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The Pros & Cons of Digital Wallets
The Pros & Cons of Digital Wallets

December 16, 2021

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Mobile wallets also called digital wallets, or e-wallets reflect a shift away from traditional modes of payment. If you have a smartphone, there is possibly a digital wallet app waiting for you to download or access or explore. However, what makes them so useful and what are their pros and cons? First, let us understand what they are.

What are digital wallets?

Digital wallet apps are a simple way to store debit/credit cards to authorize payment on your behalf with one tap for all digital platform supported transactions. Digital wallets are ever evolving, often incorporating features that let you have a seamless experience.

Some digital wallets, let you store different fiat currencies, giving users the option to spend in the manner that suits them best.

What is the current situation for digital wallets?

Discussions/conversations that concentrate on the advantages of digital wallets are often consumer centred. Over the past few years, digital payment methods have evolved, as numerous technology firms have introduced them to the marketplace.

Digital wallets have much more to offer than being a more convenient cash replacement. For instance, a use case not discussed often is the convenience they offer when it comes to being remitted internationally.

Compared to traditional money transfer methods, digital wallets allow expats to transfer money to their family members in a  cheaper, faster and more convenient manner.

Such transfers are instantaneous and have lower exchange rates and fees. Digital wallets also let you transfer money directly to the bank account associated with your digital wallet, making it easier to send money to someone.

Digital wallets have several pros and cons that affect their widespread adoption. Let us look at a few of them:

The advantages of digital wallets

1. A seamless purchase experience

Having a digital wallet (or e-wallet), lets you limit the number of cards you carry when you travel. All you need to do is pay via the e-wallet app on your smartphone or scan your smartphone device to a compatible NFC PoS system to make a successful payment. This lets you have a seamless and cash free buying experience that only takes a few seconds to complete!

2. Use a card of your choice

Sometimes, we might want to use a specific card to make specific purchases. You might want to use your debit card to buy groceries to redeem attractive cashback offers, while you may turn to your credit card to earn some points.

With e-wallets, you use the card you prefer, on the fly. Some also let you add a variety of other types of cards. This means you can use your reward cards, gifts cards, loyalty cards and coupons if you so desire!

3. Enhanced Security

How often have we returned home to discover that our card or our wallet is missing? An e-wallet mitigates this problem entirely. Phones get stolen or lost too, but unlike physical wallets, phones can be used with passwords and biometrics.

These features, if turned on let you restrict access allowing only you to access your phone. Many e-wallet apps are often created in the cloud.

So your card data is securely accessible even when using a new phone. E-wallets also enforce secure transactions by using randomly generated payment codes and real time OTPs for payments made in-store or online.

4. Costs

E-wallets typically charge a flat fee for some transactions or functions. For e.g. reloading a prepaid card from different sources like a credit card may incur a small charge. However, the ease of use, security combined with the time saved and a cashless experience mean often outweigh these flat fees.

Here are a few disadvantages of digital wallets

1. Your digital wallet may not be accepted or compatible everywhere

Not all businesses and online merchants accept all digital wallet payments. As a result, you may have to use cash, or look for an alternative solution.

2. Concerns about security

People don’t feel safe when using digital wallets as they often do not fully grasp how e-wallets work. The recent increase in cyberattacks worldwide has only fuelled this perception further since people often believe someone else can access their bank account easily.

However, as these types of apps gain traction, companies are turning to innovative features to make them more secure. Many digital wallets today are built on an immutable ledger that records every transaction in a tamper-proof, secure, and frictionless manner.

Additionally, the adoption of digital wallets is sometimes seen as a big jump from a known and safe mode of payment, further slowing down the adoption of e-wallets, which leads us to the next point.

3. Resistance to change

You have used cash throughout your life to make payments, as it is the traditional way of doing business. As a result, you prefer to carry cash since you believe this is the safest way and most trustworthy way of transacting. Habits may be difficult to change. Alternatively, you prefer cash since it makes it easier to control your spending, which brings us to our final con.

4. Perceived difficulty in budgeting

Sometimes, people struggle with their spending habits due to a lack of saving or budgeting skills. E-wallets are designed to offer seamless and easy transactions. While this is not a con in itself, those with poor budgeting skills may end up spending more.

As a result, some e-wallets incorporate budgeting features and spending alerts when you have spent more than a preconfigured amount.

Conclusion

E-wallets make transactions faster, easier and safer. As the world moves to digitize transactions, and as customers look to make more purchases online, digital wallets are here to stay.

Author — Santosh Kumar, DLT Labs

About the Author: Santosh has over 8 years of experience in the realm of Agile (SCRUM) practices and business analysis. Throughout his career, he has worked in several domains including Investments, Banking, e-Commerce and Loyalty and Payments.


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