In today's rapidly evolving financial landscape, banks face the challenge of meeting the changing needs of their customers. Traditional payment instruments like cash, ATMs, and cards have been the go-to options for many years. However, the advent of mobile internet and smartphones has opened up new avenues for financial services.
This article explores the immense potential of digital wallets in expanding the horizons for banks, particularly in emerging markets, by acquiring untapped underserved populations, boosting financial inclusion, creating collaborative offerings, instilling engaging loyalty programs, and capitalizing on partnerships with third-party service providers.
1. Banking payment services: Trends and shifts in 2023
For decades, banks have relied on traditional payment instruments to serve their customers. Today, however, these methods have their limitations. For instance, cash transactions are cumbersome and pose security risks. ATMs provide convenient access to cash, but their usage is restricted to specific locations. Cards offer wider usability, but they require physical presence and are prone to loss or theft. These methods were effective, but they were not without their challenges.
To address these challenges, digital transformation looks inevitable for retail banks to stay competitive, win new audiences, and build loyalty that lasts long. According to an industry-focused working paper provided by the International Monetary Fund, major international banks have made digital transformation a priority for their businesses in the upcoming years. Of course, this doesn’t mean that banks should reject traditional payment methods at all. Some financial experts state that to keep up with the demands and interests of their consumers, banks must strike a balance between digital and physical channels.
According to a McKinsey & Co analysis, a number of ongoing trends in consumer and corporate behavior, including movements toward e-commerce, digital payments (including contactless), instant payments, and the displacement of cash, have been accelerated by the COVID-19 pandemic and some other world events. Each of these trends has seen a significant uptick during the last six months.
In its Payments 2025 & Beyond report, PwC defines Digital wallets as one of the six payments macro trends that will reshape the future of the banking industry. Along with this, the report reveals some other industry insights that might be of interest:
- Global cashless payment volumes have increased by 42%.
- 90% of banks' usable consumer data originates from payments.
- 86% of respondents believed that one of their primary sources of innovation will come from collaboration with fintechs and technology companies.
- 89% of respondents thought that the eCommerce trend will continue to grow
- 42% strongly agreed that cross-border, cross-currency, and B2B payments would accelerate.
The advent of mobile internet and smartphones revolutionized the way people transact. The use of mobile banking has grown rapidly in recent years. Recent statistics show that 95% of Gen Zers, 91% of Millennials, 85% of Gen Xers, 60% of Baby Boomers, and 27% of Seniors use mobile banking. So, mobile penetration rates, especially in developing countries, have skyrocketed, providing a unique opportunity for banks to tap into a growing customer base.
In today's highly competitive market, traditional payment tools like plastic cards no longer meet the ever-growing customer needs. The market for these services is saturated, and customers demand more innovative and frictionless solutions. To drive profits and attract new customers, banks must embrace digital financial services. Digital wallets offer accessibility to previously unbanked populations and cater to tech-savvy individuals seeking seamless user experiences.
2. Traditional payment tools vs. digital wallets
The landscape of traditional payment tools, such as cash, checks, and plastic cards, has been the foundation of banking services for many years. These instruments have served their purpose, providing a means for customers to make transactions and access their funds. However, in today's highly competitive market, these tools fail to satisfy the ever-growing customer needs.
One of the significant limitations of traditional payment tools is their lack of accessibility. Cash transactions, while widely accepted, are often inconvenient and require physical presence. Counting, handling, and carrying large amounts of cash can be burdensome, not to mention the security risks involved. Checks, on the other hand, are prone to delays and can be subject to fraud.
Plastic cards, such as credit and debit cards, have offered a more convenient alternative. They allowed customers to make payments electronically and access funds through ATMs. However, plastic cards come with their own set of challenges. They require physical possession and can be easily lost, stolen, or damaged. Moreover, card payments are often limited to specific merchants or regions, which can be restrictive for customers who want more flexibility in their financial transactions.
Additionally, traditional payment tools have reached a saturation point in the market. Numerous banks and financial institutions offer similar card services, resulting in a lack of differentiation. Customers are seeking innovative and frictionless payment solutions that align with their digital lifestyles.
This is where digital wallets come into play. With the rise of mobile internet and smartphones, digital wallets offer a transformative solution that addresses the inadequacies of traditional payment tools. These digital payment platforms leverage the power of technology to provide convenient, secure, and accessible financial services. According to a recent Juniper Research report, by 2024, approximately 4 billion people, or 50% of the world's population, will be utilizing digital wallets, up from 2.3 billion this year. As a result, eWallet-driven transaction values will increase by more than 80% to more than $9 trillion annually. Just think about it — by 2024, about half of the world's population will choose digital wallets.
Digital wallets allow customers to make payments, transfer funds, and manage their finances directly from their smartphones. They eliminate the need for physical cards or cash, providing a seamless and contactless payment experience. Customers can simply tap their smartphones or scan QR codes to initiate transactions, saving time and effort.
Moreover, digital wallets offer broader accessibility, transcending geographical boundaries. With a mobile device and internet connectivity, users can access their digital wallets anytime, anywhere. This is particularly beneficial for underserved populations in emerging markets, where access to traditional banking services may be limited.
Furthermore, digital wallets provide a unified and streamlined user experience. Customers can link their bank accounts, credit cards, or other payment methods to their digital wallets, consolidating their financial activities in one place. This simplifies the process of making payments and tracking transactions, enhancing financial management for individuals and businesses alike.
With all that said, the traditional payment tools that banks have relied on for decades are no longer adequate in meeting the evolving needs of customers. Digital wallets offer a compelling alternative, providing convenience, accessibility, and a seamless user experience. By embracing digital wallets, banks can stay ahead of the competition, attract new customers, and adapt to the digital age of financial services.
3. Challenges of In-House Development and Off-the-Shelf Solutions
When it comes to implementing digital wallet solutions, banks often consider only two options they think are available — to develop the software by hiring or tasking their own in-house software development team or to purchase one of the off-the-shelf solutions offered on the market. However, these options have their own challenges and limitations, making them less favorable for banks looking to maximize efficiency and minimize costs.
So, let’s check if there is an alternative to these ways.
Building your own digital payments solution
Opting for in-house development may seem like a viable choice for banks with substantial resources and technical expertise. However, developing wallet software from scratch requires significant investments in terms of time, money, and human resources. Banks need to assemble a team of skilled developers, designers, and testers who can build a robust and secure digital wallet platform. This process involves extensive coding, rigorous testing, and constant updates to ensure compliance with changing industry regulations and security standards.
Also, in-house development projects often face time constraints and delays due to the complexity of the task at hand. Banks may find it challenging to allocate the necessary resources and prioritize the project amid competing business objectives. Additionally, the lack of specialized knowledge and experience in developing digital wallet solutions can result in insufficient outcomes, leading to higher costs and potential customer dissatisfaction.
Buying a standard payments solution from big market players
On the other hand, off-the-shelf solutions may appear to offer a convenient and ready-made option. However, these solutions often come with limitations in terms of customization and flexibility. Oftentimes, they are bulky and universal. Here, being universal is not a good thing for banks, as the one-size-fits-all approach can hardly bring any competitive edge, to say the least.
Banks may find themselves locked into rigid frameworks that do not align with their specific business requirements or branding. Integrating these solutions with existing infrastructure can also be a complex and time-consuming process, requiring extensive modifications and potential disruptions to the bank's operations.
When fintechs come in handy
Instead of choosing either of these options, banks can benefit significantly by partnering with an experienced FinTech provider specializing in digital wallet solutions. A reputable provider usually offers a solid portfolio of successful revenue-generating digital wallet projects delivered to retail banks in emerging markets worldwide.
By collaborating with a trusted FinTech provider, banks can leverage their expertise, industry knowledge, and established frameworks to fast-track the implementation process. These providers have already invested in developing robust, scalable, and customizable digital wallet platforms, allowing banks to avoid the risks and complexities associated with in-house development or inflexible off-the-shelf solutions.
What’s more, partnering with a FinTech provider offers several key advantages. First, it significantly reduces the time-to-market, enabling banks to launch their digital wallet business quickly and efficiently. Second, the expertise of the provider ensures that the digital wallet solution complies with regulatory standards and security measures, providing peace of mind to both the bank and its customers. Third, a reputable FinTech provider brings a wealth of experience in understanding the needs and preferences of different customer segments, allowing for tailored features and user experiences.
Collaborating with a FinTech provider opens the door to ongoing support and innovation. As the digital landscape evolves, banks can rely on the provider to deliver regular updates, improvements, and new features to keep their digital wallet solution competitive and up-to-date. This relieves banks of the burden of continuously investing in research and development to stay ahead of the curve.
On top of this, some client-oriented FinTech service providers meet their clients halfway offering a cost-efficient and flexible WaaS (Wallet-as-a-Service) delivery model. This model is of pay-as-you-go type of contract, which brings peace of mind to banks with more transparency and flexibility of the software development lifecycle.
Given this, neither in-house development nor off-the-shelf solutions are the optimal choices for banks seeking to implement digital wallet solutions. The challenges and costs associated with these options can hinder success and impede the realization of the full potential of digital wallets. By partnering with an experienced FinTech provider, banks can leverage proven solutions, industry expertise, and a track record of successful implementations to maximize efficiency, minimize costs, and deliver a seamless digital wallet experience to their customers.
4. Why not take the advantages of functionally-lite digital wallets
To test the waters and kickstart their digital transformation journey, banks can opt for functionally lite digital wallet solutions. These solutions provide essential features such as peer-to-peer payments, point-of-sale transactions, and online payments.
With a fair price tag, it is quite easy to jumpstart a digital wallet business not putting everything at stake. Along with a risk-free privilege, a not-more-than-needed feature set also ensures a fast product learning curve and gives a practical idea of how to use and streamline the digital wallet business any further. All this allows banks to launch their digital wallet business without incurring significant risks or expenses. The lite system can be fine-tuned and expanded as the business grows.
Given fair pricing and risk minimization, reaching out to FinTech services providers to get a cost-efficient and fast time-to-market digital wallet platform appears to be a reasonable choice for retail banks.
5. Targeting emerging markets with digital wallets
The launch of a digital wallet business for retail banks looks particularly promising in emerging markets. These markets give a unique opportunity for banks to tap into previously untapped and underserved populations, opening doors to a vast customer base that long stayed out of the radar of traditional banking services.
In many emerging markets, a significant portion of the population remains unbanked or underbanked, lacking access to basic financial services. This is often due to various factors, including limited physical infrastructure, low banking penetration, and a lack of awareness or trust in traditional banking institutions. However, one notable trend in these markets is the rapid increase in mobile penetration rates, as mobile phones have become more affordable and accessible.
Digital wallets provide an ideal solution to bridge the gap and address the financial needs of these underserved populations. With their smartphones and internet connectivity, individuals can gain access to a range of financial services through a digital wallet app provided by local banks. This includes making payments, transferring funds, and even accessing other financial products such as savings accounts or microloans.
By targeting emerging markets with a digital wallet offering, retail banks can position themselves as pioneers in financial inclusion. They can reach out to segments of the population that were previously excluded from the formal banking sector, empowering them with access to convenient and secure financial services. This not only benefits the individuals themselves but also contributes to the overall economic growth and development of these emerging markets.
Furthermore, launching a digital wallet business in emerging markets can attract not only individual customers but also B2B customers, such as merchants and small businesses. These businesses are ready to adopt digital payment solutions to streamline their operations, enhance customer experiences, and expand their customer base. By providing a digital wallet platform that caters to both individual and business users, banks can create a thriving digital payments ecosystem that stimulates economic activity and fosters financial growth.
So to put it simply, targeting emerging markets with a digital wallet solution allows retail banks to extend their reach and unlock the untapped potential of previously underserved populations. By leveraging the increasing mobile penetration rates and providing accessible and convenient financial services, banks can foster financial inclusion, drive economic growth, and position themselves as industry leaders. With the support of an experienced FinTech provider, retail banks can navigate the unique challenges of emerging markets and create a sustainable and successful digital wallet business.
6. Empowering Banks with a Complete Digital Wallet Solution: The Belize Bank case study
Banks excel at dealing with regulatory and financial aspects, while the FinTech services provider assists with the technical side, including seamless integration with existing infrastructure, product customization, and end-to-end knowledge transfer along with continuous product onboarding training. This being said, your business can enjoy getting delivered a feasible market-ready digital wallet solution in no more than 4-6 months.
Moving from theory to practice, let's have a closer look at one of the best examples of digital wallet implementation to serve the unbanked in developing countries. What I am talking about is the introduction of E-kyash, the first nationwide eWallet app that has attracted over 30% of previously unbanked population receiving high trust and approval across customers, merchants, small businesses, and government.
The success story of Belize Bank's launch of E-kyash, the country's first digital wallet, is a testament to the transformative power of financial inclusion and technological innovation. By addressing the needs of the unbanked population and leveraging the potential of digital payments, E-kyash has not only revolutionized the financial landscape of Belize but has also contributed to the country's sustainable development.
For the sake of convenience, below are the milestones that showcase not so technical capabilities, but the value the digital wallet solution has added to the client itself, its B2B and B2C customers, and the financial inclusion improvement of the country.
E-kyash: Adding much value to businesses and customers
- Identifying the Market Opportunity
In 2019, the Central Bank of Belize recognized the untapped potential within the Belizean market, with a significant portion of the population remaining unbanked. Through extensive research for the Financial Inclusion Strategy, it became clear that the inclusion of these segments would enhance financial literacy and contribute to reducing the country's high poverty rate of 52%.
- Introducing E-kyash
With the objective of fulfilling Belize's financial inclusion strategy, Belize Bank introduced E-kyash, the first fully approved digital wallet in Belize. E-kyash underwent a thorough vetting process by the Central Bank of Belize, ensuring compliance with the highest regulatory standards in the Caribbean region.
- Reaching the Unbanked Population
E-kyash focused on addressing the needs of the unbanked population in Belize, which constituted approximately 35% of the total population. It aimed to provide immediate access to financial services for all Belizean citizens, irrespective of their social or economic status, gender, or education level. At the time of writing this article, the E-kyash wallet app acquired 30% of the previously unbanked population proving its timely and relevant character for the local market.
- Simplified Onboarding Process
E-kyash pioneered a simplified onboarding process that allowed customers to sign up for the digital wallet without the need for physical documentation. Through the E-kyash application, customers answered a few simple questions to gain full access to the platform. Additional document submission enabled users to unlock higher transactional limits, categorized into Standard Wallet, Advanced Wallet, and Premium Wallet based on their level of digital verification.
- Extensive Functionality
E-kyash offered multiple functionalities and services on a single platform, catering to various user segments. Personal users gained access to peer-to-peer transfers, bill payments, merchant payments via QR codes, salary payments, and government payments. The wallet also facilitated expense tracking, empowering users to manage their finances efficiently.
- Three Top-Up Channels
E-kyash provided users with three convenient channels to top up their digital wallets. They could do so through a network of retail agents, linked Belize Bank Limited bank accounts, or linked accounts from other Belize financial institutions. This accessibility ensured that users could fund their wallets easily.
- Empowering Agents and Merchants
To increase adoption, E-kyash engaged agents as access points, particularly in rural areas where traditional banking services were limited. Agents could pre-pay their digital wallet accounts and perform cash-based top-ups for customers. Belize Bank incentivized agents by paying commissions for cash-ins and cash-outs, fostering their participation in the ecosystem. Merchants, on the other hand, enjoyed various benefits such as accepting QR payments, sending payment links, participating in an automated cashback program, and integrating via API for streamlined settlement and reconciliation.
- Enhanced Security Measures
E-kyash prioritized the security of end users and agents. The digital wallet incorporated PIN and password features, biometric authentication, and security questions to protect customer accounts. These measures ensured that even if a customer lost their phone, their funds would remain secure.
- Driving Financial Inclusion and Development
With the introduction of E-kyash, Belize Bank successfully tapped into the unbanked market and reached an estimated 40,000 young people aged 14 to 18 who lacked bank accounts. The digital wallet's availability for personal users and businesses has propelled Belize towards fulfilling its national financial inclusion strategy, fostering economic growth, and reducing poverty.
- Shaping the Future
E-kyash has not only established Belize Bank as a leader in digital wallet solutions but also positioned Belize at the forefront of the global payment revolution. By embracing digital payments, Belize Bank has enhanced customer relationships, differentiated itself in the market, and created new revenue sources, setting the stage for a digital financial future in the country.
Through the successful implementation of E-kyash, Belize Bank Ltd has demonstrated its commitment to financial inclusion, innovation, and the socioeconomic development of Belize, empowering individuals and businesses to participate fully in the digital economy.
7. The benefits of embracing digital wallets in a nutshell
By integrating digital wallets, banks gain access to a range of benefits that go beyond the capabilities of the wallet itself. These benefits include:
- A fully functional payment instrument: Banks can offer their customers a digital wallet with its own core engine, enabling seamless transactions.
- A holistic payment ecosystem: The digital wallet solution developed and delivered by your FinTech service provider bundles all the necessary features to create a comprehensive payment ecosystem for individual and business users, including end customers, agents, and merchants. Moreover, the solution can integrate other payment instruments as needed, providing a versatile platform.
- A mobile-driven marketplace: The digital wallet solution acts as a base platform for banks to establish a mobile-driven marketplace. This marketplace not only fosters customer loyalty but also serves as an additional revenue stream. By attracting third-party service providers, banks can create coalition-based programs that benefit all parties involved.
Final thought
Digital wallets present a compelling opportunity for banks to expand their horizons and tap into new business opportunities. With the increasing penetration of mobile internet and smartphones, customers expect seamless and accessible financial services.
By partnering with innovative FinTech service providers, banks can launch their own digital wallet business in a cost-efficient and timely manner. This enables them to acquire previously untapped populations, boost financial inclusion, create lucrative collaborative offerings, and capitalize on win-win partnerships with third-party service providers.
Embracing digital wallets is not just about adopting a payment instrument; it is about embracing the future of banking and redefining the customer experience.