Contactless payments: How are mobile wallets changing way we spend?

It can be a frustrating affair when you want to buy something and fail to find cash on your person. Remember all those times when you had to search for change and go through every pocket for loose quarters or struggled while offering a crumpled-up bill at the payment counter?

If you belong to the majority of the global populace, it has probably been a long time. There has been a tectonic change in how we pay and procure goods/services and interestingly, mobile wallets are at the forefront of this revolution.

For all practical purposes, that age when cash reigned supreme and plastic money was just a sparse novelty, has truly come to an end. Today, people wake up to a reality where a mere touch of the phone suffices to end a transaction. We live in a world of contactless transactions where the smart phone also serves as a fully-functional digital wallet.

From cash to card payment: A historical background
The transition from the antiquated barter system to the systematic transformations offshooted by the forces globalization has been progressive, although not all that smooth. From exchanging cowrie shells and beads to coins, then paper currencies and credit cards; we have come a long way.

Cut to the present: the majority of us are now actively using digital payment modules where purchases can be convened in a matter of seconds as a person’s entire financial history and transactions is seamlessly stored inside a sleek smartphone.

This magnanimous revolution is being led by a slew of mobile wallets such as Apple Pay, Google Pay, and Samsung Pay. These tech behemoths have not only subverted the traditional payment modes used by customers, but has also, more importantly, altered their very understanding of the concept of money and its evolution.

Contactless transactions and what makes them popular: Convenience, security, speed.
So, what are the primary reasons driving this change? Well, there are three core reasons:

Convenience: Forget the endless rummaging inside your handbag or wallet and fumbling for a note or two. Now, all that is vital is readily contained inside your smartphone’s mobile wallet. It does not matter now if you forget your card or purse at home as now you can carry the entire bank inside your phone.

Security: If you think mobile wallets are less secure than other modes of payment then think again. Features such as encryption and tokenization are used in these wallets to safeguard the user’s information. Also, people generally use Face ID or Touch ID to access a mobile surface which further helps fortify your financial credentials.

Speed: In contemporary times, where every minute translates into money, time crunches can always be a source of added pressure. However, contactless digital payments do not require card swipes or fingertips. In a split second, the entire payment process is duly convened. You no longer have to wait for the chip reader to process the card or a cashier to hand back the change.

Under the hood: decoding the mechanisms of mobile wallets.
It’s nobody’s fault if mobile wallets seem like magic wands because they may resemble fantasy in a certain way. Here is a glimpse of what happens behind closed doors:

Tokenization: You will not be able to locate the actual number of the card that you are adding to your mobile wallet. Instead, it creates a unique “token” which symbolises your card and is stored in the wallet. This token is transmitted in all the transactions, ensuring your valuable details stay protected.

NFC technology: Near Field Communication (NFC) is the secret sauce that allows your phone to communicate with different payment terminals. It's a short-range wireless technology that enables secure data transfer between devices.

Biometric authentication: Your face or fingerprint is your password. This not only makes payments more secure but also adds a futuristic flair to the whole process.

New spenders on the block: who's embracing mobile wallets?
You might think it's just tech-savvy millennials embracing this new way to pay, but you'd be wrong. A 2023 study by Juniper Research found that the number of contactless payment users is expected to reach 1.5 billion globally by 2024, up from 782 million in 2020. That's nearly one in five people on the planet!

The adoption of mobile wallets is occurring across all age groups, with some notable trends emerging. Millennials and Gen Z are at the forefront, with 75% of them regularly using mobile wallets, according to a 2022 survey by Payments Journal. Meanwhile, Baby Boomers are catching up quickly, with adoption rates doubling over the past two years. Urban dwellers continue to be more likely to use mobile wallets than those in rural areas, but the gap between the two is gradually narrowing.

Merchants: riding the wave or getting left behind?
For businesses, mobile wallets are both an opportunity and a challenge. On one hand, they offer reduced transaction costs and increased customer satisfaction. On the other, they require investment in new technology and staff training.

Smart merchants are embracing the change. Take Starbucks, for example. Their mobile payment and loyalty app has been a massive success, with mobile payments accounting for 26% of all transactions in the U.S. in Q4 2022.

But, it's not just big chains benefiting. Small businesses are finding that offering contactless payments can give them a competitive edge. As Sarah Thompson, owner of a boutique bookstore in Portland, puts it: "Since we started accepting mobile payments, we've seen a 15% increase in impulse buys. People are more likely to pick up that extra book when paying is so effortless."

Crystal ball: What's next for contactless payments?
As impressive as current mobile wallet technology is, we're just scratching the surface. Here's a glimpse into the future:
Biometric advancements: Imagine paying with a simple wave of your hand or a blink of your eye. Companies like Amazon are already experimenting with palm-based payments.
Wearable integration: Your watch, ring, or even clothing could become a payment device. The line between fashion and finance is blurring.
Cryptocurrency integration: As digital currencies gain mainstream acceptance, expect to see them integrated into mobile wallets. Some wallets, like Samsung Pay, are already experimenting with this.

Not all smooth sailing: Challenges on the horizon
Despite the rosy outlook, there are still hurdles to overcome:

Security concerns: While mobile wallets are generally secure, the fear of hacking and fraud remains a barrier for some users.

Compatibility issues: Not all merchants accept all types of mobile wallets, leading to confusion and frustration.

Battery dependency: A dead phone means no access to your wallet. This reliance on battery life can be a significant drawback.

Bottom line: Mobile wallets are here to stay
The rise of contactless payments and mobile wallets isn't just a trend—it's a fundamental shift in how we interact with money. As technology continues to evolve and user experience improves, we can expect to see even wider adoption.

The future of payments is contactless, convenient, and pocket-sized. So the next time you're at the checkout, why not give your mobile wallet a try? You might just find that tapping to pay feels as natural as breathing. Welcome to the future of spending—it's already here.

-- Vinay Singh, Co-founder and Chief Product Officer (CPO), Olyv