When Apple Pay was initially released in 2014 there was hype surrounding digital wallets and mobile payments. People were predicting that Apple Pay was going to replace your credit cards especially within your small business. Of course, that hasn’t exactly been the case.
Apple Pay and other leading digital wallets have become increasingly popular. One survey from Urban Airship found that a majority of consumers (54 percent) have now used mobile wallets. But these wallets haven’t completely replaced plastic. The huge hype has seemingly dwindled but digital wallets shouldn’t be completely overlooked.
Business Insider anticipates that in the U.S. alone mobile payments volume will increase to $503 billion by 2020. Countries like Sweden, Singapore, the Netherlands, France, Canada, Belgium and the U.K. are becoming a cashless societies. Australia, Brazil, India and much of Africa following close behind.
The digital wallet revolution is here. It just took a little bit longer for customers and businesses to embrace this technology. That’s because of security concerns and limited number of compatible vendors. But, as a small business owner, what do digital wallets and mobile payments mean for you?
What are digital wallets and mobile payments?
A digital wallet is pretty much just a digital version of the wallet you’re currently carry around with you. It stores payment information so that you can pay for goods and services. For businesses, it’s another way to accept payments from your customers.
The idea of digital wallets didn’t start with Apple Pay. It goes all the way back to 1983 when David Chaum, an American cryptographer, created digital cash. It wasn’t until the 90’s that digital wallets began to pick-up some steam thanks to advancements in technology. This included most notably the introduction of PayPal in 1998.
Once we entered the 21st Century, however, things began to accelerate quickly. Mobile phones became increasingly popular. Bitcoin debuted in 2008, followed by Google Wallet in 2011, and Apple Pay in 2014. Today there are hundreds of digital wallets available.
Yet there’s also some confusion surrounding digital wallets and mobile payments. This is because those names are interchanged so frequently. A digital wallet is simply tokenization of data. They can be used outside of payments, such as digital rewards, boarding passes, tickets, room keys, and identification.
A mobile wallet is the mobile version of a digital wallet that can fit into one of the five type of mobile payments:
1. The mobile wallet. This is the most discussed type of mobile payment. Known as the “tap and go” method. Your smartphone’s built-in NFC (Near Field Communication) wireless technology or Bluetooth Low Energy (BLE) is used to make a payment.
2. Mobile as the point of sale. This is when a merchant uses their mobile device to process payments. Square and Flint are popular examples of this type.
3. The mobile payment platform. Companies like PayPal, allow you to make peer-to-peer payments to friends or pay a merchant online.
4. Direct carrier billing. This is when you purchase an app or game on your smartphone. The charge are put onto your cell phone bill.
5. Closed loop payments. These are mobile payment systems built by a company, such as the Starbucks mobile app.
The benefits of digital wallets and mobile benefits for your business.
Now that you better understand what digital wallets are — how can they benefit your small business?
Due Co-Founder and CTO Chalmers Brown discussed this in another Due post and found that digital wallets are beneficial because:
They improve the customer experience.
In a world where customer experience means everything, digital wallets can help you achieve that goal. They “can take-out some of the steps involved during the checkout process.
No filling out lengthy forms. No trying to remember your credit card number — you can simply tap, scan, or auto-fill fields. You complete the checkout process directly from there phone.” Additionally, retailers can reward their customers with discount codes on the spot.
They give you complete control over your payment system.
With platforms like Square, Stripe, and Bitcoin, “you can now customize your payment platform or completely remove third party financial institutions. For example, if your business accepts a cryptocurrency like Bitcoin, the transaction is directly between you and the customer.” This means you can establish the payments terms.
They can replace credit cards.
Millennials, the largest age demographic in the U.S., aren’t fans of banks. They don’t want credit cards. “Instead, they prefer debit cards so that they always connected to their funds. With digital wallets, Millennials no longer have to rely on banks or credit cards to make a purchase.”
They’re more secure.
Security is arguably the biggest barrier to overcome when it comes to digital wallets. In reality, they’re more secure. You “don’t have to worry about leaving your credit card in a physical location. You can lock your phone if you lose it. Biometrics like fingerprint identification are being used to verify a purchase.”
Cryptocurrencies are built using intricately coded algorithms they’re extremely difficult to steal.
Access to real-time data.
With digital wallets you can “access information like customer shopping preferences and shopping history. This allows you to segment customers so you can send them product suggestions and incorporate loyalty or reward programs.” You can also manage your costs and budget in real-time.
Keeps your business ahead of the curve.
Want to gain a competitive advantage? Become an early adopter of digital wallets in your industry.
Digital wallets are easy to implement, can speed-up the checkout process, and can save you money on processing fees. Due charges a flat-rate of just 2.8% for all card types.
Getting started with digital wallets and mobile payments.
In order to accept payments through digital wallets, you’re going to have to locate a digital wallet provider. The digital wallet at Due is pretty awesome. But if it doesn’t work for you, then check out this list of the Top Digital Wallet Companies. You are sure to find a provider that better suits your business’s specific needs.
You’ll need a need a point-of-sale terminal that can handle digital wallet technology. That shouldn’t be a problem if your business is online. Your customers will create an account and securely store their payment information in order to make a purchase. If you’ve used PayPal or Google Wallet — then you already know how this works.
But, what about brick and mortar retailers? Those small businesses with a store front will need a POS system that supports the NFC chip. Your POS system can handle EMV chip cards, which was required by October 1, 2015, then you’re good to go. If not, you can purchase a scanner or reader between $100-$500.
Digital wallets do’s and don’ts for your small business.
If you’re ready to start accepting digital wallets at your small business, here are a couple do’s and don’ts to keep in mind:
1. Do integrate digital wallets into your checkout processes – both online and at point of sale.
For online merchants this simply means signing up as a merchant with a digital wallet provider. You’ll also have to add a module to your shopping cart software. For physical retailers, you’ll require additional hardware that is either free or inexpensive.
2. Don’t accept only digital wallet payments.
Digital wallets are still relatively new and they probably won’t be replacing cash or plastic anytime soon. Keep accepting traditional payments, such as credit cards, cash, checks. You’ll want any other forms of payments that you’ve always accepted at your business.
3. Don’t skimp on Internet.
Remember, devices that read digital wallets will need an Internet connection. Make sure your that you have a reliable connection prior to setting-up a merchant account.
4. Do talk to your existing payment providers.
Your current providers may already be working with digital wallet. Providers such as Apple Pay, Google Wallet, PayPal, V.me, or MasterPass. As such, they can guide in you the right direction and make the entire transition more seamless.
Should your small business accept digital wallet payments?
Digital wallets are the future of payments, which means that your small business should embrace them sooner than later. However, it ultimately depends on the preferences of your customers.
Millennials, for example, are leading the charge when it comes to digital wallets. If that’s your target audience, then you should have implemented digital wallets yesterday. If you have an older demographic, then there isn’t as big of a rush. Implementing digital wallets is easy and inexpensive. It wouldn’t hurt to explore the benefits that digital wallets can provide your small business.