Virtual wallets: what they are and the advantages of launching one

Making payments and physical purchases without a card or cash in hand wasn't a reality not too long ago. Today, anyone who only has their phone can easily make a purchase – who would have imagined? This is possible thanks to the technology of virtual wallets, which you’ve certainly heard of.

In June 2020, virtual wallets had more than 6.5 million users in Argentina alone, a number that shows us the phenomenon this technology has created among users and the opportunity it gives companies to offer their own. Yes – this is possible regardless of the core of your business.

If you're still unclear about what a virtual wallet is and what the advantages of launching one are, here we provide you with plenty of reasons to do so.

What is a virtual wallet?

A virtual wallet, or digital wallet, is a financial tool, usually available through a digital application, that provides consumers the ability to perform a wide range of financial operations from a mobile device without the need to open a bank account or have a card.

Another advantage of digital wallets is that they are very easy to open: anyone can access theirs in a matter of minutes – just complete the KYC, identity verification process, and you're done! You don't need to visit any branch or wait days to access this financial service. A true innovation!

What does a virtual wallet offer?

Through one, a user can save money (like in a current account), pay bills, transfer money to other people and receive transfers, recharge their cellphone, and, of course, make virtual and physical payments.

In physical stores, payments through a digital wallet are made from the phone using QR code scanning or NFC technology, if there are debit or credit cards connected to the application.

For users who have a debit card connected to the wallet, it's also possible to withdraw money. In some countries, it's also possible to withdraw money without a card using wallets – in Brazil, for example, this can be done at ATMs using Pix or QR Code.

It's important to note that the functionalities of a wallet vary between the available options. For example, there are those that allow users to manage their crypto balance and convert it into fiat currencies, while others focus solely on offering a more convenient payment method. There are many user needs, and therefore, much that can be offered by a wallet.

The pandemic and virtual wallets

The virtual wallet boom occurred, like many other habits, during the Covid-19 pandemic. Of course, before that, the solution was already available to users in various countries worldwide – Google launched the first one in 2011. But it was from 2020 that wallet adoption grew exponentially.

It is not difficult to imagine why: the need for digital payment methods that avoided physical contact in in-person purchases and allowed payments and transfers to be made remotely emerged as a protective measure for people. Its use also accelerated the e-commerce purchasing process, which was constantly growing.

And, well, when there is demand, there is supply! A study indicates that one in three sellers in Latin America began accepting digital payment methods during the pandemic, with Argentina and Colombia being the countries with the highest penetration rates – 50% and 40%, respectively.

In August 2021, there were already more than 4.5 million digital wallet users in Argentina, an 11% increase compared to the previous month and triple the number recorded a year earlier.

And that kept breaking records – to this day, the number of digital wallet users continues to grow.

What are the benefits for companies that offer virtual wallets?

In general, it is an opportunity for the company, regardless of the industry in which it operates or its core business, to provide its customers with a new solution that meets their needs. Often, a digital wallet is a complementary product to what they already offer, allowing them to retain customers who would not seek another provider.

Moreover, a company's decision to incorporate a virtual wallet covers two equally important fronts for the business. On one side, it offers a practical, agile, and secure purchasing option for consumers, which is exactly what they are looking for today; on the other, it is an option that allows sales, IT, and marketing departments to gain a better understanding of their customers, their profiles, and what they seek.

Finally, as with any other financial service, this becomes a new source of income that, when added to other solutions or products offered, is even more enhanced. Win-win!

Among the most important differentiators a digital wallet can bring to both the company and the customer are the following:

• It helps prevent and reduce fraud rates due to identity theft, which is a major aspect to consider in the cybersecurity of companies that work with databases containing consumer information.

• It reduces the time between transactions by eliminating the bank as an intermediary in financial services (even in loans and financing options).

• It is possible to link the digital wallet to a physical or virtual card with NFC technology, allowing consumers to make purchases at other businesses almost instantly.

• It enables the verification and validation of documentation using facial recognition technology and biometric tests, for user authentication—a fully digital and easy process.

• It generates information that can be analyzed using a methodology such as business intelligence to make commercial area decisions.

Although it may seem like something only banks can offer, this is not the case – with embedded finance solutions, the right technology, and in some cases, the necessary regulation, it is possible to offer your own. In Argentina alone, there are already 34 wallets available on the market, not counting other countries in Latam.