Take a quick peek inside your wallet – you’ll probably find it’s jam-packed with things like credit cards, debit cards, loyalty cards, train tickets, receipts…the list goes on.
In an attempt to declutter your life some of the world’s largest technology companies – PayPal, Google and MasterCard – have introduced the digital version of the physical cards in your wallet (otherwise known as an e-wallet) that allows you to pay for goods using your smartphone.
According to a recent study by the Commonwealth Bank, more than 70% of Australians expect mobile wallets to replace their entire physical wallet in the next 7.5 years, and cash and card payments within 6.5 years.
But how does this new technology work? And is it worth getting now? Here’s what you need to know about the mobile wallet revolution:
How do digital wallets work?
Digital wallets usually work in the same way as payWave and PayPass contactless cards, as the embedded smartphone (or case/sticker) wirelessly connects to the merchant’s contactless terminal through near field communication (NFC). However instead of tapping a card, you’re tapping your smartphone. PayPal does things a bit differently, allowing customers to make purchases in store at PayPal enabled retailers by checking in with their app.
While this article focuses on digital wallets that can be used in store, we should mention there are some digital wallets on the market for online use only like VISA Checkout, with the aim of making the online checkout process quicker by storing your payment and shipping details, so you won’t have to keep on re-entering the information at each website.
Where can I get a digital wallet?
Most digital wallets are applications that you download from your app store onto your iOS or Android smartphone or other compatible devices like your laptop and tablet. You’ll then have to set up an account, PIN and link your mobile wallet app to either a credit card or bank account. Some providers like Coles will send you a Pay Tag to stick onto the back of your mobile phone to enable “tap and go” purchases.
Are digital wallets safe?
Digital wallets for in store use generally have a maximum “tap and go” spend amount of $100 and use the same encrypted technology as your credit or debit card for contactless payments. However, in the case of the PayPal digital wallet the payments are made through the app and your information is protected through its Buyer Protection policy.
A good rule of thumb is to always look for a digital wallet that has a zero liability policy, which means you will be fully reimbursed for any unauthorised transactions.
And it goes without saying your digital wallet should be treated with the same care as your physical wallet by keeping your smartphone in a safe place at all times and if your phone is stolen or lost contact your provider ASAP.
How much does a digital wallet cost?
The cost depends on the provider but from our research most digital wallets can be downloaded for free. The Commonwealth Bank however has a $2.99 yearly fee ($0 first year) for using its Tap & Pay feature that allows you to make in store purchases with your smartphone.
Here’s a snapshot of some of the current digital wallets available:
Apple Pay allows you to virtually upload your ANZ or AMEX credit and debit cards on your iPhone or Apple Watch, then make payments using the device in place of plastic with fingerprint or passcode verification. Free.
PayPal app allows you to make purchases in store or transfer money to your friends using your PayPal account. Free.
Commonwealth Bank App (replaces Kaching) allows you to Tap & Pay with your smartphone at any MasterCard PayPass terminal. $2.99 yearly fee ($0 first year)
Coles Mobile Wallet lets you pay with your Coles MasterCard and activate flybuys rewards using the Coles Pay Tag sticker on the back of your smartphone and you can track your spending with the Coles Credit Card App. Free.
Visa Checkout (replaces V.me) is designed for online shoppers to use on any device for a seamless online checkout. Free.
MasterCard MasterPass stores all your payment and shipping information in one place to make the online checkout quicker, accepted wherever MasterPass is. Free.
Apple Passbook lets you scan a QR code on your iPhone or iPod touch to check in for a flight, get into a movie or redeem a coupon. Free.
Not yet available in Australia
Google Wallet allows in store mobile phone payments wherever MasterCard is accepted for US customers. Free.
Amazon Digital Wallet stores gift and rewards cards in the Amazon cloud for US customers. Free.
The future for digital wallets
While the tech hype is there, digital wallets haven’t resonated completely with consumers (just yet). A study from US digital marketing firm Thrive Analytics showed a high number of consumers recognise digital wallets as an alternative to cash-based transactions but less than one-third of US consumers actually use a digital wallet.
When you consider only a few years ago hardly anyone knew about Visa payWave and MasterCard PayPass “tap and go” and now according to Westpac 60% of all scheme debit card transactions in Australia are now made using contactless technology, digital wallets might be the next step towards a cashless society.
But unless you’re an early adopter who loves new tech, the only real benefit of a digital wallet at this stage is you don’t have to carry around a physical credit or debit card with you.
For now digital wallets might seem a bit gimmicky but the potential is huge. Once digital wallets integrate everything from your driver’s licence to your train ticket, you should finally be able to say goodbye to your physical wallet for good.