What Are Digital Wallets?
A digital wallet is an application that allows users to store payment information on a smartphone, computer, or other electronic device. Digital wallets stored on a mobile device are sometimes called mobile wallets.
Digital wallets eliminate the need to carry physical debit cards, credit cards, and cash. All users need is a phone or other electronic device and they can make payments. Essentially, their phones become their wallets.
To use a digital wallet, consumers first need to download a digital wallet application. Then, they need to enter their payment information (such as their credit card or bank account details) into the app. Many digital wallets also hold other types of information, such as event tickets and reservations, gift cards, and even driver’s licenses in states that allow digital IDs. Once they’ve set this up, users can ditch their physical wallets and just use their phones to make payments.
Consumers who want to use digital wallets have multiple options to choose from. Popular digital wallets include PayPal and Venmo.
The Digital Wallet Market
The digital wallet market is huge – and it’s only getting bigger. According to Grand View Research, the COVID-19 pandemic helped drive adoption of mobile wallets. The global mobile market was valued at $7.42 billion in 2022, and it’s expected to grow at a compound annual growth rate (CAGR) of 28.3% between 2023 and 2030. In the U.S., it’s expected to grow at a CAGR of 27.6% in the same period.
Young Consumers Are Leading Digital Wallet Adoptions
People of any age can benefit from the convenience of digital wallets, but young consumers are most likely to prefer this payment method over other options.
According to a report from PYMNTS, more than 70% of global consumers now use a digital wallet. Many consumers use a digital wallet in addition to a physical wallet, but 10% of Gen Z consumers say they rarely or never carry a physical wallet. Although this is still a small percentage of the population, it represents a growing trend. As more consumers grow up with the convenience of digital wallets, reliance will likely increase. Businesses that don’t accept digital wallets may lose out on this segment of the population.
What Digital Wallets Mean for Insurers
Imagine the following scenario. A 20-year-old woman has moved out of her parents’ home and needs to buy her own car insurance for the first time. She uses a digital wallet for nearly all her purchases and doesn’t even carry a physical wallet. She’s trying to decide between two auto insurance companies that offer the same coverage at the same price. Once accepts the digital wallet she uses, but the other requires her to manually enter her payment information, which is a hassle. She also worries about the security of her payment information – the more places that have her information, the more susceptible she is to a data breach. In the end, she chooses the insurer that accepts digital wallets.
As digital wallet adoption continues to grow, scenarios like this may become more common.
Some of the benefits of digital wallet payment adoption by insurers include:
- Increased trust. By allowing policyholders to use the payment channels they’re comfortable with, insurers earn trust.
- Support retention. When payments are a hassle, policyholders may forget to make payments on time. This may lead to policy lapses and lost business.
- The chance to grow your business. Offering payment channels your competitors are neglecting gives you an opportunity to attract customers who prefer those options.
Of course, not everyone is using digital wallets yet, meaning accepting ONLY digital wallets isn’t a good idea. To appeal to consumers of all ages, insurers may need to start offering digital wallets along with other payment options.
What Digital Wallets Mean for Insurers
You may be thinking that accepting digital wallet payments sounds great in theory, but actually doing so may be difficult. With the right payment service provider, it doesn’t have to be. If your payment service provider supports digital wallet payments along with other payment options, accepting this payment method is easy.
Tranzpay supports Venmo and PayPal payments along with credit cards, ACH, and many other payment options. In addition to supporting digital wallets for insurers, all our payment options meet the needs of the insurance industry, including through PCI DSS and SOC2 compliance. Learn more.
