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WHY BANKS SHOULD RETHINK THEIR DIGITAL WALLET STRATEGY

Why Banks Should Rethink Their Digital Wallet Strategy

April 15, 2024

Recent years have seen an explosion in digital wallet usage and integrations, with more than half of US consumers polled in a 2023 Forbes study reporting using a digital wallet more often than traditional patent methods such as cards and cash. 

The digital wallet adoption boom certainly has benefited banks, whose issued payment cards are a highly popular option for funding such wallets. But traditional financial institutions generally haven’t been interested in actually providing digital wallets of their own. Instead, they’ve ceded leadership in that space to the likes of PayPal, Apple Pay and Google Pay, along with P2P money transfer apps like Venmo and Square’s Cash App.  

But as long as banks remain on the sidelines, they’re at significant risk of being squeezed out of future growth as the digital wallet landscape continues to mature. With wallet providers beginning to offer payment cards of their own and the rise of alternative payment tools such as instant funds transfers, financial institutions taking a timid approach to payment innovation like digital wallets risk losing up to $89 billion in potential revenue over the period from 2023 to 2026, a report by Accenture warned.

Risks for not adapting
Risks for not adapting

Faced with this risk, banks no longer can afford to take a backseat on digital wallet adoption. To remain relevant in payments’ digital future, FIs must move aggressively to carve out a central role in the digital wallet landscape–and their customers' financial lives. 

The first step on that crucial agenda is developing and implementing a clear, well-considered strategy around provisioning their own digital wallets. Below are some of the key questions and priorities for banks to keep in mind when formulating that strategy. 

Leverage pre-built solutions 

For banks, building an entirely new digital wallet integration from the ground up can be a daunting prospect, requiring heavy investment of time and resources and potentially years of development and testing. Fortunately, banks don’t have to go it alone. Instead, they can leverage specialists offering ready-made digital wallets that can be customized and white-labeled under the bank’s branding. 

These pre-built solutions can save banks significant time and money, while also providing user-friendly digital experiences that drive increased user satisfaction and engagement, thereby maintaining customer loyalty and helping banks establish a secure, sustainable foothold in the digital wallet market. 

Leverage Pre-Built Solutions
Leverage Pre-Built Solutions

Make security a top priority 

With digital payments fraud on the rise, protecting against this ever-present threat is a must. A data breach or other successful fraud attempt can significantly erode customer trust and damage a bank’s brand–and could be particularly damaging during the early phases of a bank’s entry into the digital wallet market. 

How Banks and Fintechs Can Beat Fraudsters in the AI Arms Race

To mitigate these potentially catastrophic risks, banks must ensure their digital wallet strategy is underpinned by robust security and compliance principles and procedures, such as robust encryption, regular vulnerability assessments and audits and a thorough incident response plan. What’s more, banks must ensure any third-party partners also adhere to a high level of security standards. 

Security
Security

Use data to offer customization

Banks can leverage data and analytics from digital wallet transactions to gain valuable, actionable insights into customer behavior and preferences. This data can be used to craft personalized offers, promotions, and financial products, enhancing client satisfaction and wallet usage–thereby driving yet more useful data, creating a positive feedback loop. Offering this level of personalization helps drive a compelling user experience–and one that meets consumers’ expectations for ever-more tailored, contextual and relevant financial tools. 

Data-Driven Support Is a Competitive Edge in Digital Banking

It’s important to note, however, that banks’ handling of this data must be transparent and ethical, with customer privacy ensured and opt-in and -out mechanisms clearly communicated to users.

Contact us to learn how Galileo can help your bank develop a winning digital wallet strategy.

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