The Significance of New Digital Wallets: Insights from NMI’s Peter Galvin

Digital wallets are some of the market’s most prolific and widely adopted payment tools. Juniper Research estimates that 5.2 billion people will use digital wallets by 2026 – representing more than 60% of the global population.

Although several established players already offer this technology, new competitors are vying for a portion of the market. A consortium of banks, including U.S. Bank, JPMorgan Chase, PNC and Truist, have announced they will bring a new digital wallet, Paze, to market in the second half of 2023.

NMI Chief Growth and Marketing Officer, Peter Galvin, sat down with “The Buzz” podcast host Brian Stone to explore:

• Consumer payment preferences
• The significance of new digital wallets in the market
• What the teams behind Paze will need to do to overcome challenges as late-entrants to the digital payments ecosystem

Read a highlighted portion of their conversation below, or listen to the full podcast here.

Brian Stone: What makes the Paze digital wallet so significant?

Peter Galvin: What makes it so significant is that it’s backed by a number of different financial institutions. Having that backing is helpful because, as we’ve learned through our research, most consumers look to their banks for new financial information. That’s also true of merchants.

Part of the opportunity with Paze is that because banks have both merchant and consumer relationships, they can bring those two together so the digital wallet can be used by both parties.

Stone: Is that what primarily differentiates it from its counterparts like Apple Wallet?

Galvin: From what we’ve seen, I would say that’s true. People generally trust banks – they look to them for security, anti-fraud capabilities and relationships. The expectation is that, even though there are a lot of other FinTech organizations out there, consumers still look to their banking relationships to provide insight into new technologies. That’s the opportunity Paze has – its strengths lie in those existing relationships.

However, there are also a few challenges that Paze will have to overcome, especially given they’re a late entrant to this marketplace.

Stone: What other challenges do you foresee for this digital wallet?

Galvin: I think the biggest challenge will be getting the digital wallet onto someone’s phone. What’s the incentive? What’s the differentiation Paze can provide that will drive consumers or merchants to adopt that capability?

For example, as a consumer, if you have an Apple or Google phone, you may already have (and are using) those native wallets. So how will Paze incentivize consumers to download their wallet, and what benefits will consumers get from doing that?

The second piece is that you also need merchants. Merchants need to be able to easily accept Paze’s app as part of their ecommerce journey. If Paze wants to move to physical stores or points of sale, merchants will need to be able to accept the wallet there as well.

Another challenge is that merchants already have Google, Apple or PayPal as primary payment options on their pages. Other technologies are also competing, like buy now, pay later. From a merchant standpoint, they may have so many payment methods on their web pages that it becomes overwhelming for consumers.

Stone: One of the things you talked about was informing customers of the potential benefits of using Paze. How can the banks teaming up to launch this mobile wallet educate their customers and inform them of its benefits?

Galvin: Their primary opportunity will either be through their existing applications, like mobile applications, or through their online banking interfaces. They will need to provide both the education and the capability to easily integrate that offering into the consumer’s phone or tablet or into the merchant’s web page.

Some of the best opportunities (especially as they move into this digital wallet application space) are how they’re already connecting with their customers today.

For instance, when you go into your online account, you’ll see several different offers – usually from your banking or financial institution. Those offers are sometimes for different loans or new technologies and services; they can use those avenues to educate users.

The other part of this is marketing. They will need to spend some money on marketing and branding to reach people in a much wider audience. Those are the two ways that they can begin to educate and drive the adoption of Paze to their consumers or their merchants.

Stone: One of the things that I hear from my interview subjects is that banking financial services is typically not a quick-moving market. Why do you think the financial services industry, banks included, is slow to adopt and inform users of new technologies?

Galvin: There’s a built-in conservatism with banks, which is generally a good thing. You want your bank to be somewhat conservative because they’re dealing with your money. Some of the other FinTech startups can be a little more fast and loose because they’re not as regulated and they’re not necessarily directly dealing with your money.

So, in the case of banks, they are conservative by nature for a number of reasons. At the end of the day, their main job is to protect their depositors, bondholders and stockholders. They’re very concerned about things like fraud and compliance. These banks have been in business for a long time; they’re trusted and are a little bit more conservative.

When you look at our survey results, even though there are a lot of new FinTechs and new organizations, about half of the consumers we spoke to still look to their banks to give them information on new technologies and capabilities. That has a lot to do with that trust factor; it’s the main driver for some of the conservative, slower-moving activities they’re often accused of.

Stone: What can Paze (and other digital wallets) do to make adoption more efficient moving forward?

Galvin: They’ll have to do a few things. First, they need to lean into the trustworthiness, anti-fraud and security capabilities that banks are known for.

Consortiums are always difficult, so they also need to ensure that the banks involved are all aligned on the goals they’re trying to achieve. If you have different people in a consortium who aren’t aligned on how they’re going to go to market or how they’re going to get their customers or merchants to adopt this technology, you’ll start to see friction in that overall relationship.

Another aspect is resources. There are other incumbents out there with digital wallets already, so they need to understand that they’re not necessarily in that leadership position. They need to make sure they’re funding the technology appropriately and that it works well.

Finally, they need to continue building good relationships and make downloading or using that digital wallet easy. Convenience is one of the key things consumers look for in payments, so it must be very convenient to download, use and make purchases with.