The uptake of smartphone-based credit cards is changing the way we use wallets. It’s predicted cash payments are to fall below 2% by 2022. Physical cards are also falling out of favour. As a result, younger people are now forgoing the traditional bifold wallet altogether, opting instead for smartphone cases with a few card sleeves.  

Traditional wallet manufacturers are adapting to this trend. Leather phone pouches are in so much demand that wallet makers can’t keep up with production. 

But are the days of wallets numbered? This week, Coles announced that it will be check-out free within the decade. AI and sensor technology will enable automatic transactions as customers leave the supermarket. Amazon has already trialed this system in the US in its checkout-free Go stores. 

For now, retailers already prefer virtual cards to plastic.  Russel Zimmerman, executive director of the Australian Retailers Association, said merchants prefer the security of digital wallets. Retailers minimise the risk of processing a Paywave transaction from a stolen card. 

Digital wallets are more popular among consumers too. A new survey from Roy Morgan shows that 72.4% of Australians used digital payments in the past 12 months. Virtual cards offer better security for their users. If someone steals your smartphone, you can lock it down so a thief cannot use it for transactions. 

In the case of Apple’s credit card, you can use the app to cancel your card. You then immediately receive a new credit card number. There’s no interruption to your account. Due to better security and encryption, card-not-present fraud dropped by 5% in 2019.

Digital wallets can also help people manage their money in smarter ways. Many payment apps now give you a visual representation of your spending habits. When you open the Apple wallet, the image of your card changes according to where most of your money is going. If it’s orange, it means you need to cut back on the late-night pizza binges. 

12% of bank customers have given up plastic cards altogether. The shift to 100% cardless payments has been more rapid in some demographics. In 2018, there was a 24% surge in the use of mobile wallets and contactless payments. Millennials and Gen Z are leading this trend. In 2018, 21.6% of 25 to 34-year-olds shifted to digital payment. 17% of 14 to 24-year-olds made the switch. In 2019, the uptake of virtual cards grew by another 10% for both of these age groups.

All four big banks in Australia offer virtual cards. But most Australians use non-bank platforms like Google Pay and Apple Pay. 

So why do Australians prefer non-bank payment apps? It comes down to user experience. Tech companies know how to create a consumer-centred product. In contrast, banks struggle to offer payment solutions that people want to use. In 2019, banks saw a 15% drop in the use of their applications. Their designs are confusing compared to the sleekness of products like Apple Pay.

There are now dozens of niche fintech companies offering payment platforms. Could this be the first step toward tech companies taking over the payment sector from banks? 

Financial institutions are wary of being left behind. In the past, daily transaction fees have been a reliable cash cow for banks. That’s all changing now. With more payment options available, merchant fees are getting lower and lower. In 2020, payment platforms will invest more in user experience to stay competitive. 

The cardless economy is still catching on in Australia while it’s been the norm in China for some time with apps such as WeChat. The app started off as a simple messaging app but it’s since expanded into every facet of Chinese society including payments. There are 800 million users of WeChat’s payment system. It fed $50 billion into the Chinese economy in 2019. Slowly, Australia is following along.

Sources:

• Financial review: What it’s really like to use Apple’s credit card
• ABS news: Cashless, cardless economy changing wallet design — or dispensing of one altogether
• Payments Journal: 3 Payments Trends to Keep Track of in 2020
• The Financial Brand: Five Pivotal Payment Trends Redefining the Banking Landscape