Digital Wallet

First, customers will need to save their payment information on their smart devices, which usually entails logging into a banking application. Then, the smart device will connect with the point of sale device and transmit the card or bank information, eliminating the need for a physical card. The transaction is then routed to the appropriate credit card network or bank to finalize the transaction.

What are the Advantages and Disadvantages of a Digital Wallet?

There are both advantages and disadvantages for consumers when it comes to digital wallets. Understanding these items can help you determine if digital wallets are the right move for your financial service business. The first advantage is the limiting of the financial information consumers need to carry with them. By storing all credit and debit cards in a wallet or purse, consumers risk losing that information if their items are lost or stolen. For example, if a customer goes to pay with a physical credit card and forgets their card on the counter, someone can easily pick that card up and make fraudulent purchases.

In addition, hackers have begun targeting the physical payment processors at stores. When a consumer enters their card and PIN, hackers are able to siphon this information and make fraudulent purchases. However, by using a digital wallet, consumers are eliminating the need to physically type in their PIN, adding to security.

However, not all businesses have the technology to facilitate digital payments. This is especially true with older mom-and-pop shops, limiting the use of digital wallets. Additionally, security can be a problem if the digital wallet provider has not been vetted or has not implemented the correct security features. Another challenge arises if the smart device storing all of the transaction information is lost or stolen. If a hacker can gain access to consumers’ phones, they also can utilize their digital wallets to make purchases.

How are Digital Wallets Used in Financial Service Industries?

Digital wallets are widely used in the financial service industries as banking information, such as credit cards, debit cards, and account numbers, are commonly stored for financial transactions. Let’s examine the impact on banks, wealth management offices, and insurance agents.

In the banking industry, digital wallets allow financial institutions to leverage their own digital channels and apps to promote the use of their cards. Consumers are more likely to utilize the cards of a financial institution with digital wallet capabilities.

In the wealth management industry, consumers connect bank accounts to easily transfer funds to investments and track their spending habits. Consumers that can easily transfer funds without having to look up banking information are given added convenience and are more likely to remit payments.

The same is true for the insurance industry. Insurance agencies can leverage digital wallets to reduce check remittances and lag times with other payment options. Providing consumers with the ease of using a digital wallet promotes timely and quick payments.

Although the cost of implementing digital wallets might be a deterring factor in many financial service industries, it shouldn’t be the only consideration. Properly evaluating consumer demand, the potential increase in customers, and the positive impact on cash flow should also be considered.