Digital wallets proliferate as features advance

Dive Brief:

• Minneapolis-based U.S. Bank said Tuesday that its debit and credit card holders now have access to the Paze digital wallet developed by bank-owned Early Warning Services. U.S. Bank is the first bank to publicize a roll-out of Paze, according to EWS spokesperson Richard Pesce.
• Additional banks partnering with EWS on Paze include Wells Fargo, Bank of America and Capital One, among others. "There are similar announcements to the U.S. Bank news coming soon," Pesce said.
• The move was paired with a national marketing campaign for Paze that kicked off Tuesday featuring TV ads and online spots, Pesce said.

Dive Insight:

Tuesday was the first day U.S. Bank customers could use the Paze services through their debit cards, a bank spokesperson said in an email. “Making an online purchase without entering card data and trusting that the payment will process quickly is what clients expect, and what is delivered with Paze,” the bank said in a Tuesday press release announcing the start of the service.

Scottsdale, Arizona-based Early Warning Services’ nationwide Paze marketing campaign will show up this weekend on widely viewed programs, such as the Emmy Awards broadcast and college football games, Pesce said. It will also include YouTube spots for movie trailers “over the coming weeks,” for films like Moana 2, Wicked and Homestead, he added. 

The move is part of a push by Early Warning Services to expand access to Paze, Pesce said. EWS, which is owned by some of the largest U.S. banks, also operates the digital payment system Zelle.

Paze has been in the works since at least early last year and EWS began rolling the service out to merchants in some states in May. "Millions of cards have been provisioned," Pesce said by email.

Digital wallets store any number of payment options, including credit and debit cards. A wallet is generally accessible through a smartphone app, or other mobile device.

The digital wallet is an increasingly popular option in the U.S. A Federal Reserve financial services unit survey of more than 2,000 businesses released in May found that 62% used digital wallets in 2023, compared to 47% in 2022.

The bank owners of EWS are creating the digital wallet as competition in the digital wallet arena rises, with consumers in some parts of the world moving toward them even more quickly than in the U.S. Paze has some high profile competitors in Google Wallet and Apple Wallet, two of the most well-known digital wallets.

Rather than use the buyer's credit or debit card numbers, a digital wallet creates a unique code for each transaction. For U.S. Bank, Paze will be integrated through the bank’s Elavon gateway for e-commerce transactions.

Roughly 80,000 merchants in the U.S. accept Paze, Early Warning Services Managing Director James Anderson told Payments Dive in May. Those merchants include a handful of big names like Whataburger, ShopRite, Sephora and Party City, according to a merchant directory on the Paze website.

Dive Brief:

• A trio of academic researchers want their study of digital wallet security to inspire companies like Apple and Google to make their products safer.
• Two cyber-security experts from the University of Massachusetts Amherst — Raja Hasnain Anwar and Muhammad Taqi Raza — and a third from Penn State — Syed Rafiul Hussain — released a study in mid-August that found shortcomings in the authentication process for digital wallets.
• If a bad actor steals a consumer's credit card information and adds it to their own digital wallet, that bad actor can still use it after the consumer cancels or locks the card, the researchers found.

Dive Insight:

Digital wallets contain information for various payment methods such as credit or debit cards. Apple and Google operate the two most prominent digital wallets. 

The banks that issue credit cards tend to trust Apple and Google, but weak authentication practices make it easy for a thief or hacker to with stolen credit card information to add the card to their digital wallet and use it, the study concludes.

Once a card is included in a digital wallet, a bad actor can continue to use it, even after it is locked or reported stolen, the study says

Banks could also give people more information about what digital wallets are using their cards, which could give cardholders a heads-up if someone is misusing their credit card.

"I don't know which wallets have added these cards," Raza said. "There is no transparency from the bank side."

Raza is an assistant professor who studies the security and reliability of critical infrastructures, Anwar is a PhD student who studies cybersecurity and Hussain studies network and system security.

The three researchers, who used their own digital wallets for this study, acknowledged that gathering data only from their own experiences gives them a limited sample.

The researchers stressed that they have not seen any indication that hackers and thieves are exploiting the vulnerabilities they identified in their research.

"This is not a measurement study,” Raza said.

However, Raza and his fellow researchers contend that companies like Apple and Google should address the vulnerabilities outlined in their study.

Representatives of Apple did not respond to a request for comment for this article. A representative of Google sent a brief statement that did not address the research, but said the company's product is secure.

"Security and privacy features are built into every part of Google Wallet," the statement reads. "We work closely with our ecosystem partners to help prevent cases of fraud using our products, including sending risk signals to banks and card issuers to help them decide whether or not to tokenize a payment card added to Wallet.”

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By Vibes

As mobile phones become an increasingly competitive battleground for seeking consumer attention, Mobile Wallet can help cut through the noise to establish a convenient, functional and secure touchpoint with your customers. 

If you’re unsure of how strong the adoption of digital wallets are among consumers, 54% say they've made a purchase with a mobile wallet offer at a physical location, and nearly 60% have used their mobile wallet loyalty card when making an offline purchase

Here’s more on the benefits of mobile wallet marketing and the various ways you can take advantage of this personalized channel to connect, convert and retain your customers. 

What is a digital wallet? 

Digital wallet or Mobile Wallet is the summary term for the native apps, “Apple Wallet” and “Google Wallet” built into all iOS and Android devices.  

While Apple Wallet and Google Wallet are best known for holding consumers’ credit cards and enabling mobile payments, they offer much more – now coupons, loyalty cards, tickets & gift cards are housed and organized as passes. No additional app download required. 

5 key digital wallet capabilities  

1. Continually update digital wallet passes with new content in seconds

Mobile wallet passes can be updated with new information at any time, as often as you desire and in real-time.  

From updating loyalty members about new benefits to extending the duration of a promotion, Mobile Wallet enables you to continuously engage with your customers and drive them to act. 

2. Stay top of mind with mobile wallet notifications

Just like a mobile app push notification, Mobile Wallet can also deliver a variety of messages to a user’s lock screen, including precisely-timed notifications that can be set to automatically send when a user is 100 meters or less away from a physical location – and t hen prompting a visit to that nearby location. 

3. Attribution for measuring ROI

Whether redeemed on-site or online, each digital wallet pass can be uniquely identified and tracked, providing you with unique attribution. 

Vibes makes this possible through our Secure SmartLink – a unique, trackable URL that is automatically generated for every mobile wallet pass, paving the way for a better understanding of the business impact digital wallet marketing has on your brand.  

4. Security you can count on

Vibes’ Secure SmartLink is also encoded with parameters that provide fraud protection for any redeemable pass meant to be used only once, such as a coupon or ticket. This prevents consumers from manipulating the Secure SmartLink to reuse an already-redeemed pass by deactivating the pass after use. 

5. Enable instant, low-friction enrollment into your loyalty program

Mobile Wallet can help boost sign-ups and engagement with your existing loyalty program via QR code, SMS or web form - you decide.  

Taking your digital marketing to the next level with digital wallets

When it comes to weaving digital wallet into your other marketing channels, anywhere you can embed a URL you can deliver a mobile wallet pass, meaning you can take a multichannel approach to getting passes into more customers’ mobile wallets. 

To drive awareness of your brand and help stay top-of-mind, start by opting customers into an SMS list. This is not to say you abandon your other marketing channels to pair with digital wallet. However, SMS is already a personal, conversational channel, so customers are extremely receptive to engaging with brands through text messaging. 

Vibes customers have seen as high as 19x more revenue per message from campaigns that use both SMS & Mobile Wallet, vs. just sending SMS messages by themselves. 

What if I have a mobile app? 

Here are 3 ways digital wallet can help you in ways that your mobile app could be limited: 

1. They are easier to find and access. It only takes two taps to reach a saved pass, versus six taps and two swipes to reach that same information in an app.  

2. They increase app downloads. Mobile Wallet includes an option to cross-promote downloading your mobile app. When promoted, over 30% of digital wallet users have also downloaded a brand’s mobile app. 

3. It does not require any internet connection. A poor signal or no connectivity means your customers won’t be able to access your app. Accessing saved mobile wallet passes, on the other hand, does not require any cell service. 

We hope you have a better understanding of mobile wallet marketing, how it works and how it has the power to enhance your business and completely reshape how you connect with your customers. 

Dive Brief:

• The debit card is still the prevailing method of payment at the point of sale, market research firm J.D. Power found in a poll of 7,756 consumers about their payment habits and preferences. The study was conducted between September and November, according to a Thursday press release about the report.
• The use of debit cards, by far the most common form of payments, is driven by young people. Among Americans under 40 years old, 82% use debit cards, according to the organization’s research, beating credit cards, cash, checks and digital wallets. Digital wallets, however, stand to overtake debit cards, J.D. Power found.
• Consumers gravitate toward debit cards, thanks to the speed and ease of use, but younger customers also find digital wallets fast and easy to use, according to J.D. Power.

Dive Insight:

The use of alternative payment methods like digital wallets — an app on a consumer’s phone that lets them immediately access various payment methods — skyrocketed between 2023 and 2024, according to research from J.D. Power. The firm found that 48% of consumers used digital wallets at the point of sale in its 2024 study, up from 36% in a survey earlier this year.

Meanwhile, the proportion of consumers swiping, dipping or tapping a debit card fell by six percentage points, relative to an earlier survey, J.D. Power said.

“Both of these (differences) are statistically significant,” Sean Gelles, senior director of payments intelligence for J.D. Power, said in an interview on Wednesday.

It’s hard to say when digital wallets will overtake debit cards, he said. “I don't think we can make that kind of prediction given the data that we have,” Gelles said.

But he added that the growth of digital wallets is undeniable, and likely irreversible. 

Consumers can access their debit card through a digital wallet, but J.D. Power differentiates between those payment methods because the customer uses their smartphone, rather than a physical card, when they pay with a digital wallet.

In a news release, J.D. Power said it expects a “slow deterioration” in the direct use of debit cards as more consumers become aware of, and comfortable with using, digital wallets.

The change has broader implications, Gelles said. Debit cards give banks a way to develop a deeper relationship with their customers, and that connection is lost if the transaction comes through a digital wallet, rather than a card issued by a customer’s bank, he said.

Even if a consumer uses the debit card in their digital wallet, the connection is between the consumer and the company that owns the app — Google or Apple, in most cases — not the debit card issuer, J.D. Power found.

“At that moment, they’re having an Apple Pay experience, or a Google Pay experience,” Gelles said. “The whole point was they should be having a Bank of America experience.”

To remain relevant, debit card issuers will need to convince consumers their product is indispensable, J.D. Power said in its news release.

Issuers can accomplish this by “focusing on value-added experiences related to budgeting, security, or rewards, all of which have strong influence on debit card user satisfaction when delivered well,” the release said.

Dive Brief:

• U.S. businesses use of digital wallets jumped last year, rising from 47% in 2022 to 62% in 2023, according to a report from the Federal Reserve’s financial services unit, which cited a survey it commissioned in the second half of 2023.
• Large businesses and those that provide services drove the change. Among service businesses, digital wallet usage increased from 43% in 2022 to 61% last year. Similarly, large businesses saw digital wallet usage jump from nearly half (48%) to nearly two-thirds (64%), the survey said. 
• Meanwhile, the survey tracked slower ACH payment growth, rising from 40% in 2022 to 45% in 2023. For services businesses, ACH usage climbed from 39% in 2022 to 49% in 2023 while it rose for large companies from 44% to 51%, the survey found.

Dive Insight:

“Many businesses are implementing faster and instant payment services because the benefits they offer align with the qualities sought by today’s digital-first consumers,” the Fed report said. The central bank undertook the survey to explore businesses “payment behaviors, pain points and use cases,” according to the report.

The Fed survey showed that businesses use of faster payments systems, wire transfers, next-day ACH and debit cards also rose, but not as much as digital wallet use. By contrast, cash usage by businesses dipped.

The Federal Reserve’s survey builds on previous research suggesting that digital payments are overtaking more traditional payment methods. A report from merchant services provider Worldpay in March predicts that the value of point-of-sale debit transactions will decline from 28% in 2023 to 23% in 2027. Conversely, the report predicts that digital wallet usage will rise from 15% in 2023 to 31% in 2027. 

However, consumers are likely to stick with just one digital wallet provider, from one of the major providers. Nearly a third of 1,800 U.S. consumers surveyed by the consulting firm McKinsey said they anticipate using a single digital wallet from tech giants like Apple, Google and Samsung, up from 21% in 2021. The proportion of people expecting to use three or more digital wallets fell from 30% to 20%. 

But as tech giants are poised to dominate the digital wallet market, lawmakers and regulators are considering how best to oversee the industry. The Consumer Financial Protection Bureau last year proposed a rule that would subject digital wallet providers to the same oversight as banks, but the proposal has drawn criticism from trade groups, including the Electronic Transactions Association, the Financial Technology Association and the Crypto Council for Innovation. Members of Congress have written letters expressing concerns about the proposal.

X, formerly known as Twitter, plans to launch a peer-to-peer payment feature this year, the company announced in a Tuesday blog post.

”We will launch peer-to-peer payments, unlocking more user utility and new opportunities for commerce, and showcasing the power of living more of your life in one place,” the post stated, among other plans.

The post comes just weeks after X owner Elon Musk discussed his payments plans in a Dec. 21 conversation with Ark Invest CEO Cathie Wood. Ark Invest is an investment management firm that has invested in Musk’s companies such as Tesla and X. Musk said that San Francisco-based X was waiting on state officials to approve the licenses it needs to launch a payments feature.

“I would be surprised if it takes longer than the middle of [2024] to roll out payments,” Musk said during the conversation, which took place on X’s audio streaming platform. He also said X had received licenses in a majority of U.S. states, which Wood repeated in a Dec. 28 interview with Bloomberg. 

However, X’s own website lists just 15 state licenses, 14 of which are also listed on the Nationwide Multistate Licensing System. The 15th license is from the state of Florida, which does not list money transmitter licenses on the NMLS database, but lists the license on the website for the Florida Office of Financial Regulation.

The most important state money licenses, for the purposes of his payments plans, have yet to grant X licenses, Musk said. “It’s irrelevant until California and New York approve us,” Musk said during the interview. He did not go into detail as to why those states in particular were important.

X also did not respond to requests for comment that were sent to a general press email address.

Musk also told Wood that he was not aware of any obstacles to X launching a payments feature. However, the state approvals paused for nearly 90 days last year after New York City law firm Walden Macht & Haran wrote a Sept. 8 letter to officials of all 50 states alleging X was “unfit” to hold money transmitter licenses.

X also did not respond to requests for comment on the letters sent by Walden Macht & Haran.

The delays followed a “chaotic” start at X for Musk, he said. X had not submitted required documents until the middle of last year, he told Wood. “Things were obviously quite chaotic, especially for the first few months,” he said. “We were a bit late in submitting our money transmitter licenses, and I essentially thought ... we had done it, but we had not done it.”

Musk, one of the richest billionaires in the world, was the co-founder of X.com, an online bank that became part of the San Jose, California-based payments juggernaut PayPal.