Have you ever paid for your purchases using your mobile phone? Are you familiar with mobile wallets? In this article, we explain everything you need to know about this new payment method, which is becoming increasingly popular and widely used.
In 2019, 938.2 million people used a payment application from their phones, representing nearly 36% of mobile phone users. This highlights the importance of mobile wallets within transactional payment methods and the role they will play in building future payment ecosystems for the financial industry.
What Is a Mobile Wallet?
A mobile wallet is an application for smart devices that allows users to store money or link other payment methods (such as credit and debit cards) in order to make or receive payments and transfer money to third parties.
Like credit and debit cards, a mobile wallet is associated with a bank account.
It is a financial service that allows individuals and businesses to perform transactions directly from their mobile phones, without the need for cash or physical cards.
Its capabilities may vary, from making purchases through SMS to using NFC (Near Field Communication), a proximity-based wireless communication technology.
The growing popularity of mobile wallets has gone hand in hand with the widespread adoption of mobile devices. This explains why the countries with the highest growth in adoption are also those with the greatest mobile device usage.
The role of mobile wallets is to reduce friction in daily transactions by concentrating a bank’s financial services into a single device, including bank account details and credit card information.
This is why they function similarly to debit or credit cards, with the main difference being that the information is stored on the smartphone or in the cloud instead of on a physical plastic card chip.
How Does a Mobile Wallet Work?
A mobile wallet works similarly to debit or credit cards, except that the information is stored on the smartphone or in the cloud rather than on a physical card chip.
In addition, communication between devices is wireless.
In other words, the main goal of a mobile wallet is to reduce the use of cash and gather all available payment methods in one place.
There are also non-bank mobile wallets, which are used to pay utility bills, recharge mobile phones, make payments in local markets, and shop at large retail stores.
Advantages
The main advantage of a mobile wallet is cost reduction (lower fees for payment transactions) and faster transaction times.
Other important advantages include:
- Savings for financial institutions by reducing operational costs such as ATM maintenance, cash distribution, cashier services, and staffing
- Multiple security features, such as biometric facial authentication (selfie verification), fingerprint recognition, one-time passwords (soft tokens), and/or QR codes
- Greater convenience for customers
- Increased security, both physical (theft or loss of physical cards) and transactional (preventing card cloning and electronic fraud)
- Immediate availability of funds
- No need to carry receipts or payment vouchers, since all payment information is stored on the device
- If the user forgets the wallet password, it can be restored directly from the mobile phone
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