Digital Wallets: A Tough Way to Make Money
Visa tells wallets to remain niche or become a bank.
Visa’s Consulting arm seems less than thrilled that digital wallets are taking off worldwide!
Complaining that digital wallets aren’t making enough money while they zero in on Visa’s business.
Digital wallets are on fire. They account for 49% of global e-commerce payments, 43% of global POS payments, and around US$18 trillion in consumer spending at the start of 2023.
Visa is right that making money remains elusive for many digital wallets, but those that do make it will challenge Visa’s dominance.
Visa then proposes two ways to profitability that make absolutely no sense!
👉TAKEAWAYS
🔹There isn’t a silver bullet business model
A wide range of solutions has emerged all have different business models, follow different design approaches, and pursue different strategic objectives.
The main models are Bank or card-connected wallets, such as Apple Pay and Google Pay, or Stored-Value wallets, such as PayPal, Venmo, and M-Pesa.
🔹Everyone has something to gain (or lose)
A digital wallet can create value and strategic advantage for many different types of organizations, including telco operators, tech companies, fintechs, and incumbent banks.
🔹It’s a tough way to make money
Countless wallets have been launched, and many have reached significant scale. But so far, very few of them have achieved profitability. Any wallet player needs to think hard about the wider business case, how long it intends to subsidize loss-making operations, and what the best path to profitability is.
🔹There may be at least two routes to profitability
One is to become a niche payment specialist, the other is to transform into a full-service digital bank.
I disagree with the conclusions below!
Visa’s graphical representation doesn’t quite capture the digital wallet universe. Note that WeChat and Alipay are called “lifestyle enablers” when, unquestionably, they were significant drivers for financial inclusion in China. The banked-unbanked classification should be replaced with pass-through or stored-value wallets. It is stored value that impacts unbanked populations.
👊STRAIGHT TALK👊
Visa looks at digital wallets and thoroughly botches its conclusions.
Visa believes that there are two paths to success for digital wallets: one is to be a niche specialist, and the other is to become a bank. Really? That’s all you’ve got?
At the start, how much of a niche player were WeChat and Alipay in China or PayTM in India? Not at all!
In much of the developing world, digital wallets need to go big or go home. Niche doesn’t cut it and never will.
Visa’s second recommendation is that digital wallets become banks, yet Visa can’t provide an example of this miraculous transformation.
There is no example because a high regulatory wall separates banking from payments, and few payment companies could ever dream of making this transition.
Visa's proposal that wallets become banks shows a certain naivete.
Could Visa be trying to keep you using their plastic and not digital wallets?
Thoughts?
Note: While the study is aimed at the odd “CEMEA region” (Central Europe, Eastern Europe, Middle East and Africa), the examples are all international.
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