The e-commerce segment is on the rise globally, with retail sales expected to reach roughly $3.5 trillion this year and emerging markets in China, India, Brazil, and Mexico demonstrating huge growth potential.
As smartphones become ubiquitous, and merchants and retailers embrace digital technology, consumers everywhere are growing accustomed to the convenience of making payment transactions across devices such as wearables and IoT. The use of digital/mobile wallets as a payments instrument in e-commerce and PoS sales are increasing rapidly. By 2022, at least half of all e-commerce transactions could be paid by digital wallets, according to estimates.
As consumers expect more and more shopping convenience, the checkout experience is not friction-free as users face myriad payment options. Additionally, users may have to create an account to process a payment transaction as part of the authentication process, which may lead to shopping cart abandonment. In response, retailers are opting for mobile wallets to create a frictionless customer experience.
The use of universal wallets such as AliPay, WeChat Pay, Apple Pay, Samsung Pay, Google Pay, and Amazon is expanding globally. Riding on the success of these players, many merchants/retailers are developing merchant wallets that feature value-added services as well as payment functionality. Merchants often integrate their branded wallets with loyalty programs, product recommendations, and geolocation tagging, with features personalized based on customer intelligence gathered by the merchants.
Wallets make the payments process more fluid and transparent and create strong links between retailers and their customers. Eventually, retailers can position themselves as hubs by bringing together spokes of various services emanating from the ecosystem of their partners and vendors.
Retailers/merchants can derive additional benefits apart from providing superior checkout experience.
Merchant-branded wallets: a customer engagement tool
A growing number of retailers such as Starbucks and Walmart offer branded mobile wallets and incentivize their use through offers and loyalty, a tactic that universal wallets have yet to embrace. As a result, merchant wallets are positioning retailers to change customer behavior and to emerge as a preferred payment option. At the same time, merchants are also integrating with universal wallets (Apple Pay, Samsung Pay, Ali Pay, and Android Pay) to offer shoppers a more extensive selection of payment options.
However, merchant-branded mobile wallets can be advantageous because they are built using distributed technology, which mitigates the need for consumers to upgrade their mobile devices continually to function. What’s more, merchants do not have to update their PoS systems regularly, a factor holding back universal wallet adoption.
For example, Starbucks app users can place an order, pay for it, and then pick it up when they get to a location. Starbucks – and players such as LevelUp (a Boston-based ordering, loyalty, and merchant payment aggregator) and Le Pain Quotidien (a Brussels-based bakery-restaurant group) – have integrated loyalty into their solutions. By incentivizing users with rewards (get your tenth cup of coffee for free) and increasing the value proposition to cardholders, they successfully influence customers to use their phones to pay.
The advantages of distributed technology are inherent in both single merchant wallets – for example, the Starbucks’ app and merchant-aggregator wallets such as LevelUp and San Francisco-based Open Table – as they use the more accessible QR code technology.
Customer adoption of merchant/retailer wallets depends on value perception compared with physical cards. These could vary from monetary savings to reward points and from convenience to security. Understanding the customer and add-on value that the wallet can bring into customers’ overall journey is critical.
Technology adoption by merchants is a significant success factor
While customer adoption is critical, merchants’ adoption of technology such as near field communication (NFC terminals) must align with the penetration with NFC-enabled smartphones.
Integration of QR code payment methods such as AliPay and WeChat Pay with the merchants’ PoS terminals also will encourage customer adoption of mobile wallets. However, mobile wallets’ use will grow exponentially only when merchant adoption reaches a critical mass.
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 Silicon IT Hub, “Global ecommerce market trends by 2020,” https://siliconithub.com/global-ecommerce-market-trends-by-2020, accessed August 2019.
 ResearchAndMarkets.com, “Global Digital Payment Markets 2019-2022 – E-Wallets to Account for the Highest Share of Online Payments in 2022,” June 19, 2019, https://www.globenewswire.com/news-release/2019/06/19/1871187/0/en/Global-Digital-Payment-Markets-2019-2022-E-Wallets-to-Account-for-the-Highest-Share-of-Online-Payments-in-2022.html.
 Extend, “Evolution of the Credit Card,” Maika Isogawa, March 7, 2019, https://medium.com/paywithextend/evolution-of-the-credit-card-b6918d998b39.