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Why Retailers Are Building Digital Wallets

The retailers that stand to gain the most ground in today’s fast-evolving industry are those that build a streamlined online and in-store shopping experience that is second to none - and digital wallets offer a powerful means of doing this.

Shopping is as much about the comfort and ease of the retail experience as it is about what is on offer online or in-store, and payment is the all-important process that seals the deal.

When shopping online, this means not having to go through a long series of steps before a payment goes through or re-entering personal information and delivery addresses again and again. In-store, it means not having to stand in a long queue. There is lots of evidence that shows a prolonged and inconvenient payment process results in lost sales as customers abandon their purchases along the way.

 That’s where the power of a retail digital wallet comes in. Digital wallet technology is flexible enough for retailers to build simple, one-click payment options into the wallet that meet the varied needs of customers buying online or offline. These wallets can potentially cater to customers who use Paypal, Apple Pay, Samsung Pay, or traditional bank-issued credit or debit cards as a means of payment.

Digital wallets also offer the retailer scope to offer additional services for their customers that extend well beyond payments and into loyalty schemes and gift cards. They also enable the retailer to communicate with customers in a more informed and targeted way as a result of the data collected on the customer's behavior and preferences.

What types of digital wallets are there?

In a recent article, Is your digital payments strategy ready for the “Now Economy”?, JP Morgan defined digital wallets as “software-based systems that store users’ payment credentials and passwords, enabling consumers to make purchases without directly entering their personal account information.” There are a wide variety of digital wallet business models. The main ones, as defined by JP Morgan, are as follows:

  • The Amazon or Walmart approach: a closed wallet model that restricts purchases and services to the issuing merchant.
  • Paypal, Apple Pay, and Google Pay: a semi-closed wallet that allows purchases at merchants that partner with the wallet provider
  • Bank debit and credit cards: an open wallet model that enables the use of credit and debit cards for purchases and ATM withdrawals.
  • Mastercard Masterpass and Visa Checkout: a semi-open wallet model that works at card-accepting online merchant locations. 

A closed wallet model offers the opportunity for a retailer to build a bespoke shopping experience for their customers, as giant online UK retailer ASOS has done in partnership with Swedish payments provider Klarna.

The two companies recently entered the US market, giving shoppers access to their retail wallet. Klarna’s approach is to offer customers flexible payment terms, including "Pay in 4", which allows customers to pay for their purchase over four biweekly periods following the US pay cycle. Other payment options it provides are a no-fee, no-interest "Pay later in 30 days” option or shoppers can spread the cost of more significant purchases into monthly payments that do attract interest.

The methods of payment made possible with digital wallets are also compelling because they are so convenient compared with traditional forms of payment. These can be built into the wallet design and include tap-and-pay features like Near Field Communication (NFQ) and scanning QR codes.

Other benefits of retail wallets

So, apart from simplifying the payment process and giving shoppers access to a potentially wide range of convenient payment options, what other benefits do digital wallets offer the retail industry and their customers?


 Security is deservedly the number one consideration when setting up a digital wallet because any breach of security that results in the theft of customers' information would be the death knell of the wallet. Digital wallets thus have a variety of security protocols that limit the risk of security breaches, ranging from tokenization and fraud management through to biometric authentication.

In tokenization, the customer's primary account number is replaced with randomly -generated numbers so that the information can be passed on without revealing the actual bank details. Biometric authentication adds another layer of security to the digital wallet by requiring a thumbprint or facial recognition to access the wallet. Rambus, in their e-booklet, 5 Reasons Retailers Should Have Their Own Digital Wallet, highlights the importance of achieving a balance between security and convenience. “A careful balance must therefore be found between security and usability. A modular, layered approach to security is recommended to enable retailers to select a risk profile in with their wider commercial strategy, and tailor and deploy the appropriate level of protection to meet their specific requirements.”

Reduced costs and transaction fees

 Digital wallets enable retailers to reduce the payment costs for the customer and their costs in a variety of ways. A closed wallet model eliminates banking transaction costs, and thus transaction fees can be substantially reduced for the customer. Rambus explains: “One way to minimize transaction fees is by introducing a store-branded, closed-loop payment card. As consumers can only use these cards at the specific retailer, they are not subject to the interchange fees levied by the payment networks. This is called an 'onus' transaction and means the cost per transaction is significantly lower.” Other costs that can be eliminated by introducing a digital wallet are the retailer's costs associated with producing physical retail cards, receipts, and other printed communications with customers.

Enhanced customer engagement and loyalty

Arguably the most significant benefit a digital wallet offers the retailer is the platform it provides to engage with customers, build long-lasting loyalty, and grow the customer base. Retailers can customize a wallet to reflect their brand proposition in the way it operates, communicates with the customers and the services it offers, including loyalty schemes and special offers. Digital wallets provide retailers with rich data about customer preferences and behavior that can be used to tailor communications, special offers, and predictive purchase recommendations.

There can be little doubt that all retailers need to give serious consideration to having a digital wallet if they want to stay in the game. The more challenging decisions are which model to adopt,  which payment and additional features you want to incorporate in the wallet and how to set up systems that make the most of the information you collect about your customers.

Another potentially powerful use of digital wallet technology is as an employee engagement and financial services tool, with Walmart already offering this to their workforce and Uber exploring the opportunity. Implementing Mobile Wallet Technology for Employees highlights how to best unlock the full potential of a company-branded mobile wallet for employees.

To build a robust and flexible digital wallet for retailers or employees, you need to select the right technology partner, a business that has the skills and experience developing digital wallets and is flexible and forward-thinking enough to keep up with the changing needs of customers in an ever-evolving digital world.

A cost-effective and flexible way to do this is to begin with a white label digital wallet platform and tailor this to the specifications required. Over the past few years a range of white label wallet platform providers have begun to operate around the world, with each offering different products and services. I explored 10 of the leading wallet providers in Top 10 Mobile White-Label Wallet Solution Providers In 2019.

For companies wanting to explore introducing digital wallets into their businesses, the technology is available and the opportunities to empower customers and other stakeholders are limitless. It is just down to finding a digital wallet technology partner that is a good fit for your business and can adapt and grow with you into the future.



Comments: (5)

Melvin Haskins
Melvin Haskins - Haston International Limited - 03 October, 2019, 09:13Be the first to give this comment the thumbs up 0 likes

So I have to have one digital wallet per retailer that I engage with? It is why I use PayPal, just so that I do not have to do this.

Philip Andreae
Philip Andreae - PA&A - Sea Island, Ga 03 October, 2019, 14:38Be the first to give this comment the thumbs up 0 likes

The question we must ask ourselves is how many merchants do we actively do business with and seek to develop a deeper relatiomship with, built on value and services offered.  If the merchant App provides value then why not link that App to your payment credentials?

Paul Shumsky
Paul Shumsky - Entrepreneur - Ny 07 October, 2019, 13:02Be the first to give this comment the thumbs up 0 likes

@Melvin Paypal will not be able to deliver personalized deals, recommendations and make your shopping experience smooth and hassle-free. I think it is a matter of implementation but, ultimately, merchants can deliver lots of benefits to compensate inconveniences associated with having an extra app on your device. 

We should also keep in mind so-called "coalition loyalty programs" that are now much easier to implement with the blockchain technology. Small local merchants can collaborate to build shopping environments and deliver brand new experiences to customers. 

Melvin Haskins
Melvin Haskins - Haston International Limited - 07 October, 2019, 13:38Be the first to give this comment the thumbs up 0 likes

I have 12 loyalty cards in my wallet and at least another 24 retailers that I do business with that I do not have loyalty cards with. I also bank with more than one bank and have savings with more than one institution. I do not want 30 apps on my phone, with each app able to farm information from my activities.

Paul Shumsky
Paul Shumsky - Entrepreneur - Ny 07 October, 2019, 13:55Be the first to give this comment the thumbs up 0 likes

@Melvin when it comes to in-store purchase we realized that for some people it is more convenient to use the mobile phones instead of physical cards. You don't need to open a particlular app, just scan QR or use NFC, the rest is done automatically. It is the same experience as with Apple Pay or Paypal, the only difference is that the payment is processed by a different provider. 

Paul Shumsky

Paul Shumsky

Technology Advisor


Member since

10 Sep 2019



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