Around the world consumer adoption for electronic wallets has risen steadily. And mobile wallets such as Apple Pay are finding their ways onto mobile devices around the world.
The benefits lie in the simplified consumer experience; providing a way for individuals or small businesses to accept credit cards and transferred funds, as well as eliminating the need to enter payment information for each purchase. However as an intermediary between a user and their money, challenges arise when applying digital wallets to mass cross-border payouts.
Here are a few drawbacks to an enterprise cross-border electronic wallet strategy:
Fees. As discussed by Allan Smith of Huffington Post, with electronic wallets like Paypal or Skrill, “…fees are extreme. Paypal charges 2.5% for the currency exchange, and an additional 2.9%-7.4%, and Skrill charges 2.5%-4.5% on the currency exchange and 1.9% on the payment, according to this comparison. If a client would transfer an average payment of US 3,000 through these channels he [she] could end up paying $200 to $300 in fees.”
This fee scale is particularly troubling in emerging markets. Consider the global freelance economy, one of the fastest growing industries in emerging countries. As online platforms like Freelancer.com grow in freelancer hubs such as the Philippines (with a user base of 601,174), those platforms relying solely on electronic wallets for local payouts face sizable fees.
Unnecessary intermediary between consumers and their money. Direct access to cash, through a bank or other physical financial institutions is still critical in emerging markets and electronic wallets add an extra layer of bureaucracy between users and their money. As PWC India’s partner and leader of financial services technology consulting Vivek Belgavi, stated in TechAsia, “the usage of alternate payment modes is slowly picking up… [but] …cash dominates the bulk of the transactions for purchases and remittances.” Reinforcing this fact is people in India withdraw approximately INR 2 trillion (US$30 billion) every month from ATMs.
Security and fund protection.Central to the challenge of electronic wallets is the lack of consumer confidence and perceived security. Electronic wallets are common targets of phishing attacks that could leak bank account or credit card details. A recent report by Android security scanner Appvigi mentions that popular electronic wallet “apps have vulnerabilities and can be hacked. These include the possibility of Android malware infection and multiple loopholes that allow hackers to access the database and snoop into a user’s credit card numbers, usernames, session IDs, and even passwords stored in the app.”
An additional consideration for companies offering electronic wallets is the issue of fund protection. Unlike the highly regulated banking world, many electronic wallets and prepaid options are not backed by an insurer like FDIC or FSCS. That means that in the event that an electronic wallet becomes insolvent, funds may become valueless.
Emerging markets are booming for businesses in every vertical and diverse financial technology innovations continue to become available. Going forward brands seeking alternate payment modes should consider a mix of digital payments, direct-to-bank transfer options and cash pickups.
Nagaranjan Rao is senior vice president and head of product for Transpay.