The onset of COVID-19 has accelerated change in the payments sector that was expected to take years. Guidelines and restrictions to deter the spread of COVID-19 have led to a surge in digital and contactless payments. This shift was already underway but leapfrogged years’ worth of change in few months. Globally, the number of non-cash transactions grew by 6% from 2019 to 2020. As consumers are becoming increasingly comfortable with contactless payments, further innovation in the payments space is expected in the coming years.
With health and safety concerns associated with touching surfaces such as payment terminals, digital payments experienced a boost in popularity with 4.8 billion mobile wallets in use globally in 2020 – the most in the far east and China, followed by the MENA region. Additionally, mobile money saw a rise in transactions conducted using a mobile phone, where value is stored virtually (e-money) in an account associated with a SIM card. Mobile money is primarily optimised in regions such as Africa, where internet connectivity is poor, and e-money enables financial inclusion – users can receive, withdraw, and send money without being connected to the formal banking system.
However, a rise in the use of digital wallets is observed. They appear to be a cheaper, tech-enabled, and safer alternative. These wallets have become part of a broader shake-up in the fast-evolving payments ecosystem, where BigTechs and retailers alike are offering alternatives to traditional card providers. A digital wallet is a store of value managed by a payments platform that facilitates both face-to-face and remote payments using digital channels and tokens, i.e., applications and the Internet. Payment rails are established networks that support data flow and ensure the correct flow of funds between customers and businesses. Payments rails can include a mix of RTGS, Open APIs, card rails and alternative payment rails.

Who wants it and why?
The pandemic drove the world to an increased dependency on digital payments. With the plethora of advantages and advancements in the space, digital wallet adoption has boomed for reasons more than just social distancing.
Digital wallets offer consumers a multitude of benefits, encouraging them to embrace this up-and-coming payment method now and in the future. Consumers no longer want to carry an old school leather wallet with multiple cards, bundles of cash and some loose change – seamless, smooth, speedy transactions are the way forward. Globally 61% find it easier to pay using contactless, and this percentage rises amongst younger generations (Gen Z, Y, X). Digital wallets save time through an automated end-to-end payment solution – from booking to check-in/out, through to invoice digitisation and VAT reclaim.
Operators can leverage digital wallets to increase the lifetime value of customers, improve revenue, and serve unbanked and underbanked customers. These wallets must be merchant agnostic to be of any use, which is where card rails come into play. Additionally, digital wallets allow operators to:

• EXECUTE A DIGITAL PAYMENT STRATEGY using the flexibility of digital wallets to meet the demands of local services and access technologies.
• ACCELERATE THE GROWTH OF THE DIGITAL CUSTOMER BASE by offering digital wallet services that include banking, remittances, bill payment, and other payments. Banks may reach out to remote and rural areas in emerging and developing countries.
• MORE EASILY TARGET THE UNBANKED, in areas with widespread cell phone usage, for a low cost of entry into banking and high client acquisition.
• CONTROL COSTS AND ADD VALUE by incorporating spending limits and supporting compliant buying behaviours.
• HELP DECREASE FRAUD, misuse, loss, and theft vulnerabilities inherent in other payment methods.

With major traditional banks and payment providers across the globe venturing into the virtual cards arena, the growth is expected to be monumental. To meet goals of financial inclusion and digitisation, central banks and supervisors will need to improve their knowledge to provide effective regulation of rising global players, that are not banks, to keep up with the evergreen payments landscape as digital wallets may be the key to an inclusive, modern, and systemised economy.

Technology Trends Driving Digital Wallet Success
In addition to high rates of demand and acceptance, technology innovation is aiding the spread of digital wallets worldwide. Creating frictionless transactions for consumers and merchants while addressing security and fraud concerns, digital wallet technologies are proving to be actionable, dependable, and usable.

The rise of virtual cards – Adoption, Benefits and Outlook
One of the critical trends in the digital payments domain has been the rise in the circulation of virtual cards. At the beginning of 2020, physical cards were preferred for the majority of transactions. However, with the onset of COVID-19 in March, the usage of virtual cards began to accelerate. It is predicted that virtual cards will grow by 90 per cent through the next few years.
Figure 3: Virtual and physical card transaction count globally (2020)

Merging Virtual Cards with Digital Wallets
Currently, cards can be linked to digital wallets and used as a payment method at the point of sale, serving as a middleman between value reserves and digital wallets. Along with that, various new-age players have already started offering virtual cards which can be easily linked with in-house or thirdparty digital wallets.
Moreover, as major organisations and startups’ focus turns towards achieving their ESG goals and forming a paperless ecosystem, the merger of virtual cards and digital wallets is just a matter of time. It is also worth noting that NFC technology is used to communicate between the wallet and the reader. Apple Pay and Google Pay are two examples. The advantage of this type of wallet is that it may use the existing card rails – the card payment system. Card networks are payment rails with infrastructure, rules, and laws to ensure that payment transactions between parties go successfully.
Most digital wallet users now load numerous cards. Frequently switching to a card other than their default option is becoming more common. Multifunction instruments dynamically link the reference account to multiple primary account numbers. They are a nascent space yet but have great potential in the digital wallet arena.
What to Expect in the Future of Payments?

The first step in the payments revolution has been a shift to digital payments. Aligned with modern users’ urgency and need to have things immediatelyvirtual cards can be issued and made functional near instantly.
CR2’s BankWorld Wallet is a Digital Wallet that enables banks to offer customers the ability to easily and instantly make purchases or send and receive money through their smartphones. With native virtual card capabilities, CR2 combines card technology for face-to-face transactions with account and digital banking capabilities for remote transactions, reach and price-point. This Digital Wallet empowers banks to reach remote and rural communities in emerging and developing regions by providing Digital Wallet services encompassing banking, remittances bill and other payments. There is widespread usage of smartphones and a significant unbanked population; BankWorld Wallet allows for an extremely low cost of entry into banking with high customer acquisition.
Following the pandemic, where consumers became increasingly conscious of each point of contact, favour skews further toward virtual and contactless payment methods. While physical and virtual cards coexist today, a transformation is on the horizon.
If you would like to discuss how your bank could leverage the benefits that a Digital Wallet with onboard virtual card issuing can offer, please get in touch with CR2 – visit www.CR2.com