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Mobile Wallets

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By: Tavaga Research

If you have ever paid for coffee using Paytm or Google Pay on your mobile phone, you have used a mobile wallet, also known as an e-wallet. This article will provide information on mobile wallets and help you decide whether you should use a mobile wallet in your daily purchasing decisions. Firstly, the terms digital and mobile wallets are used interchangeably. They are very similar; however, the main difference is that a mobile wallet is restricted to an application on your mobile devices while a digital wallet is accessible by mobile devices, desktops and laptops.

What does the data show about mobile wallets?

Mobile wallets are growing rapidly in terms of popularity, the value of transactions has grown globally from Rs. 165,90,67,00,000 in 2016 to Rs. 672,42,13,00,000 in 2020. In terms of the age demographics, 48% of individuals aged 16-34 already have a mobile wallet and 32% expressed interest in getting one. 44% of individuals aged 35-44 already have a mobile wallet and 32% expressed interest in getting one. This number stayed relatively unchanged as you increase in age. However, with individuals 55+ only 29% have a mobile wallet and 28% expressed some interest in getting one. The data shows that as the younger generations age they will continue to use mobile wallets so its popularity will only increase in the foreseeable future. Since demonetisation in 2016, there has been a push to increase digital payments. Mobile wallets transactions have increased in terms of volume, from 0.6 billion in 2015-2016 to 4.1 billion in 2018-2019.

What is the meaning of a mobile wallet?

Mobile wallets are virtual wallets which store your payment card information on your mobile device. Mobile wallets allow users to receive and send money via mobile devices using encrypted software in the form of applications. The technology used to facilitate these payments is known as near-field communication (NFC) which triggers the payments when NFC-enabled mobile device is held over the contactless card reader. Mobile wallets in India have been growing in popularity recently. A list of mobile wallets in India includes Google Pay, PayTM, BHIM Axis Pay, PhonePe, Mobikwik, ICICI Pockets and HDFC PayZapp.

What are the types of mobile wallets?

There are three categories for mobile wallets, closed, semi-closed and open. Mobile wallet features vary with each type of wallet. A closed wallet links to a private company where you can only make purchases directly from that client. The money from this wallet is not transferable to your bank, for example, Amazon Pay. A semi-closed closed wallet works with multiple merchants as long as they have a contract with the payment portal. You can receive money in the semi-closed wallet; however, withdrawal is challenging. Examples of semi-closed wallets include Paytm and Mobikwik. Finally, open wallets are issue directly by your bank or by a third party like PayPal. The money in this wallet can be used for any transactions and withdrawing money to your cash account is very easy.

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Individuals often ask which mobile wallet is the best, the clear answer would be open wallets which provide easy withdrawal and no restrictions on where you can make purchases. Therefore, the recommendation is to do your research before depositing funds into a mobile wallet to ensure it is an open mobile wallet.

Is a mobile wallet safe?

Mobile wallets can be considered very safe compared to all available alternative at this current time. Mobile wallets use multifactor authentication the user uses their mobile device which requires a pin and authenticates transactions using biometric data like a fingerprint. Secondly, the card details are not on your device, and they are always encrypted. Finally, every transaction has to be authorised by your bank or third-party provider, only they have access to your funds. In addition to this, for added security Global Positioning System (GPS) data can be used to identify the location, time, and date of the transaction. These security features prevent fraud or any data breaches occurring.

In the future, digital wallets are likely become impenetrable by using blockchain technology. Blockchains will provide the architecture to enable tamper-proof transactions with decentralisation and cryptography. Furthermore, blockchain will facilitate faster transactions with a focus on transparency, greater traceability and lower costs.

How to open a mobile wallet and how does a mobile wallet make money?

First, you need to register and set up an account with a mobile wallet company and once you have installed the corresponding mobile application you can transfer funds. Once you make a transfer of funds into your mobile wallet through your credit/debit card, the mobile banking wallet company send your money to an escrow account to prevent them from fully controlling your funds. As you make a transaction the merchant receives a message about the payment. Once the merchant meets the payment requirements, the funds move from your wallet to the merchant’s banks account. If you want to transfer money from one mobile wallet to another if the other user has set up an open mobile wallet like PayPal the payment happens almost instantaneously.

What are mobile wallets’ advantages and disadvantages?

The first factor to consider is which category the mobile wallet falls within. Open wallets have considerably more benefits over closed wallets as previously discussed. Thus, each of the mobile wallet examples mentioned above will have their distinct advantages and disadvantages relating to their category.

There are multiple benefits of transacting through a mobile wallet. First, the rapid accessibility of the transferred funds makes mobile wallets beneficial for the receiver and once the funds have entered their account, they can use those funds immediately to make purchases. The receiver does not have to go to an agent to receive the funds. Also, the funds can still be sent even if they do not have a bank account.

Second, mobile wallets are designed to create the best user experience. What this means is that as long as you have access to the internet you can make transactions, receive funds, monitor your balance all on the move and in any country. This level of flexibility and ease of use makes mobile and digital wallets unique leading to their popularity.

Finally, as mentioned previously, due to the end to end encryption fraud is not an issue since biometric data or a pin required to enter both the mobile device and your mobile wallet. Mobile wallets are encrypted with multiple layers of security; therefore, none of the sensitive personal banking data can be stolen when compared to a debit or credit card. You can make substantial transactions with the peace of mind that your funds are fully secured.

Despite these benefits, there are some of the disadvantages of mobile wallet firstly, to be able to make payments to some merchants you need a mobile device that has near-field communication capabilities. Some iPhones and Chinese phones do not have these options as a result you will have to use mobile wallets which do not require NFC technology. This applies both ways as not all merchants have NFC technology so you will need to find alternative payment methods in this case.

Finally, mobile wallet companies have a high level of secrecy when it comes to their codes and security and expect the user to trust them. As a result, this leaves the mobile wallet vulnerable to determined hackers over time. To tackle this issue, mobile wallet companies need to use open-source code wallets which allow users to find faults and collaborate to create a more secure platform. Overall, increased transparency prevents firms from having poor security practices and increases accountability.

Overall mobile wallets have increased security features compared to debit and credit card payments and this will only increase with the integration of blockchain technology. Also, the ease of conducting transactions anywhere in the world make mobile wallets appealing. However, you must be aware of which type of mobile wallet you will be using, open wallets are the best option.

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