How Digital Wallet Transactions Are Reshaping the Payments Landscape

Have you ever looked around at all the technological advancements we've made in payments and wondered, what’s next? There was a not-so-distant time before digital wallets, before customers could simply tap their phone and go. Now, they're everywhere. With innovations like Tap to Pay on iPhone and a world moving toward a more cashless reality, it's hard to imagine going back. 

As Walter Greaney, Payroc's Senior Vice President of Product Management, puts it, “It’s hard to think of a world where people would choose a physical card over their phone unless they have to.” That shift in consumer preference is transforming the way businesses accept payments. 

What began as a convenient alternative has become a driving force of the payments industry. Digital wallets are reshaping consumer expectations, security standards, and even the way businesses think about transaction fees. And these forces aren’t just changing how people pay, they’re reshaping how the entire industry moves forward. 

Built-In Fraud Defense 

One of the reasons digital wallets are gaining traction is the added layer of security they provide. With built-in tokenization and biometric authentication, they reduce fraud and help protect merchants from chargebacks. High-risk industries like custom furniture, unattended retail, and nightlife are taking advantage of this, recognizing that digital wallets can cut down on disputes and reduce losses. 

That added security also leads to a financial incentive: because digital wallet transactions are authenticated before authorization, they often qualify for lower interchange rates, making them a cost-effective option for merchants. 

Additionally, customers are becoming more aware of security risks with traditional card payments. Digital wallets offer a level of reassurance, and that trust is fueling adoption. 

No Longer Optional 

Digital wallets were a staple of e-commerce, but their use in physical retail is growing. Today, many customers expect the option to pay with their phone, and businesses that don’t offer it risk losing those customers. 

“There’s a customer expectation now. It’s not about being cutting-edge anymore, it’s about meeting the standard,” Walter notes. 

Even in industries where digital wallets represent a smaller share of transactions, merchants are unwilling to lose customers at the point of sale because their preferred payment method isn’t available. Access to Apple Pay and Google Pay has become so essential to the checkout experience that some merchants hesitate to switch platforms if it means losing that functionality, making digital wallet support a table-stakes factor in merchant retention for ISVs. 

That’s why digital wallet support comes built into most of our Gateway and point-of-sale solutions. Whether a business operates online, in person, or both, we help them stay ahead of customer expectations. 

A New Approach to Rewards 

Loyalty programs have always been tied to individual credit cards, but digital wallets are starting to change that. Instead of earning points on a single card, users may soon earn rewards across their entire digital wallet. As Walter explains, “If wallets start rewarding you across all the cards inside them, it changes the whole dynamic. Suddenly the loyalty is tied to the wallet, not the card.” 

PayPal, for example, is exploring ways to make digital wallet payments more rewarding by giving 5% cash back on up to $1,000 spent with PayPal Wallet purchases — potentially pushing consumers even further toward mobile payments. 

At the same time, merchants are looking for ways to integrate with this new system. Instead of issuing traditional store-specific rewards, businesses may start offering incentives that apply across digital wallets, creating a more universal approach to customer loyalty. 

The Future of Digital Wallets 

As digital wallets continue to gain traction, it’s important to recognize that the shift isn’t necessarily about replacing physical cards entirely. Much like how chip technology has become the default and swiping is now a fallback, digital wallets could follow a similar trajectory. 

“It’s not going to be an overnight change, but the physical card may eventually become what the magstripe swipe is now — a fallback,” Walter explains. “Tapping with a phone or watch is becoming more common, and it’s just a better experience.” 

Stay ahead by reaching out to our team to discover how you can start adopting digital wallet options today.