Digital payments continue to gain a larger share of payment volume and embedded fintech enabled by APIs that make it possible for nearly any software to incorporate payment capabilities is growing at unprecedented rates. APIs, of course, are the keys to making this all possible. But what's behind the APIs? The simple answer: digital wallets and a payment platform.
Digital Wallets vs. Mobile Wallets: What's in it for the Payers and Payees?
Digital wallets can be accessed on any device. But not all digital wallets are created equal. While many use the terms 'digital wallet' and 'mobile wallet' interchangeably, there's a major difference. Mobile wallets typically store tokenized card details on the device itself. Digital wallets don't store the information or the value within an app or a device, but rather within a secure payments platform.
The Case for Mobile Wallets - Consumer Convenience
Mobile wallets offer consumers the convenience of paying directly from their credit or debit card accounts without having to carry the cards -- it's all on the device.
Meanwhile, any payments made using the device are processed and distributed using the same rails as traditional credit and debit cards. Consumers are used to paying with debit and cards that have largely replaced cash checks in all but a few spend categories such as mortgage or rent payments.
The chief advantage for consumers is convenience and contactless transactions have witnessed a boom during the pandemic. From the merchant's perspective nothing much changes. Meanwhile, the payment processors, gateways and issuing and acquiring banks all continue to control the process and see growth in the share of payments. Neither Payer or Payee reap many real benefits beyond the convenience factor and, arguably, a bit more security. Some mobile wallets are promoted much like credit card offers (which they are) with signing bonuses and rewards points or cash rebates for their usage. These benefits, however, aren't attributable to the mobile wallet but rather the credit account enclosed within it.
Why Digital Wallets Are Built for Business
Digital wallets, on the other hand, allow users (Payers and Payees) to store their payment funds and delivery information in specific online accounts containing multiple, currency-specific digital wallets which makes cross-border payments much easier to execute.
Digital wallets can be architected to meet far more B2B use cases more efficiently and cost-effectively. For starters, they can be accessed by any device - mobile, laptop, desktop - anywhere, making it easy to provision to anyone with internet access. Next, they hold actual fund value which means Payer-Payee transactions are handled through wallet-to-wallet exchange bypassing the card networks and banks. Third, digital wallet capabilities can be embedded in any software or service requiring payments functionality easily. Finally, both onboarding enterprise-level Payers (Remitters) as well as individual and company/organization level Payees (Beneficiaries) is far easier and faster than through traditional financial institutions and is largely delivered through self-serve tools vastly reducing the ongoing cost of operations.
If mobile wallets quite literally run on the rails of card processing, digital wallets are payment method agnostic. End-user payment methods for digital wallets are determined by the payment platform. For example, Payees can elect to transfer funds from their digital wallet to their personal or company bank account via ACH/EFT or wire transfer; chose a virtual prepaid card for immediate use or a physical debit card, even a digital gift card. Payers can fund their digital wallet via ACH/EFT or wire transfer, from invoice payments and credit card payment flows (net of merchant fees). The choices are in the hands of the aggregator embedding the payments capability within their software or service offering.
Metaphorically, digital wallets most closely align with the cash model. Transactions are instant; a wallet-to-wallet exchange is immediate. Like cash, once the funds are in your wallet, they're yours. Yet, there's likely a bank at either end of the transaction, as the source for the funds to be paid or as the place for the funds to be transferred upon receipt. With no merchant accounts or banks or intermediaries, their configuration and their value proposition is largely controlled by the aggregator leveraging the white-labeled payments platform.
The Payments Platform: The Hidden Value for Developers and Aggregators
The Payments Platform - The Hidden Value
Digital wallets are the UEX that users see but the payments platform is what makes avoiding the high bank fees, multiple intermediaries, and exorbitant currency exchange rates possible. Its built-in currency exchange with lower rates than external sources and the ability to execute the exchange at either the Payer or Payee end of a transaction gives aggregators the flexibility to configure the process to best align with their customers' business models. All of it made simple, fast and at no cost for the final step: transferring the funds to the Payee's local bank.
Beyond currency exchange, the payments platform provides the technology and business process to assure privacy and security while eliminating many of the administrative headaches associated with making B2B payments. By continuously updating its processes to ensure that it's keeping up with compliance issues like Know Your Customer (KYC) and Anti-Money Laundering (AML) while ensuring that its security protocols remain state of the industry, the payments platform eliminates the need for aggregators or their customers to manage these requirements.
Finally, every user can access their own information on demand for tax reporting purposes. In the US, the platform creates a 1099-K for all US payees as a built-in part of its service; another cost savings that enhances an aggregator's value proposition.
If you need help to build your business case as a payment aggregator with embedded payment capabilities, please drop us a line and let us know how we can help.