Why Digital Wallets Fail?

Cracking the Code to Win Over Consumers by Grace Wu

PayPal launched in-store mobile payments ten years ago starting with Home Depot, but the embryonic program did not take-off. I was in the midst of a home renovation and went to Home Depot, but forgot my wallet. I had my iPhone and thought “problem solved,” but neither the cashier nor I knew how to complete the transaction using PayPal. We expected it to work just like a credit card, but it simply didn’t. I was extra frustrated because I previously worked for PayPal, yet I couldn’t figure out how to pay! Furthermore, the long queue of people waiting behind me made me feel embarrassed.  In all financial services, seamless user experience is critical, and especially so at the checkout line. Trust is a prerequisite but not enough to win customers; a deep understanding of user behavior is required for a  wide-spread adoption.

Trust is table stakes for digital wallet

PayPal was the pioneer of digital wallet. It facilitates online payments between buyers and no-name sellers on eBay. Buyers purchased an item, and sellers had to wait for the check to arrive and clear before shipping the item. Buyers did not trust the seller with their money. PayPal and eBay together solved the trust problem and created a seamless online experience for buyers and sellers. PayPal’s risk management coupled with buyers and sellers protection coupled with ebay’s rating system set the stage for the marketplace. 

Seamless user experience is key but not sufficient

In today’s world of well-advanced technology, Apple Pay is laser-focused on the user experience. It is as easy as using cards, but it offers extra security. Every Apple Pay transaction is bound to the user’s phone or laptop and requires either a passcode or biometric authentication. For every transaction, a cryptogram is generated. The Apple Pay token exposed is unique to each merchant, which drastically reduces how much an account number is exposed to third party review. Because of this, chargeback rate is much lower and issuers are paying for each Apple Pay transaction. When my brother’s card was used by fraudsters, my sister in law told him to purchase an iPhone because Apple Pay was safer. In addition, users receive notifications instantaneously rather than waiting for a monthly statement to notice unauthorized charges. Yet, Apple Pay did not really take off until Covid and the vast adoption of contactless payments. 

The value of digital wallet transactions will grow from nine trillion to 16 trillion by 2028 with a growth rate of 77%, according to Juniper Research. Table stakes include trust and ease of use, but these are not sufficient to guarantee mass adoption of digital wallets. Wide-spread adoption requires a deep understanding of user behaviors, which vary by geography and culture. 

From Alipay to WeChat Pay: lessons in digital wallet adoption

The West is slowly making progress on the adoption of digital payments. True disruption in payments happened in China ten years ago when it was still a cash society and card adoption was low.  Alipay started as an escrow account so merchants would not get paid until buyers received the goods from the Chinese eCommerce sites Taobao and T-Mall. Over time, Alipay extended beyond payments and offered full financial services including deposit and lending. It was the dominant payment method in China for quite a while. Wechat rewrote that story. 

“We knew we would not win online for digital wallet but we were going to change the landscape.” I vividly remember the Tencent team said that at a meeting. They pulled it off.

Tencent, the rival of Alipay, rebranded from Tenpay to WechatPay. Tencent launched a campaign during Chinese New Year when it is a tradition for people to give each other money using “red pockets” as a symbol for good luck. Money was put into consumers’ WechatPay accounts as red pockets. Consumers have to use it in store to claim the credit. It was an overnight success. Everyone in China was using Wechat to communicate anyway. It is easy to pay with WechatPay while you are chatting with friends while waiting to pay at grocery stores. 

The effect of WechatPay went beyond China shortly after. My colleagues in Singapore bragged about how WechatPay allowed users to share coupons and products via Wechat. When I spoke with an ex-Alipay colleague, he said he hated doing all the advertising for WechatPay. When the merchant decided to accept Alipay, they wanted Wechat Pay. He was doing free advertising for Wechat. 

How did Wechat pull it off? At one of the long, dragging leadership meetings I had at Alipay, I vividly remember my colleague saying, “Wechat does not need to pay merchants to adopt. Merchants adopted it because consumers love it.” Taxi drivers in Beijing generally accept WechatPay, but not Alipay. Wechat has mini-programs that allow users to share coupons and discounts with friends easily. It allows friends to book Airbnb by sharing pictures and making payments in the app. WechatPay is innovative, easy to use, and connects users. Wechat cracked the code for digital wallet. 

In China today, one’s mobile phone truly functions just like a wallet. I carried my mobile charger and was completely helpless when my phone was out of battery. A QR code can be scanned in restaurants to order, pay, and split the bill with friends quickly and easily. Similar trends are happening in other parts of Asia, including India and Japan. 

Deep understanding of user behavior is required to win digital wallet

In all financial services, trust is a minimum expectation, but trust alone is not sufficient to win customers. Depending upon the culture and geography, wide-spread adoption requires a deep understanding of user behavior.

Given the success in Asia, technology companies are now attempting to bring that trend to adoption in the U.S. Currently, in the US, only 57% of small companies have adopted digital wallets but over 90% accept credit or debit cards, according to ABA Journal. 

As we reflect on the reasons why certain digital wallets became a huge success while others have failed to gain traction, we see that a deep understanding of user behaviors is what sets one apart from the other. For the U.S. to see the same successful adoption as in Asia, we need to think about the value we bring to consumers. Alipay was widely adopted, but WechatPay found the sweet spot that made it even easier to use by considering the social aspect—what people needed and how people would use it, which included in person. We need to know what pain point we’re solving for customers if we want to see the same adoption success here in the U.S.

Source: Jupiter Research