Money in the bank
For decades now, card payment firms have grown rich on convenience. Weekly grocery shop? New TV? How about that designer shirt? Simply hand over your card.
At the heart of that convenience is a hidden cost. A 3 percent surcharge — to process credit card payments, merchants must pay interchange fees, assessment fees, and processing fees — straight to the cards’ issuing bank, the cards’ payment network, and the payment processor. These fees cut into merchants’ profits.
But what if there was a different way?
Enterprise digital wallets are emerging as a cheaper, no-fuss, tech-enabled alternative. Retailers from Amazon, Walmart to Kroger have all introduced their own enterprise wallets for direct customer payments as they look to cut out the payment card intermediaries.
Some merchants are so convinced by the benefits of enterprise digital wallets that they’ve gone further. Take UK online clothes retailer ASOS, which has recently entered the US with a wallet that entices customers with flexible payment terms.
These wallets are part of a wider shake up in the fast-moving payment market, where new entrants like Apple Pay and Samsung Pay have joined the likes of PayPal in offering alternatives to traditional card providers.
Typically, there are three types of wallets that most merchants consider:
- Closed wallets are specific to individual merchants, for instance, Starbucks
- Semi-closed wallets such as PayPal, Apple Pay, Google Pay give consumers more choice, but the merchants don’t own the wallet
- Open wallets are typically provided by banks in the form of credit or debit cards, such as those from Venmo and Paytm.
For the purposes of this article, we’re considering the closed wallet ecosystem. That’s because these closed enterprise digital wallets offer both customers and companies unique benefits. It’s not just about different ways to pay, it’s about bolstering relationships with your customers — and dramatically improving your cash position.
These enterprise digital wallets can be thought of almost like virtual gift cards. Customers can load funds into their wallets to spend in-store or online — and without a card company’s fees, the merchant can add a little top up as an incentive. And it need not just be about retailers — we’ve seen many industries, such as healthcare look at wallets. This is a fast-growing space: The global wallet market was valued at approximately $594 billion in 2016 and is expected to reach approximately $3,142 billion by 2022, according to Zion Research. That is one fast-growing market.
So why are companies so keen to become their own payment processor?
There are many answers, but to understand this trend fully it helps to look at some broader trends that are reshaping retail.
Why hold customer funds in your enterprise digital wallet?
The emergence of e-commerce has been the single most impactful event in over decades of retailing. Online shopping has disrupted our malls, retail corner stores and high streets. Across the globe, it has reshaped customers’ expectations and forced retailers to answer the fundamental question of what value they bring to their customers. E-commerce has put pressure on pricing, supply chains and relationships. Those that haven’t addressed the new reality have either already gone out of business or stand on the precipice.
Against that backdrop, enterprise digital wallets provide some massively appealing benefits.
If you can persuade customers to put money into your enterprise digital wallet, you already know they’ll want to spend that money with you.