Driven by digitization, competition, and the ambition to satisfy consumers, the payment industry is constantly evolving and creating new innovative solutions such as the eWallet. But what makes the eWallet better than regular payment methods? This blog will compare the eWallet with the traditional ATM and will also consider the impact that different cultures have on the payment method that is chosen.
An eWallet, also known as a digital wallet, is a software application that allows users to link a bank account to an online account to complete payment transactions, send and receive payments and to check balances through a computer or a smartphone. Therefore, it provides users with an alternative to their usual debit or credit card.
In comparison to their more traditional opponents, eWallets are extremely easy to use, given that you simply have to download the application, open an account and get verified. All of this happens within a few seconds. It does not only provide access to your credit or debit card but also allows you to also link other cards, such as loyalty cars or reward cards to your account. Having all your cards collected in one central place makes paying simple and fast. The biggest advantage of an eWallet, therefore, is its convenience and easy usage. eWallets are safe and secure, so even when you lose your wallet, no one will have access to your details without your password or biometrics, as all information is encrypted by the software. Payment transactions are completed in the blink of an eye, which really does redefine the whole user experience when making a payment. Besides this, eWallets often come with handy tools such as a budget plan, which gives you the option to track your spending behaviour. (Capgemini)
But what happens if the system breaks down? All the information is stored in the cloud of a server. Since there can be system outages, the risk of a malfunction is not avoidable, which could result in the loss of access to your wallet for as long as the outage lasts. The next problem is that eWallets are not yet available worldwide. Despite many companies working on this, consumers can be limited in where their wallet is accepted. If you ever want to stroll through a flea market, don’t forget your real wallet as eWallet payments are unlikely to be accepted. Moreover, you should bear in mind that your phone needs to be charged, if you want to use your eWallet, meaning that you have to be prepared if you don’t want to find yourself in an uncomfortable position of not being able to pay due to low battery. Another point to consider is that you may be spending your money too quickly, as ‘e-money’ doesn’t feel as real as ‘real’ money does.
The ATM (Automated Teller Machine) is one of the most traditional payment methods. As probably everyone knows, an ATM is a machine that allows you to withdraw cash when a debit or credit card is inserted.
ATMs are easy to use and also give you the option to check your recent bank statements. They are not only ready for use 24/7 but are also available pretty much everywhere in the world. So, if you have your card with you, you’ll be able to receive cash anytime and anywhere you want. You don’t have to carry large amounts of cash around with you, as you can use an ATM more than once a day.
But if there is a problem with your card, you will not be able to withdraw money – the same goes for when you forget your pin code. Machines are often used for fraud and can be hacked, putting you at risk of your information being stolen and if your debit or credit card gets stolen it may be misused. When you have just withdrawn some money, the risk of a robbery is increased when leaving the ATM, so you need to be aware of your surroundings. Even though you can use an ATM several times a day, there is a spending limit that you cannot exceed. ATMs may be available everywhere in the world, but they can occasionally be out of order or are less accessible in rural areas.
What is interesting to see is that different payment methods are preferred in different cultures. Looking at the eCommerce landscape, China alone accounts for around 40% of all transactions made. Strikingly, 65% of all eCommerce purchases in China are spent using eWallets, and even 36% of all payments made at a POS are done with eWallets. The Chinese are one of the most developed nations in terms of digitisation and hence, have adopted the eWallet rapidly. (Worldpay Global Payments Report)
One of the reasons that China adopted eWallets quicker than other countries, is that the Chinese government actively supports digitisation of the country through creating an infrastructure has helped China to become the world digital leader (McKinsey). Since the Chinese government took its time to impose regulations on the digital sector, it was possible for firms such as Alipay and WeChat to develop ideas and gain grasp in the market. Another reason is that the Chinese government sees the movement towards a digitalized future as a way to decrease illegal activities. Finally, scan-and-pay has spread all over China, making it easy and convenient for consumers to pay with an eWallet almost anywhere, from big stores to small street vendors.
Looking at the German market, there is quite a contrast. Only 20% of all eCommerce purchases in Germany are made using eWallets, and payments made at a POS with eWallets are even lower with only 5%. Cash clearly dominates the point of sale with an overall percentage of 55%. But why is that?
Paying with cash seems to be a habit that is deeply incorporated in the German culture. Making use of the much more convenient eWallet is not a good argument for Germans, as they rather use cash in order to keep control over their privacy and make transactions with autonomy, and especially, anonymity. Given their history, cash seems to be a valuable good, which they perceive as ‘printed freedom’. Autonomy and anonymity are thus of great importance to Germans and are worth more than something like convenience. (Privacy is such a big matter in Germany that even Google Street View stopped taking pictures in Germany in 2011 – just to give you an idea of the measures the Germany society is taking.) Apart from that, Germany is also quite far behind with digitisation. Big warehouses such as IKEA or Aldi only implemented the use of credit cards three years ago; before that, it was simply not possible and still to this day plenty of merchants in Germany are ‘cash-only. (Bloomberg)
However, digitisation and the growth of eWallets can be slowed or accelerated by regulations such as PSD2, GDPR and KYC. While PDS2 will possibly create innovations at the POS, GDPR, and KYC make it more difficult for eWallets to fulfill requirements and slow their adoption down. Even though Germans do not particularly want to follow digitisation, it is estimated that the use of cash at the point of sale will most likely decline by around 17% within the next five years (Worldpay – Global Payments Report). Cash money will probably never fully vanish, but a move towards a more digitised society seems to be inevitable after all. Whether the Chinese or the Germans are doing it right is unclear, but why pick sides if both ways clearly have advantages and disadvantages?
PSD2 and Open Banking are transforming the industry. They require the implementation of strong customer authentication (SCA) for online financial activities. Its purpose, along with many other things, is to reduce the risk of fraud and to increase security through additional authentication factors.