Digital wallets are transforming payments and commerce.
In today’s operational landscape, where convenience reigns supreme and value-added services drive customer stickiness, the financial services industry faces new challenges and opportunities from the Big Tech builders of those very digital wallets.
With the news at Tuesday’s (Aug. 13) ninth annual Made by Google event that Google is introducing a new “Everything Else” Google Wallet feature for the U.S. that lets users replicate various IDs, insurance information and other passes to create a digital version that appears in Google Wallet, the demand for more comprehensive digital wallet solutions is becoming harder to ignore.
The rise of Big Tech giants like Apple and Google within the payments arena has fundamentally reshaped consumer expectations, especially regarding digital wallets and seamless payment experiences. These tech giants have set new standards for user-centric design, ease of use and rapid innovation, leaving traditional financial institutions scrambling to keep pace.
However, for smaller banks and credit unions, this shift also presents a unique opportunity to carve out a competitive moat by embracing innovation and focusing on their inherent strengths when it comes to serving their customer base.
Read more: Credit Unions vs Big Tech: Winner Gets the Customer
Tech companies have long understood that convenience is a powerful driver of customer loyalty and engagement. By creating ecosystems that integrate various services, they have transformed the digital wallet from a payment tool into a hub for managing finances, loyalty programs and even identity verification.
For example, digital wallet products like Apple Pay, Google Wallet and Amazon Pay are all designed with the user in mind, offering intuitive interfaces, onboarding and transactions. This approach has resonated with consumers who increasingly demand frictionless experiences in all aspects of their digital lives.
On top of that, Big Tech’s ability to integrate digital wallets into their broader ecosystems has been a game-changer. Apple, for instance, has leveraged its ecosystem to offer a cohesive experience across devices, from iPhones to Apple Watches. This integration extends to services like Apple Card, where the digital wallet is not just a payment tool but also a gateway to financial management, rewards and more.
PYMNTS Intelligence found that digital wallets are increasingly serving purposes beyond financial transactions, including being employed for travel-related needs such as storing boarding passes. This diversification highlights the versatility and utility of digital wallets in facilitating everyday tasks beyond payments.
Still, for many traditional financial institutions, particularly smaller banks and credit unions, competing with the scale, resources and technological prowess of Big Tech can seem like a daunting task.
In the report “How Top-Performing Credit Unions Innovate to Stay Competitive,” a collaboration between PYMNTS Intelligence and Velera, we found that even among top-performing credit unions (CUs), who have relatively high scores on membership satisfaction, a majority (at 56%) view Big Tech firms as key competitors. Overall, 28% of CUs say they compete with Big Tech companies.
However, these institutions have several inherent advantages that, if leveraged correctly, can help them thrive in the digital age.
Read more: 3 Big Ideas From PYMNTS Intelligence’s Digital Wallets UK Report
The CUs that are putting time and effort into digital/omnichannel initiatives invest 13% more in payments innovation than bottom performers and benefit from 57% lower member churn, according to PYMNTS Intelligence data.
“Digital wallets are on a hockey-stick trajectory right now,” Chuck Fagan, president and CEO of Velera — the newly rebranded PSCU/Co-op Solutions — told PYMNTS.
Trust remains a cornerstone of the banking relationship, and smaller financial institutions often enjoy a higher level of trust among their customers compared to larger banks or tech companies. By doubling down on this trust and enhancing it with digital tools, smaller institutions can create a competitive advantage.
Unlike Big Tech, smaller banks and credit unions often have deep ties to their local communities. This local knowledge can be leveraged to offer services and products tailored to the specific needs of their customers, something that global tech giants may find challenging to replicate.
Additionally, financial institutions are adept at navigating complex regulatory landscapes, a domain where Big Tech has occasionally faltered. By combining this expertise with innovative technology solutions, smaller institutions can position themselves as leaders in compliance and security, areas of increasing importance to consumers.
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