Digital wallets are changing payments and commerce.
In today’s business landscape where ease of use is paramount and value-added services drive customer loyalty, the financial services industry faces new challenges and opportunities from the major technology companies developing these digital wallets.
The demand for more comprehensive digital wallet solutions is becoming increasingly difficult to ignore. This was evident at the ninth annual Made by Google event on Tuesday (August 13), where it was announced that Google is launching a new Google Wallet feature in the US called Everything Else. The feature will allow users to duplicate various IDs, insurance details and other documents and create a digital version that will then appear in Google Wallet.
The rise of big tech giants like Apple and Google in payments has fundamentally changed consumer expectations, especially when it comes to digital wallets and seamless payment experiences. These tech giants have set new standards for user-centered design, ease of use, and rapid innovation, leaving traditional financial institutions struggling to keep up.
But for smaller banks and credit unions, this shift also represents a unique opportunity to gain a competitive advantage by driving innovation and focusing on their strengths in serving their customers.
Read more: Credit unions vs. Big Tech: The winner gets the customer
The influence of big tech companies: convenience redefined
Technology companies have long understood that convenience is a powerful driver of customer loyalty and retention. By creating ecosystems that integrate different services, they have transformed the digital wallet from a payment tool into a one-stop shop for managing finances, loyalty programs, and even identity verification.
For example, digital wallet products such as Apple Pay, Google Wallet and Amazon Pay are all user-centric, offering intuitive interfaces, onboarding and transactions. This approach resonates with consumers who increasingly demand frictionless experiences in all aspects of their digital lives.
In addition, the ability of major tech companies to integrate digital wallets into their broader ecosystems has been a game changer. Apple, for example, has leveraged its ecosystem to offer a unified experience across all devices, from the iPhone to the Apple Watch. This integration also extends to services like Apple Card, where the digital wallet is not just a means of payment but also a gateway to financial management, rewards, and more.
PYMNTS Intelligence found that digital wallets are increasingly being used for purposes other than financial transactions, such as travel-related purposes like storing boarding passes. This diversification highlights the versatility and usefulness of digital wallets in facilitating everyday tasks beyond payments.
Yet it can be a daunting challenge for many traditional financial institutions, especially smaller banks and credit unions, to compete with the size, resources and technological prowess of the big technology companies.
In the report, “How High-Performing Credit Unions Stay Competitive Through Innovation,” a collaboration between PYMNTS Intelligence and Velera, we found that even among the highest-performing credit unions (CUs) with relatively high member satisfaction scores, a majority (56%) view Big Tech as their primary competitors. Overall, 28% of CUs say they compete with Big Tech.
However, these institutions have several inherent advantages that, if used correctly, can help them succeed in the digital age.
Read more: 3 big ideas from PYMNTS Intelligence’s Digital Wallets UK report
Building a competitive advantage through innovation
According to PYMNTS Intelligence data, CUs that invest time and effort in digital/omnichannel initiatives invest 13% more in payment innovation than the lowest performers and benefit from 57% lower member churn.
“Digital wallets are on a hockey stick trajectory right now,” Chuck Fagan, president and CEO of Velera – the newly renamed PSCU/Co-op Solutions – told PYMNTS.
Trust remains a cornerstone of the banking relationship, and smaller financial institutions often enjoy higher levels of trust with their customers than larger banks or technology companies. By doubling down on that trust and enhancing it with digital tools, smaller institutions can gain a competitive advantage.
Unlike the big tech companies, smaller banks and credit unions are often closely connected to their local communities. This local knowledge can be used to offer services and products tailored to the specific needs of their customers, something that may be difficult for global tech giants to replicate.
In addition, financial institutions are adept at navigating complex regulatory landscapes, an area where Big Tech has occasionally fallen short. By combining this expertise with innovative technology solutions, smaller institutions can position themselves as leaders in compliance and security—areas that are becoming increasingly important to consumers.
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