Sources: 1. Governance & Accountability Institute 2021 Sustainability Report 2. Bloomberg 3. CDP Estimate 4. Apple 2022 Environmental Report 5. Google 2022 Environmental Report 6. CDP Estimate 7. The number of companies committing to net zero goals has tripled from 2019 to 2022. In aggregate, these companies contribute about $11 trillion to the global economy. 8. Ibid 9. SEC press release 10. CDP report: "Rising to the challenge: How companies in Asia Pacific are preparing for the net-zero economy" 11. European Sustainability Reporting Standards 12. India GHG Program 13. PIB Government

To read more about the technologies transforming our world, sign up for Mastercard Signals

Read more about Mastercard's activity in this space

next gen computing technology

Computers that are exponentially more powerful

architecture

component technologies

in the cloud

applications in financial services

other sectors

growth markets

Quick Links

Foundry Primers

As digital wallets go mainstream, companies strive to keep up with consumer payment preferences

There are fundamental innovations taking place to address challenges and opportunities across payments, financial inclusion, consumer loyalty, personal identity and Web3. With network effects playing across each use case, adoption and use of digital wallets will continue to expand. Consumer behavior has shifted to digital, so it is time for companies to research, understand, and implement the roles they can play in the digital wallet ecosystem, or they may not prevail against the competition.

Companies must prepare for fundamental innovations across payments, banking, consumer loyalty, personal identity, web 3, and other verticals or else they may not prevail against the competition. With network effects playing across each use case, consumers will see companies become progressively more powerful, ultimately contributing to a path towards super apps and new digital worlds.

Digital wallets are here to stay

Signals to Watch

Web3

Personal Identity

Consumer Loyalty

Financial Inclusion

People are increasingly eager to test new Web3 innovation Wallet users doubled to more than 80 million globally from 2019 to 2022. Web3 wallets serve as keys to Web3 worlds Web3 wallets are necessary to access and transact across blockchain networks. For example, a Web3 wallet is required to utilize decentralized apps such as Aave or Uniswap to borrow or exchange cryptocurrencies. Web3 wallets can bring loyalty to the next level Starbucks Pay is the second most popular digital wallet in the US by number of point of sale transactions, and the company has partnered with Polygon, a blockchain solutions provider, to deliver Starbucks Odyssey to provide NFTs to loyalty members and keep its loyalty program exclusive and memorable. Bridging between blockchains will scale Web3 wallets to the next level Companies are creating digital wallets to buy, sell and hold currencies and tokens for each type of blockchain — such as MetaMask for Ethereum and Phantom for Solana. A fundamental problem with these wallets, however, is that they are blockchain specific. To address this problem, companies such as Portal are creating bridges that allow cryptocurrency conversion across different blockchains. Interoperability will pave the way for people to access relevant Web3 data in one place, like a Web3 super-app..

Web3

Access to legal personal identification is a real problem In 2019, nearly 1 billion individuals did not have an official form of personal identification such as such as a birth certificate. Digital wallets will carry our digital identities Companies are creating digital wallet ecosystems to scan and store personal documents and IDs to streamline identification processes for finance, healthcare, travel, government, and other uses. Twelve US states already or soon will allow people to add their driver’s licenses into their Apple Wallets for non-governmental usage. It is expected that 6.5 billion people will be able to access personal digital documents by 2026. Self-Sovereign Identity Self-sovereign identity (SSI) is a vision for a decentralized ecosystem whereby users own their identity and associated data without the need for a central authority or an intermediary. For this trust to exist, the data and claims exchanged must have integrity. The World Wide Web Consortium (W3C) have recommended specifications for Verifiable Credentials and Decentralized Identifiers to support such innovation, which would provide a new paradigm for the personal data economy. Digital identity reform and regulation Organizations such as Trust over IP (ToIP), ID2020, and Decentralized Identity Foundation (DIF) are forming the requirements, specifications, and implementations of functional identity. Governments including Australia, EU, UK, and US are establishing mutual recognition of their own national digital identities to allow for national and cross border use. These decisions will lay the groundwork for everyone to have access to government-approved digital identity wallets which will validate their personal identity without the need for physical documents and empower users to share data with people, companies and governments worldwide.

Personal Identity

Loyalty programs have significant sway on consumer purchases In a survey of over 32,000 consumers more than 0% said loyalty programs have recently influenced their buying habits. Digital wallets are a new marketing channel for consumer loyalty Digital wallets now serve as acquisition tools for marketers, who can send coupons to digital wallet users. 57% of survey respondents in the US said loyalty programs and points are digital wallets’ top feature. Loyalty programs are not one-size fits all As an alternative to sending offers to digital wallet consumers, businesses can embed a digital wallet into their consumer-facing loyalty apps. Although closed loop digital wallets allow companies to own their consumers’ journeys within their loyalty apps, open loop systems provide consumers more flexibility around how and where they transact. It is important for merchants to factor their consumers’ preferences before implementing such capabilities into their loyalty apps because this decision may significantly drive consumer spend and brand satisfaction. Hyper-personalization will drive consumer loyalty and digital wallet adoption Personalized loyalty systems will play a key role in driving digital wallet adoption. Consumers already expect brands to personalize their experiences, so companies like McDonald’s are tailoring every point of interaction with to their customer’s liking, even at the drive-thru. McDonald’s used Dynamic Yield’s personalization engines to support its loyalty program and optimize menu items based on a consumer’s purchasing profile. Since its launch in 2021, McDonald’s loyalty program has amassed over 30 million members in the US, which has quickly put the company amongst the largest loyalty programs.

Consumer Loyalty

People think of digital wallets as alternatives to banks 77% of payment app users with low-to-medium incomes hold savings in their digital wallets/apps. Connecting the unbanked population to the digital economy About 1.4 billion or 25% of adults in the world remain unbanked due to the lack of banks, internet access, capital, or proof of identity. Digital wallets present an opportunity for everyone to make payments more securely, affordably, and conveniently rather than relying on alternative financial services or microfinancing methods. Beyond P2P payments Digital wallet trailblazers including PayPal, Venmo and Cash App started as peer-to-peer (P2P) apps that enabled digital money transfers amongst users — and do not require users to input banking information to use basic send or receive functionality. Now, these offerings allow users to transact with companies, pay their bills, and even pay with governments, all of which are paving the way for the unbanked to transact digitally and securely. Digital wallets will unlock new forms of banking for anyone to participate In 2016, a study linked M-Pesa, a Kenyan mobile money app, to a 2% decrease in the county’s poverty rate. M-Pesa was launched in 2007 as a P2P payment app catering to the unbanked community, and it has since become a super-app allowing users to send money internationally, pay bills, and transact with their favorite companies. Digital wallet companies like M-Pesa will continue to pioneer ways to connect individuals to the global economy without the requisite of banking information.

Financial Inclusion

Use cases

There are four critical areas where digital wallets are expected to have a big impact and may require regulatory oversight in the coming years:

Data drives new verticals

New data sharing and open banking functionality has given companies access to new sources of consumer data that allow them to embed financial functionalities into their feature sets, effectively turning their apps into digital wallets.

As loyalty and trust grow between companies and users and consumer data continues to proliferate, companies will expand into new verticals and in some cases, develop super-apps that deliver multiple services, often with embedded financial tools.

What once was an app to receive updates from your doctor is now a comprehensive portal that incorporates a digital health profile, health education, calendar bookings, recommendations, and payments.

What once was an app to browse a retailer’s products now provides a personalized shopping experience that follows a consumer before, during and after every transaction and bolsters loyalty by offering new ways to shop, earn points, transact and access customer service.

More governments will likely soon implement Central Bank Digital Currencies (CBDCs) in efforts to eliminate the use of cash. Digital wallets will load these global digital currencies to transact domestically and internationally without cash conversion.

One example worth mentioning is the Bahamas' digital currency, Sand Dollar, which Bahamian residents and visitors to the islands can access through digital wallet and prepaid cards. The Bahamian government anticipates that the Sand Dollar will contribute to the elimination of domestic checks by 2024 and bridge the gap between cash and a fully digital economy.

With the rise of CBDCs, digital wallets will need to support countries’ new payments methods regardless of wallet provider, allowing for universal transactions and potentially a global currency.

As of 2022, over 100 countries were considering implementing CBDCs, about 10% of which are already live.

10%

As credit card and retailer-specific points go mainstream, digital wallets will support the transfer and interoperability of digital assets. There will be mechanisms to buy, sell and trade these assets across brands.

SimplyMiles, an American Airlines loyalty program built in conjunction with Mastercard, allows users to earn American miles when they shop at partner retailers.

(click for more)

Amazon allows customers to pay and earn discounts with credit card loyalty points. Environments like these will grow in popularity when they become interoperable and add more payment options, like using American Airline miles at Amazon checkout or gifting points to peers regardless of digital wallet providers.

(click for more)

Consumers will be able to seamlessly transfer between points, miles, digital art, solar credits and more. Banks and businesses must ensure their programs allow cardholders to earn and pay with new forms of digital assets at their favorite companies, or they risk seeing their customers transact elsewhere.

New ways to pay and new types of money

Cash accounted for 18% of global transaction in 2021. It will decrease to 10% by 2025.

Digital wallets are positioned to become the preferred method of transferring funds amongst consumers, companies and governments. They are one of the key means to power contactless payments, which are expected to grow at a compound annual rate of 19% until 2030.

As consumers continue to demand contactless payment methods, digital wallets will adhere to the highest forms of security protocol, such as biometric and tokenized security, and also support the exchange of new types of value, such as loyalty points and digital currencies.

The path to digital wallets

The use of digital wallets has skyrocketed in recent years as consumers look for alternatives to cash and embrace new ways to pay — and the trend is not slowing down.

Digital wallets account for 52% of the world’s e-commerce sales volume.

Digital wallets will account for 30% of point-of-sales (POS) transactions.

Digital wallet transactions will increase from $7.5 trillion to more than $12 trillion.

Digital wallets in use are projected to grow from 3.4 billion to 5.2 billion.

Digital wallets 2022 - 2026

such as non-fungible tokens (NFTs), loyalty points, and virtual art.

Digital assets

such as passports, driver's licenses, vaccine, and other health records.

Documentation

Payment credentials

These types of personal information can be used to authenticate identity and facilitate the transfer of value in an interconnected ecosystem.

Digital wallets, also known as mobile wallets and e-wallets, store:

Middle East & Africa

Latin America

Europe

North America

Asia Pacific

Asia Pacific Digital wallets in use: AliPay, WeChat Pay, UnionPay, PayTM, GrabPay

69%

Asia Pacific

E-commerce spend by digital wallet

Europe Digital wallets in use: Apple Pay, PayPal, Skrill, Google Pay, Wise, iDEAL

27%

Asia Pacific

E-commerce spend by digital wallet

Europe

Middle East & Africa Digital wallets in use: M-Pesa, MTN Mobile Money, KongPay, Orange Money, Payit

17%

Asia Pacific

E-commerce spend by digital wallet

Europe

Middle East & Africa

North America Examples of Digital Wallets: PayPal, Apple Pay, Venmo, Cash App, Google Pay

North America Digital wallets in use: PayPal, Apple Pay, Venmo, Cash App, Google Pay

E-commerce spend by digital wallet

29%

Asia Pacific

North America

Latin America

North America Examples of Digital Wallets: PayPal, Apple Pay, Venmo, Cash App, Google Pay

Latin America Digital wallets in use: PicPay, PayPal, Mercado Pago, NuPay, PagSeguro

E-commerce spend by digital wallet

19%

Asia Pacific

North America

Central bank digital currencies (CBDCs)

Popular examples of digital wallets

To read more about the technologies transforming our world, sign up for Mastercard Signals

Read more about Mastercard's activity in this space

Digital wallets will become ubiquitous as new uses gain traction — including the ability to unlock new forms of digital assets, store and access essential personal information, and easily traverse next-gen immersive iterations of the internet.

As more people interact with virtual and augmented environments such as video games and metaverses, digital wallets will play a fundamental role in protecting users’ identities, and they will ultimately act as keys for users to seamlessly unlock and navigate these virtual worlds.

Given these new environments, companies need to implement means of accepting new digital forms of payments and personal information — across regions and wallet platforms — to stay relevant.

Sources 1. Digital Wallets ~ Accelerating to a Cashless Society, Juniper Research 2. The Global Payments Report 2022, FIS Global 3. Gartner Dataquest, IDC, Strategy Analytics 4. The Global Payments Report 2022, FIS Global 5. Digital Wallets: Key Opportunities, Vendor Analysis and Market Forecasts 2022-2026, Boku and Juniper Research 6. A Snapshot of Cash Usage Around the World, eMarketer 7. Global Contact Consumer Poll, Mastercard 8. Contactless Payments Market Sizing Report, Grand View Research 9. The Global Payments Report 2022, FIS Global 10. Digital Payments and the New Opportunity to Increase Savings, Commonwealth 11. The Global Findex Database 2021, The World Bank 12. The Long-run Poverty and Gender Impacts of Mobile Money, Science Magazine 13. Mapping Loyalty in Uncertain Times, TruRating 14. Why the Digital Wallet Wars Matter, Forrester 15. 2021 Q4 Earnings Call, McDonalds 16. Identification Development Global Dataset, The World Bank 17. Digital Identity: Key Opportunities, Regulatory Landscape & Market Forecasts 2022-2026, Juniper Research 18. Wallets, Blockchain.com 19. How the Starbucks App is Energizing Mobile Payment Use, eMarketer

7,8

such as card and banking information.

such as tickets, keys, entitlements, and qualifications.

Other digital functionalities

Digital Wallets

Signals

As digital wallets go mainstream, companies are striving to keep up with consumer payment preferences