In this day and age, consumers have come to expect digital applications that are speedy, secure, personalized and, ultimately, able to facilitate their various tasks and transactions.
When it comes to payments, there are myriad digital wallet options available, offered by players ranging from card networks (e.g., Chase Pay, Masterpass) to alternative payment providers (e.g., PayPal) to major retailers (e.g., Amazon) to traditional financial institutions.
Findings from a recent study conducted by ath Power Consulting revealed that financial institutions are the most favored providers of digital payment services, with 2 out of 5 consumers (40 percent) saying they would prefer them over other providers.
By contrast, only 1 out of 5 consumers (20 percent) say they would choose an alternative payment provider and another 20 percent say they would have no preference whatsoever. Only 14 percent would prefer to use a card network to make digital payments.
Financial institutions also lead the pack when it comes to consumers believing that they keep their payment transactions and personal data safe and secure. Eighty-seven percent of consumers say they have trust in them. Payments providers such as PayPal are the next most trusted at 62 percent, followed by card networks at 57 percent.
Financial institutions are certainly in a strong position to leverage the revenue opportunities presented by digital wallets, but many are not taking full advantage of them.
ath Power found that almost half of smartphone users (48 percent) have at least one wallet app installed on their phone, however, a majority (58 percent) have never used a digital wallet.
By encouraging greater adoption of digital wallets, financial institutions have the potential to drive considerable gains.
A recent study by MasterCard found that digital wallet engagement helps drive greater card use, particularly during the first four months after customers begin using the wallet. During those early months, average spending on the card uploaded to the wallet rises more than 20 percent.
The study also found that the majority of digital wallet users fall into higher-value customer segments. These are the consumers who have the greatest spending volume, highest frequency of card use and broadest card use by merchant category.
This suggests that digital wallets may be a means for banks to better engage with higher-spending, more affluent cardholders.
As previously mentioned, when consumers adopt their bank’s digital wallet, that bank has the potential to derive tangible benefits.
Perhaps more importantly, though, a digital wallet can help a financial institution remain relevant to consumers — and more effectively compete with nonbank disrupters — as purchase activity continues to migrate to digital channels.
So how can a financial institution encourage their customer base to use their digital wallet applications? Here are four ways:
- Promote security — Asked why they have not used digital wallets, the No. 1 reason cited by nonusers was “security concerns.” Financial institutions should far and away more actively leverage the trust consumers have in them, and better explain the security features of their digital wallet applications. For instance, education about tokenization could certainly eradicate the fear some nonusers have, and persuade them to use their app.
- Use targeted offers and promotions — Financial institutions can encourage digital wallet adoption with personalized offers that are based on a customer’s location, shopping patterns, preferences and demographic cohort.
- Create a millennial-friendly customer experience — Financial institutions can engage customers by integrating with technologies like Amazon Alexa, Apple’s Siri and Face ID facial recognition from Apple, Google Assistant, Facebook Messenger, and wearables.
- Reward customers — The ultimate goal is to become your customer’s default digital payment app. So whether it is in the form of rewards points, a credit towards a future purchase, or some other incentive, reward your customers for their loyalty.
As innovation in digital payments moves forward, banks risk losing wallet share to nonbank competitors. They must place a sharp focus on delivering a next-gen customer experience and becoming the digital wallet app of choice if they are going to stay in the game.