There have been some important milestones in the evolution of the digital wallet so far. Its beginnings date back to 2003, when Alipay was launched in China. Africa’s M-Pesa followed in 2007. In 2011, Google Wallet was launched, allowing users to store card information and make payments via their phone. Starbucks followed with its mobile app the same year, and in 2015 added the ability to order and pay for orders ahead via mobile.
More than two decades later, the digital wallet is now on the rise. The report “Digital Wallets: Beyond The Transaction”, produced in June 2024 in partnership with Google Wallet, shows that digital wallets are gaining traction around the world and are used by over 70% of consumers in the markets studied (Brazil, France, Germany, the UK and the US).
While the primary use remains payments and financial transactions, there is a growing trend, especially among Generation Z, to use digital wallets to store and use non-financial data such as IDs, access cards and loyalty cards. However, barriers such as internet connectivity issues and skepticism about full adoption of digital wallets remain, suggesting room for growth and improvement. In short, the story of digital wallets is still being written.
The current chapter is marked by a surprising increase – as detailed in the report but also supported by anecdotal evidence – in alternative payments within wallets as well as non-transactional usage. A recent panel discussion led by PYMNTS CEO Karen Webster discussed the potential behind current and future use cases of digital wallets, which are rapidly evolving from simple payment form factors to comprehensive lifestyle management platforms.
Jenny Cheng, vice president and general manager of Google Wallet, stressed that digital wallets are about “flexibility” and “freedom” as they allow users to leave home without a physical wallet and still access important credentials and services.
“We talk about convenience and security, but ultimately it’s about providing value to the user,” she told Webster.
A particularly interesting development in digital wallet technology is the growing importance of QR codes, especially in markets where NFC technology is not widely available. Cheng highlighted Brazil as a prime example, where QR codes have become a common method for making payments via digital wallets.
“Brazil is really leading the way in the adoption of digital wallets in this country. And we’re seeing a huge adoption rate, which is currently around 85%,” Cheng said. She added that QR codes are “right at the point of sale, the POS systems in Brazil. So you have the choice of how you want to pay.”
Is Transit the killer app?
This flexibility in payment methods has been critical to adoption in markets with different technological infrastructures. It also shows how digital wallet providers are adapting their solutions to the specific needs of different regions. For example, transit has emerged as a key use case for digital wallets with the potential to drive wider adoption. Cheng highlighted the importance of transit for digital wallet usage, noting that it has increased significantly since the pandemic.
She outlined two main approaches to ticketing in digital wallets. The open-loop model involves consumers using the credit or debit cards already stored in their digital wallet, tapping through the terminals and walking through. The closed-loop option is comparable to showing a QR code to the conductor after boarding a train.
Cheng emphasized the convenience factor of digital wallets on the go: “The ability to easily top them up, so you don’t necessarily have to go to a physical machine and put dollars on your ticket, is hugely convenient for users as their numbers continue to grow and they use digital wallets in the future,” she said.
Nils Zeino-Mahmalat, Managing Director of the German transport association VDV, provided insights into the integration of digital wallets into public transport systems in Germany. He explained that many transport operators have their own smartphone apps that commuters use primarily for timetable information and real-time updates. These apps have been expanded to include ticketing features, and now the focus is on integrating wallet features to reach users who do not use dedicated public transport apps.
However, obstacles remain. Zeino-Mahmalat stressed that fraud is a major problem, especially the copying of digital or even printed tickets by fraudsters.
The VDV has therefore developed a technology called “Motics” (Mobile Ticketing Crypto Service), which offers copy protection for digital tickets. “Motics creates a connection between the existing security systems of eTicket Germany and the passenger’s smartphone,” says the VDV report. “It has several expansion levels so that tickets can be protected against copying and manipulation via NFC, Bluetooth or optically as a barcode.”
In the first stage, the VDV barcode is protected from copying by a dynamic security element. This could be a time stamp that is updated every few seconds. If the ticket is then copied and sent, the dynamic element stops and is no longer updated. Copied tickets are therefore immediately recognized by the control system,” says the VDV.
Cheng admitted the fraud charges.
“I think fraud is actually a big problem for many transport operators,” she said.
Cheng also stressed the importance of meeting users where they are: “The next generation is pushing us to be digital first. I think providing a platform for public transport will be a key factor in the adoption we are at.”
Regional factors
The panel discussion revealed that digital wallet adoption and usage patterns vary significantly across countries due to a combination of technological, cultural and regulatory factors, as previously identified with Brazil and QR codes. Webster and Cheng noted that Brazil also recently adopted Pix as another form of payment for digital wallets, further boosting usage.
In Germany, however, the picture is different. Zeino-Mahmalat explained that Germany is still relatively cash-centric and many passengers still prefer paper tickets. He also highlighted how regulatory restrictions can affect acceptance: “In Germany, prices for rides and public transport are regulated by the state. So there is very little scope to say: ‘If you buy paper tickets, you have to pay more.’ That is not allowed by law.”
Future use cases for digital wallets
Looking to the future, panelists envisioned a vision where digital wallets become even more integrated into daily life, offering enhanced personalization and usability.
Jack Philbin, CEO of mobile marketing agency Vibes, painted a picture of the near future in which digital wallets could revolutionize the travel experience.
“If you have a boarding pass for an airplane and you go through security … why not make someone an offer and a discount or incentive to shop at a particular brand or retailer in that airport while they’re waiting?” he said.
Philbin also highlighted the potential of digital wallets to bridge the gap between online and offline experiences: “The wallet is a great destination to literally activate media. And so closed-loop attribution for purchasing in the physical world is just a huge, a huge category.”
Cheng stressed the importance of personalizing future digital wallet experiences: “I want more personalization, right? It needs to be easier for me to remember that I actually have this offer.” She envisioned a future where digital wallets could seamlessly integrate different aspects of a user’s life, from daily commuting to international travel.
The evolution and future of digital wallets appears to be one of increasing integration, personalization and utility. As these tools evolve, they will become an even more central part of how consumers interact with and manage the world and engage with brands and services.
As the Beyond The Transaction report notes, “Once consumers have stored credentials and used a digital wallet – to confirm their identity or present credentials to access events or programs, data shows that, by and large, they are satisfied with the convenience and ease of use of the technology and will continue to use it. The ripple effects are starting to emerge, especially among young consumers. Some Gen Z members are foregoing physical wallets entirely, and the majority of these young consumers do not carry physical wallets with them at all times.
