Banks are losing billions amid the growing adoption of mobile wallets

Banks are losing billions amid the growing adoption of mobile wallets

Banks are losing billions amid the growing adoption of mobile wallets

Print Print Email Email

Globally, consumer adoption of mobile wallets is surging at a rapid rate. The space of digital wallets is getting dominated by innovative fintech firms. The growth for mobile wallet providers is coming at the expense of credit cards and other traditional payments option. According to industry estimates, such changes in consumer payment preferences will put up to US$27.5-US$36 billion of revenue at risk for banks from 2023 to 2025 in the US.

The change in consumer preference is a major threat to card-issuing banks as they would give away more volume and market share to innovative fintech firms and big tech giants such as Apple. Among the major factors that are driving the adoption of mobile wallets among consumers is the desire to pay lower interest and flexibility. This, coupled with greater convenience and control, is resulting in revenue loss for banking institutions.

  • For banks, credit cards are a high-value proposition and many leading institutions make a significant amount of money through their credit card offerings. With card volumes going away into other relevant payment types, including mobile wallets, BNPL, and debit cards, the credit card value creation for banks is getting challenged by fintech firms and tech giants.

In the current macroeconomic environment, where interest rates are rising and the cost of living is surging, PayNXT360 projects many more consumers across the world to give up their high-interest credit card usage in exchange for other low-cost options such as prepaid cards and mobile wallets.

In the global market, digital wallet growth is largely bypassing banks. However, some banking institutions have argued that the underlying payment method associated with digital wallets is a card, and therefore, card issuers still book the volume. But this is not always the case. Many digital wallets, especially in Southeast Asia, have allowed consumers to load their prepaid payment instruments through kiosks and department stores. PayMaya, the Philippines-based mobile wallet, is a prime example of this.

Such business models are projected to grow further over the next three to four years, as fintech firms seek to create an ecosystem, excluding banks, for serving unbanked individuals globally. Furthermore, mobile wallets are not only serving the purpose of payments anymore. Innovative fintech firms are moving beyond the conventional business model and are seeking to integrate more and more features into their wallet offerings. Mobile wallets, for instance, are now also capable of holding boarding passes, admission tickets, and other crucial documents. Samsung and PayPal are an example of such mobile wallets.

With fintech firms and digital wallet providers gaining significant ground on banking institutions, banks must move beyond conventional payment methods as well. Some banks have started to roll out their BNPL offerings, as part of their strategy to acquire consumers that are seeking low-cost financing options. To compete with digital wallets, banking firms can also partner to develop a shared mobile payment service.

  • In Ireland, for instance, a group of top banking institutions partnered to set up an instant money transfer service. The group invested €5.9 million initially to take the competition to digital wallet providers such as Revolut, Monzo, and N26 in Europe.

Going forward, as digital wallets continue to take away the market share from traditional banking institutions, PayNXT360 expects more such strategic collaborations from the short to medium-term perspective. Furthermore, as banking institutions continue to lose a significant chunk of revenue to digital wallet providers, these firms are also asking authorities to regulate the space, in the region where they are not, to develop more transparency in the sector. For instance,

  • In Australia, digital wallets such as Apple Pay are not regulated, which makes it difficult for the central bank to take action against the payment method that is continuing to grow at a rapid rate. The payment method now accounts for 25% of all card transactions, which is significantly higher compared to 10% in March 2020.

In Australia, banks are paying over A$110 million in fees to Apple due to growing digital wallet transactions each year. This again shows that even though the underlying payment method is often a card, as is the case with Apple Pay, banks are continuing to lose significant revenue globally. Consequently, to avoid a significant revenue loss, it is crucial for banking institutions to explore next-generation payment channels and devise competitive strategies to counter the growing shift towards mobile wallets. 

To know more and gain a deeper understanding of the global prepaid card market, click here.

Featured Reports
PayNXT360 Insights

Sign up for The PayNXT360 Insights, and get a weekly roundup of market events, innovations and data you can trust and use.

Sign Up Now

© PayNXT360, All rights reserved | Privacy Policy

Designed & Developed by Cross Atlantic