a book, call a taxi, attend online classes, book flights, buy things, hire services, make payments, and so on. Smartphones have made our lives significantly easier.
Do you know there is also an app that allows your smartphones to be used as a wallet?
This wallet is called a mobile wallet.
What is a Mobile Wallet?
A Mobile Wallet can be considered as the digital version of your traditional leather wallet. Technically, it is an app on your smartphone that stores your credit card/debit card information and cash balances which can be used to make purchases in-store or at merchants listed with the mobile wallet service provider.
Instead of using your plastic cards or paying in cash, you use your smartphone, tablet, or smartwatch to make payments. In other words, a mobile wallet is a virtual wallet present in a smart device that stores money in digital form.
Types of Mobile Wallets
There are 3 types of mobile wallets: Open, Semi-Closed, Closed.
How to Set Up a Mobile Wallet?
The mobile wallet as an app can be downloaded from app stores and installed on smartphones. Popular mobile wallets such as Google Pay, Samsung Pay, and Apple Pay comes as an in-built feature of their respective brands' smartphones.
Once the app is installed, you start adding card information you intend to store in the wallet. The wallet then stores the information by linking a personal identification format such as a PIN number or QR code or an image of the owner to the card that is added.
Although you can add as many cards as you wish, only one of the cards can be the default payment option. If you want to use a different card, you need to change the default card before making the transaction.
How Does a Mobile Wallet Work?
When you have to pay with a mobile wallet, you first open the app on your phone using a password, a PIN, or your fingerprint to access the payment information and then bring your phone to a compatible reader to make the transaction.
The app uses an information transfer technology like Near-Field Communication (NFC) which uses radio frequencies to communicate between the two devices. NFC uses the personal identification format of the users to communicate the payment information to the NFC-enabled reader or the merchant's POS terminal.
Essentially, the information transfer is triggered when the user brings an NFC-enabled mobile device over the merchant's or store's NFC reader.
Do keep in mind that not all smartphones use NFC technology including Apple phones. There are alternative ways to make payments via mobile wallets. For example, Paypal's mobile wallet uses the users' phone numbers at checkout. The phone number must be linked to the user's PayPal account for a successful transaction. Some other wallets either use QR codes or the image of the user at the checkout.
How Secure are Mobile Wallets?
Mobile wallets are extremely secure since they are based on encrypted software that works via an app on a smartphone. Mobile wallets are password-protected, and hence your bank details and payment information are inaccessible by hackers. To make a payment, you need to unlock your phone, type the password or use your fingerprint to unlock your mobile wallet.
Unlike cash which can be stolen and cards that can be stolen or copied, smartphones are hard to steal and gain access to even when stolen if a password or fingerprint check is set to lock the device.
What are the Advantages of Using a Mobile Wallet?
Mobile wallets are gaining popularity among the masses with the expected number of users to reach 4 billion by 2024. The Covid-19 pandemic has further encouraged the use of cashless payments rather than physical cash. During the pandemic, companies such as Venmo waived fees for stimulus check deposits.
The market valuation for the mobile wallet market is expected to reach $7,580.1 billion by 2027, growing at a CAGR of 28.2% from 2020 onwards.
With regards to future mobile payment technology, mobile wallets are one of the fastest-growing segments, mainly because of the convenience, security, ease of use, and fast service delivery.