December 2023 - E-Payment | Digital Business Models

The Future of Payments: Wallets and the Transformation of Transactions

While wallet services are at the heart of tomorrow’s payment systems, eco’s Ralf Schädel explains how success will depend on providers’ future adaptation.

The Future of Payments: Wallets and the Transformation of Transactions-web

© tsingha25 |

Wallet services are at the heart of tomorrow’s payment systems. In a cashless world, digital wallets are becoming ever more important. Whether it relates to increasing security requirements, technological advances, or optimized user experiences, the success of these services will depend on how providers adapt to the future. Discover what the key components and perspectives of wallets are in an ever-changing digital retail landscape.

Welcome to the 21st century. Gone are the times when retail transactions were conducted with coins and notes. Ever since the time of the recent pandemic, seeing cash in somebody’s purse has become far more rare. In contrast, studies show that contactless payment options have become popular, accepted, and widespread, especially among younger consumers. Bank cards or digital alternatives such as wallets have become real alternatives at the supermarket checkouts, in business transactions, or in asset management.

Despite all of the hurdles, the prospects for wallets are promising and offer a wide range of options for selecting the right digital wallet. According to Statista (the German online platform specialized in data gathering and visualization), the number of active accounts of the online payment service PayPal reached 431 million worldwide in the second quarter of 2023. Compared to the same quarter last year, the number of active PayPal accounts grew by two million. The number of transactions processed by the provider amounted to approximately 6.1 billion in the second quarter of 2023.

Wallets – the convenient all-rounders in retail

In modern retail, wallets have become indispensable in the context of digital currencies and payment methods, as they offer users a highly convenient way to purchase goods and services or to trade with digital assets. A digital wallet acts as the central repository for payment information and enables both online and offline payments via NFC contact to the reader. Wallets are often available as mobile apps, but can also be used as software programs on the desktop or in the browser. Some even go beyond mere payment information and enable peer-to-peer payments, ATM withdrawals, and top-ups. They can also manage loyalty cards, discount coupons, special offers, and more. These enhance the user experience, foster customer loyalty, and boost sales.

Digital wallets take on several forms in the modern financial landscape. In the case of cryptocurrencies, they serve as digital safes where users can securely store, transfer, and receive their Bitcoins, Ethereum tokens, and other cryptocurrencies. Mobile wallets such as Apple Pay and Google Pay allow consumers to store credit or debit cards on their smartphones and to conduct contactless transactions in retail shops and online payments. This is conveniently processed in real time and thus keeps customers satisfied.

Secure identities and transparent transactions

Furthermore, digital wallets can be used to securely store identity and age verification documents, especially in regulated industries such as online gambling and alcohol sales. Due to the demand for cryptocurrencies, tokenisation – i.e., the conversion of classic physical or digital assets into digital tokens – is gaining equal importance in the financial world. The tokens can be easily shared, quickly transferred, and thus increase liquidity. Since they are usually stored on a blockchain, they guarantee the user full transparency and traceability at all times. These can be used in the event of a chargeback or dispute resolution. Not least because of this, digital wallets set high standards for payment and transaction data, offering advanced encryption and security mechanisms.

Double protection is better protection

Sensitive and personal data, such as those transported in financial transactions with wallets, require the highest security standards and measures. They must guarantee the integrity and confidentiality of the financial assets stored there. For instance, each wallet possesses a private key, necessary for accessing the assets. This private key should always be kept secret and protected from unauthorized access. A public key, on the other hand, is used to transfer funds into the wallet. It can be published in a safe manner, given that it is not solely in a position to access the wallet.

Wallets also rely on a variety of security features and encryption protocols: passwords, multi-factor authentication, and data encryption. Hardware wallets provide additional security by storing private keys offline, making it much more difficult for hackers to gain access without an Internet connection. This is also ensured through regular security updates and awareness of potential security risks. Nevertheless, the primary responsibility for security lies with the user, who must ensure that sensitive information and access to the wallet are carefully protected.

Increased efficiency, speed, security, and cost savings in transactions

Digital wallets and services bring extensive benefits to international trade and cross-border transfers. Unlike traditional bank transfers, payments in these cross-border transactions are made in real time, while cross-border regulations are taken into account, meaning that international trade processes and supplier payments can take place much more quickly and easily. Some wallets automatically handle currency conversion, eliminating high fees. Unlike traditional services such as the Western Union, wallets offer lower transaction fees for both businesses and consumers.

The security features of wallets also strengthen trust in international trade and minimize the risk of fraud. Accessibility via mobile apps or online platforms make wallets easy to use and contribute to financial inclusion. For example, users can access international transactions even without a bank account.

Open to emerging technologies and open source

In the future, wallet services will therefore be indispensable for various target groups, especially when it comes to integration, availability, security, and scalability. In the IT industry, seamless API integration and well-documented APIs are just as decisive as detailed information on the security infrastructure, encryption technologies, and scalability. Blockchain integration along with information on the support of various protocols is becoming increasingly relevant. Furthermore, in the field of artificial intelligence (AI), factors such as intelligent transaction and data analysis, predictions, and AI-supported customer support are becoming more important. In conjunction with an open and trustworthy ecosystem and value system such as Gaia-X, there is a growing emphasis to focus on data protection, interoperability, and sustainability. This is particularly important for industries such as financial services and retail, where industry-specific customization, loyalty programs, and the integration of mobile payment solutions are highly relevant. The requirements and standards to which wallet services must adhere to are clearly defined in this respect.

Improvement and interoperability as a challenge

The use of wallets in various areas, however, does tend to cause challenges and concerns. Foremost among these are security issues, given that wallets are susceptible to threats such as phishing attacks, malware, and data loss. Security measures must, therefore, be continuously improved and updated to address any vulnerabilities that may arise. 

In addition, wallet providers must comply with strict regulatory requirements, particularly in the area of anti-money laundering and identity verification. Moreover, the lack of interoperability between wallets from different providers makes it difficult for customers to use them seamlessly and can lead to compatibility issues. Lastly, the integration of cryptocurrencies into wallets brings specific challenges, including price volatility, legal uncertainties, and the need for a fundamental understanding of blockchain technology. These aspects require careful consideration in order to fully leverage the benefits of wallets while minimizing potential risks.

Good prospects for wallets

Continuous innovation will proceed to drive the industry, given that wallet providers are consistently introducing new features to meet customer needs. These features include contactless payments, mobile wallets, and digital identity management; the latter in particular will see the introduction of services such as online ID cards and health cards. Advanced security measures are also expected, as wallet providers will increasingly invest in advanced security technologies to strengthen customer trust and combat fraud. Finally, wallets could evolve into comprehensive financial services platforms that offer loans, investments, and insurance in addition to payments, making financial integration even easier for users.

Conclusion: The future of wallet services depends on the providers’ ability to respond to security requirements and technological developments while simultaneously improving the user experience. In a digital and increasingly cashless world, wallets play a central role in commercial transaction payments.


Ralf Schädel is IT Editor and Project Manager Cloud Services and Gaia-X at eco – Association of the Internet Industry.