As digital wallets reshape finance and big tech challenges traditional banks, who will control the future of money?
X (formerly Twitter) has made its first decisive step into fintech, announcing a partnership with Visa to power its ambitious new digital wallet, X Wallet. CEO Linda Yaccarino framed the move as a leap forward, but the real story is bigger: tech giants are no longer just facilitating payments, they’re actively reshaping the financial industry. The partnership signals a potential shift in power, where platforms like X aim to rival traditional banks in how money moves and who controls financial access. According to Yaccarino, the partnership will allow for “secure” and “instant” funding to users’ X Wallet via Visa Direct, connecting to their debit cards and allowing for peer-to-peer payments. Some people might find this unexpected, but as digital wallets become more common, it makes sense for companies involved in payments to embrace them.
Digital wallets are on an unstoppable trajectory. By 2025, they are projected to handle 39% of global POS transactions, up from 29% in 2021. Asia Pacific remains the clear leader, where wallets like WeChat Pay and Alipay are expected to dominate 56% of in-store payments and far outpacing Western markets still playing catch-up.
Digital wallets, also known as e-wallets, are digital applications that securely store payment details and enable users to make electronic transactions. By replacing the need for physical cash or cards, they allow seamless payments via smartphones, tablets, or other connected devices. A well-designed digital wallet integrates multiple features, including payment processing, security, multifunctionality, and connectivity, creating a smooth and efficient user experience. The technology behind digital wallets has advanced rapidly, transforming them from simple payment tools into comprehensive financial ecosystems. Optty CEO Natasha Zurnamer highlights this shift: “Digital wallets have expanded functionality well beyond the processing of a payment. We are seeing strong adoption and demands for wallets like PayPal, Alipay, and WeChat Pay as they have evolved from basic payment tools to comprehensive financial ecosystems.”
The evolution of digital wallets has mainly been shaped by advancements in technology, a demand for convenience, and the broader shift towards cashless economies. Initially, digital wallets served as simple online repositories for card details and were used primarily in e-commerce transactions. This evolution hasn’t just been about convenience; it’s been a calculated push towards an ecosystem where digital wallets don’t just process payments but serve as financial hubs. Today, they facilitate everything from identity verification to peer-to-peer transactions, quietly redefining the banking experience and making traditional financial institutions play catch-up.
The turn of the millennium saw the rise of tech companies attempting to break into new ground in the digital payments and e-commerce space, with PayPal at the forefront. The fintech pioneered the first phase of digital payments, enabling secure online transactions and laying the groundwork for future wallet technologies.
Digital wallets started to build traction with big players such as Alphabet and Apple, moving in with Google Pay and Apple Pay, respectively. This brought near-field communication (NFC) technology to in-store payments, changing the point of sale (POS) sector.
The COVID-19 pandemic catalysed exponential growth in digital wallet payments, driving mass adoption across the globe. This came as a wave of ‘super apps’ including Alipay and WeChat Pay expanded wallets beyond payments to include financial services, e-commerce and identity verification. With digital wallets growing in sophistication, consumers and businesses have fundamentally altered how they interact with payments, forcing banks and payment system providers (PSPs) to innovate. The decline in cash usage has also helped speed up the adoption of digital wallets. Sweden, for example, has seen cash transactions drop to less than 9% of all payments, with digital wallets becoming the primary alternative, according to Sveriges Riksbank’s ‘2024 Payments Report‘.
As governments, businesses and consumers shiftto adopting cashless payments, in many countries, digital wallets have overtaken traditional payment methods. Sweden is a prime example, where digital payments have nearly replaced cash entirely. China leads globally with wallets like Alipay and WeChat Pay processing trillions in annual transactions. India’s Unified Payments Interface (UPI)-based wallets (such as Paytm and PhonePe) have transformed the country’s payment ecosystem in a developing payments market. Asia Pacific is dominating global adoption, with super apps integrating payments into everyday services. However, there are considerable developments in both Europe and North America, with Apple Pay, Google Pay, and PayPal continuing to expand, with increasing merchant acceptance. Regions like Africa are seeing digital wallets driving financial inclusion, as seen with M-Pesa, which has connected millions of unbanked individuals to financial services. Technological advancements, including NFC, QR codes, and biometric authentication, have made digital wallets more user-friendly and secure.
Regulators are in a race against time. Digital wallets are expanding faster than financial oversight can keep up, forcing governments to scramble for new safeguards without choking innovation. The European PSD2 framework, growing pressure on big tech’s financial ambitions, and central bank digital currency (CBDC) discussions all indicate a looming regulatory crackdown. The question is not if but how severe and far-reaching these new rules will be. The rapid adoption of digital wallets has introduced a complex web of regulatory considerations, ranging from data privacy and cybersecurity to anti-money laundering (AML) compliance and cross-border transaction governance. With frameworks like PSD2 in Europe, increasing scrutiny over the role of big tech in financial services, and emerging regulatory discussions around CBDCs, digital wallet providers must navigate a rapidly evolving compliance environment. This balancing act between enhancing user experience and meeting regulatory obligations is now a defining challenge for fintech firms, banks, and payment service providers.
As digital wallets grow in popularity, they are driving the evolution of more secure payment methods. End-to-end encryption plays a crucial role in enhancing payment security, as Zurnamer tells Payments Review: “We have the likes of Apple Pay and Samsung Pay using secure element technology and encryption to process payments without storing card numbers on devices or servers.” She adds that the rise of biometric authentication is also creating a safer ecosystem: “Alipay in China pioneered face recognition payment systems, adding convenience while ensuring security, but this is now becoming universally available.” Since digital wallets store vast amounts of sensitive financial data, regulators worldwide are strengthening requirements to enhance data privacy and security. Digital wallet providers must:
Big players like Alphabet have ensured that their offering, Google Wallet, adheres to frameworks such as GDPR in Europe and California Consumer Privacy Act (CCPA) in the US, Zurnamer explains. “This offers transparency in data usage to alleviate consumer concerns.” Compliance across multiple jurisdictions presents its own challenges; for instance, while GDPR mandates strict user consent for data processing, some markets allow broader data-sharing practices, creating interoperability issues for global digital wallets. Additionally, regulatory bodies are scrutinising the role of big tech in digital payments, as companies like Apple, Google, and Meta handle financial data within their ecosystems. The European Commission is investigating whether Apple Pay’s exclusive use of NFC technology for contactless payments restricts competition. If enforced, regulatory intervention could force greater openness in digital wallet ecosystems.
According to KPMG Director, Imran Ali, banks are actively collaborating with wallet providers to integrate their cards into digital wallets and expand open banking access. “Banks are also launching mobile POS solutions to help merchants accept wallet payments more easily,” he says “Additionally, they are partnering with tech companies to enable online wallet transactions and drive innovation in security and new product features.” Payment processes and security improvements are coming with each advance in technology. One example is ‘Click to Pay’, a next-generation online checkout experience designed to replace traditional card entry forms with a faster, more secure and frictionless alternative for consumers. Click to Pay is reshaping digital wallet functionality in several key ways. Firstly, by enhancing the online checkout experience by eliminating checkout friction on desktop and mobile browsers by offering embedded, wallet-like experiences directly into merchants’ websites. This reduces checkout abandonment rates, a significant issue in the e-commerce sector. A recent study from Baymard Institute indicates that global online shopping cart abandonment rates have been steadily increasing, reaching 70.19% in 2024. Cardaq CEO Hugo Remi acknowledges the advances of technologies like Click to Pay but stresses the need for perspective. “Innovation comes from tech, but to develop truly innovative products, we need to invest in research and development (R&D),” he tells Payments Review.
While the future of payments is closely tied to AI, Remi points out that “only large companies can fully leverage this technology.” He emphasises that technologies like Click to Pay are more about payment optimisation than true innovation: “Everything we are discussing—including Click to Pay—is not innovation; I would call it payment optimisation.” Further elaborating on Click to Pay, Remi explains that while it’s gaining traction due to its straightforward payment methods, it won’t revolutionise the industry. He adds: “More importantly, this signals a larger trend towards digitalisation, indicating that we need to stop investing in physical financial products. Instead, we must focus on expanding our tech teams, developing software solutions, and evolving the market.”
Banks built their business on transaction fees, but digital wallets are making that model obsolete. Instead of charging per payment, tech giants are seemingly playing a longer, more lucrative game— monetising consumer data. Apple is leveraging its control over NFC transactions to extract premium interchange fees from banks, while Google is mining anonymised spending data to fuel financial analytics. The result? The control held by banks is ostensibly shrinking, and big tech is quietly positioning itself as the financial gatekeeper of the digital age. Apple has also negotiated higher interchange fees with banks for Apple Pay transactions, leveraging its control over NFC technology. Conversely, Google monetises wallet usage through data insights, offering financial institutions anonymised consumer spending patterns to enhance marketing efforts. Some of the super apps observed in the East have gone even further, building entire financial ecosystems within their wallets, enabling them to generate revenue through merchant transaction fees, lending and credit services, and investment products. The success of this model seen with WeChat Pay and Alipay has prompted Western firms to increasingly look to embedded finance as a long-term strategy, prompting a shift away from transaction-based revenue.
Tech firms continuing to take a growing share of the payments market has meant that traditional players are responding with their own innovations. For example, both Visa and Mastercard are shifting away from being exclusively card networks and pivoting towards becoming a ‘network of networks’, supporting real-time payments, blockchain-based transactions, and Click to Pay integrations. Visa has also invested in biometric authentication technology and crypto-enabled wallets to remain competitive. Banks are increasingly looking to partner with big tech to offer co-branded wallets or services due to this trend. For example, Goldman Sachs partnered with Apple for the Apple Card and savings account offering in 2019. Regulation in Europe under PSD2 has meant that EU-based institutions are opening their payment infrastructure to fintech startups, allowing them to compete with digital wallets through direct bank-to-bank transfers. This is particularly relevant in regions with growing account-to-account (A2A) payments, such as Europe’s Single Euro Payments Area (SEPA) instant payments. Despite these efforts, tech companies gradually absorb more financial services, leaving banks and card networks scrambling to maintain relevance.
Payments have continually evolved, but never at the pace we’re witnessing today. Digital wallets have done more than digitise the way we pay and rewritten the rules of the financial ecosystem. Banks are scrambling to stay relevant, big tech is embedding finance into our daily lives, and regulators are playing catch-up with innovation that refuses to slow down. The result? A landscape where control over payments is shifting and the power dynamics of finance are being redefined in real-time. This isn’t just about convenience but also control. Banks are losing their grip, big tech is embedding finance into our daily lives, and regulators are struggling to keep up. The next finance chapter is being written in real-time, and the balance of power is shifting. Will financial institutions fight back with innovation or become relics of the pre-digital age? One thing is clear: there’s no going back. The only question left is: Who will shape what comes next?
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