The potential of digital wallets

My physical wallet has three cards in it: my driver’s license, a work credit card and a personal credit card. But I try not to use any of them.

Instead, I use Apple Pay, where I have 14 credit cards loaded (and one debit card). Yes, that may seem like a lot, but I like to play the miles and points game, so at checkout, I choose the card that will maximize my rewards with that merchant.

Despite being a daily user of the Apple Pay Wallet, I think the app stinks. It has barely added any new features since it launched in 2014. I am a little encouraged, though, by the announcement a few months ago that in the UK Apple is using open banking data to show your bank balance inside Apple Pay. This is only a tiny step but maybe it signals a little more emphasis being paid to their digital wallet.

Now, action taken by the European Union and more recently by the Department of Justice against Apple has given me more hope. Apple is being forced to open their wallet so to speak.  It would be one thing if Apple Wallet was terrible and there were dozens of competing apps where you could store your cards to use at checkout. But Apple Pay only works with Apple Wallet. For now. Apple has indicated that in Europe, it is willing to allow third-party mobile wallet providers access to the NFC chips. So, we are not far away.

The reality is that Apple Wallet could and should be so much more than it is today. With the assumption that one day soon, possibly within two or three years, Apple will open its ecosystem to third-party wallets. That could set up a Cambrian explosion of innovation in the fintech sector.

The Digital Wallet of 2030

Imagine that you can now store and pay with credit cards via any third-party wallet. These wallets will quickly become fully featured apps that could manage much of our financial lives. Here are some of the features that I hope and expect to see in my favorite digital wallet by 2030.

Real-time transaction-level data analysis

This is a relatively simple one. Apps like Rocket Money, YNAB, or CoPilot already do a very good job at summarizing all of our spending and helping with budgeting. I would like to see these apps integrated into the digital wallet so everything is updated in real-time.

Optimizing your debt

Fintech has already done an excellent job in helping consumers understand and manage their debt load. One of the initial use cases was for fintech lenders to consolidate credit card debt and save consumers money. The digital wallet of the future should understand all our debt, be it mortgage, auto, student, credit card, or personal loans, and proactively make suggestions on how to save money. Ideally, the integrated AI-agent would do this work on your behalf and alert you when there are opportunities to save.

Manage your loyalty programs

I love to play the miles and points game. I also believe that I should be rewarded for my loyalty to the brands and stores where I do business. But there is still no universal way to manage rewards. A fully featured digital wallet could provide a centralized repository for all loyalty programs. If something like this becomes ubiquitous, then this could have profound implications. I have lots of ideas on this, but that is for another day.

Identification

This is a big one. And it is not something I expect to be solved in the near term. My state of Colorado is one of four states that is currently approved by Apple to store your digital ID. I loaded my ID to the Apple Wallet several months ago but I am yet to actually use it. The last time I went through security at Denver Airport, it was still not accepted. Apple has done the heavy lifting here, working with state governments, so it could be a very long time before we see digital IDs in a variety of digital wallets. But we will get there eventually.

Gamified, personalized financial education

Your digital wallet will have unique insight into your financial life and be able to tailor a personalized education program based on where you are in your financial life. You should be able to choose the style of how you want to learn, from gamified quizzes to short videos or longer-form articles. It should also learn what engages you most and adapt. This could have a profound impact on financial literacy.

Pay by Bank

When you are used to just selecting a default payment method and then double-clicking on the side of your phone to pay, it will be just as easy to have Pay by Bank as your default option. Assuming the burgeoning group of pay-by-bank providers can become deeply integrated into the digital wallet providers, that could be the killer app for that payment method.

I would also like to see many other features such as investment tracking, net worth calculations, credit score monitoring, investing, earned wage access, crypto trading, and interoperable P2P payments (like Visa+).

I am really talking about a financial super app

My dozen trips to China between 2014 and 2019 exposed me to the incredible Chinese super apps. Hundreds of millions of Chinese smartphone users spend their day inside one app: Alipay or WeChat. These super apps are really operating systems with hundreds of third-party apps installed inside them. Five years ago, when I stopped going to China, their financial services offerings were far ahead of anything we have today on iOS and Android phones.

The idea that we will have super apps in the US like they have in China has long since been discredited. However, I think we can and should have financial super apps that give us a complete picture of our financial life. The closest we have right now might be PayPal or possibly Cash App. But they still lack full functionality and you can’t use these apps as a payment tool in a physical store, at least not easily.

(Now, in this article I have focused on the Apple digital wallet. I know that on Android phones the ecosystem is more open and there are Google Pay and Samsung Pay that can be used as payment methods. But in the U.S. market Apple is the clear number one and it also the system I know best.)

There are major challenges to overcome

We are not going to get the financial super app we all deserve until a myriad of challenges can be overcome. And most of these are not technological challenges. Of course, there are huge data privacy concerns. These apps would have to have incredible security to build trust. Regardless, I am sure there will also be a myriad of regulatory hurdles that will be thrown at these apps.

But maybe the biggest concern of all would be fraud. What a fertile area for any fraudster, being able to get the keys to the complete financial life of their victim, including payment methods. Oh, what damage they could do.

Digital wallets will be the primary way we pay – very soon

Having said all that, I am optimistic these challenges can be overcome, although it won’t happen quickly. This will be an evolution and not a revolution, and payments may well be the way in.

Using digital wallets to pay is already becoming ubiquitous. This report from WorldPay claims that digital wallets accounted for $13.9 trillion in global transaction value in 2023 and that number is expected to almost double to $25 trillion by 2027. So, we are not far off the time when digital wallets become the primary payment method.

Then, we can all finally ditch our physical wallets. And when Apple opens up access to the NFC chip, I believe that will be the beginning of a new era in fintech.