Will digital wallets one day be the only way to pay?

Digital wallets: a great idea in theory?

Australians tend to be early adopters of technology, but have been slower to embrace the digital wallet. Is that all about to change?

In theory it’s a great idea: hold your smartphone over a merchant’s payment device and tap. No more fumbling in your bag for your purse or scrabbling about in your wallet for cash or a card.

With about 16 million smartphones in Australia, according to Deloitte’s Mobile Consumer Survey 2016, it would seem just a matter of time until consumers take up digital wallets that transform a smartphone into a debit or credit card. The reality, however, has proven more difficult. 

The early days of digital wallets in Australia were caught up in a fight between Apple and the banks. The landscape is clearer now the major banks and card companies have chosen technology providers. Consumers, too, are changing their habits and have become more comfortable paying with tap-and-go technology via their credit and debit cards. Is Australia finally ready to embrace digital wallets as payment by cash continues to decline?

Who’s who in digital wallets

Putting it simply, digital wallets are linked to your credit card or debit card. However, when you make a payment, that actual card information is hidden, so the process is more secure. The wallets can also hold details of shop loyalty cards. 

Digital wallets are very convenient for payment by smartphone when you’re out and about, but they also make online shopping easier, as you no longer have to type in long credit card numbers and other details. 

When the Reserve Bank of Australia took stock of the payments system in its 2016 Consumers Payment Survey, it found about 45 per cent of in-person payments were made by credit or debit card (up from 37 per cent in 2013), but that in-person payments by mobile devices accounted for only 1 per cent of point-of-sale transactions. 

“… customers will switch banks to gain a [digital] wallet that is compatible with their smartphone …” Robert Bourne, American Express

Shoppers may be ditching cash, but in August 2017 there were just over 50 Apple Pay issuers, 46 Android Pay issuers and 39 Samsung Pay issuers in Australia, says the Australian Payments Network (AusPayNet). 

The digital wallets widely available in Australia are Apple Pay, Google’s Android Pay and Samsung Pay. The card issuers also have their own versions: Visa Checkout and Mastercard’s Masterpass. 

People thinking about getting a digital wallet need to understand that the digital wallets on offer from banks and card issuers might not be compatible with their brand of phone, or be available for the credit or debit card they currently use. 

Westpac, for example, offers Samsung Pay and Android Pay for its Mastercard or Visa cards, which is not going to suit iPhone users. National Australia Bank (NAB) has partnered with Visa to offer its own NAB Pay system for Android and iPhone devices. The Commonwealth Bank offers Tap & Pay for Mastercard and American Express credit cards on Android and iPhone. American Express cardholders can pay with Apple Pay, Samsung Pay and Android Pay.

“Australia is well placed to lead the world in digital wallet adoption because of the prevalence of contactless technology.” Robert Bourne, American Express

Robert Bourne, director of digital products and partnerships at American Express, predicts that as digital wallets gain acceptance, customers will switch banks to gain a wallet that is compatible with their smartphone, rather than the other way around.

He also says digital wallets will become more popular, and their use will quickly spread as more features are added, such as being able to use a digital wallet to pay public transport fares. 

“Australia is well placed to lead the world in digital wallet adoption because of the prevalence of contactless technology,” he says. “People often have their phone in their hand when they approach the terminal.”

Including retailer loyalty programs in digital wallets will also boost consumer acceptance, adds AusPayNet chief executive Dr Leila Fourie.

“The thinking is that the younger generation is much more likely to adopt to mobile technology, given their phone is the primary device for everything,” she says.

New card providers might go straight to mobile rather than issue a physical card. Fourie says this has happened already in China and India.

Turf wars 

The Commonwealth Bank, Westpac, NAB and Bendigo and Adelaide Bank had a stoush with Apple last year, after it denied them open access to Apple Pay, meaning they would have to pay a fee to Apple to connect to its technology.

The banks wanted access to Apple’s near-field communication (NFC) controller in iPhones, and reasonable access terms to the App Store, which would enable them to offer their own digital wallets to iPhone users without using Apple Pay. This would, of course, compete with Apple Pay, whose users can pay with an iPhone, Apple Watch, iPad or, if shopping online, through their Mac.

The four banks asked the Australian Competition and Consumer Commission (ACCC) for a waiver from competition laws so they could collectively bargain with Apple and collectively boycott Apple Pay. The ACCC rejected the request in March 2017, saying such a move could reduce or distort competition.  

So far, ANZ is the only one of the major four banks in Australia to offer Apple Pay, but Apple has signed up 45 institutions, including American Express, HSBC, Macquarie Bank, Qantas, credit unions and smaller banks. 

Professional Development: CPA Q&A. Access a handpicked selection of resources each month and complete a short monthly assessment to earn CPD hours. Exclusively available to CPA Australia members.

How secure are digital wallets?

Digital wallets offer tighter security against identity theft. Almost 70 per cent of Australians have a fingerprint scanner on their smartphone, so can pay with their biometric authentication rather than a PIN, a speedier as well as a more secure way to pay.

The 16-digit card details are not shared when a transaction is made. In addition, if you do lose a card, you can have a new one issued and its details linked to your wallet without waiting days for the physical card to arrive in the mail. 

Digital wallets use NFC technology, a form of radio-frequency identification that enables devices to make contact if they are within about 10cm of each other – that’s why you have to hold your device close to the reader at a payment terminal.

The next stage in digital payments

A 2016 survey of 1000 consumers in the US and UK, by mobile engagement platform Urban Airship, revealed 54 per cent had used a digital wallet, but there were large gaps between what the wallets provided and what consumers wanted. Users wanted to store their loyalty cards, airline boarding passes, event tickets and ID cards, plus get updates on special offers, reminders, and also pay for public transport.

Locally, Sydney’s Manly Ferry began accepting digital wallet payments in July 2017, a first for public transport in Australia.

Bessie Hassan, from comparison site www.finder.com.au, believes paying public transport fares with a digital wallet will be a game changer in Australia.She points out commuters are already used to paying with their transport card. “If you replace it with your phone, you eventually get used to using your digital device for transport fares, which might increase the uptake of contactless payment in other areas of consumers’ lives,” she says.

Related article: Compare digital wallets

Ultimately, a digital wallet could spell the end of all those different plastic cards jammed into your purse. Although it’s unlikely to happen any time soon, the time may be coming when consumers have no choice but to use a digital wallet. 

Choosing a digital wallet

Cold, hard cash still has its advantages. There is no battery to run down, it’s accepted almost everywhere, and you don’t have to worry about wireless connectivity.

Robert Bourne, director of digital products at American Express, urges consumers to be choosy about what card they connect to a digital wallet. He suggests, for example, selecting one that links to rewards points. 

“You have to ensure it delivers on what you need, for your lifestyle,” he says.

Bessie Hassan from www.finder.com.au warns if your mobile device is stolen, the same risks apply as with a traditional wallet – your money can be stolen. That’s why users should have a PIN or finger scan to unlock the mobile device, and ensure they use a secure server.

“A key consideration when picking a digital wallet should be security,” she says. 

“Make sure your application has encryption technology for every transaction and has some level of insurance for purchases. You should also opt for safeguards that will only bill you once, even if you accidentally tap twice.”

If you shop regularly with a particular merchant, you should check it accepts your form of digital wallet, as the technology can cut significant time from shopping.

Read next: Cashless in China: Testing out digital wallets


Like what you're reading? Enter your email to receive the fortnightly INTHEBLACK e-newsletter.

Like what you're reading? Enter your email to receive the fortnightly INTHEBLACK e-newsletter.

October 2017
October 2017

Read the October issue

Each month we select the must-reads from the current issue of INTHEBLACK. Read more now.

CONTENTS