AS digital currencies become more popular, consumers are being bombarded with new applications and features which can be used to optimise their digital experience.
Among the new technology consumers will have to get acquainted with is the digital wallet.
A digital wallet (or e-wallet) is a software-based system that securely stores users' payment information and passwords for numerous payment methods and websites.
Existing digital wallets include Apple Pay, Google Pay, Samsung Pay, Paypal and Venmo.
As the Bank of Jamaica (BOJ) inches closer to rolling out its central bank digital currency (CBDC), digital wallets are expected to be introduced in Jamaica.
Vice-president of retail banking at Sagicor Bank Jamaica, Sabrina Cooper explained that the digital wallet is not only for digital currencies as she said it can also facilitate payments which were previously done using debit and credit cards.
“Your digital wallet is not just the CBDC, you can have debit and credit cards. If you look at what's happening globally, the wallet is gonna look just like your physical wallet in your pocket or in your handbag. It's going to have your CBDC or some kind of digital currency cash equivalent, credit cards or even prepaid cards. Instead of carrying plastic, paper, cash and coin you carry the digital wallet. We know it's going to take time for that to happen but there is going to be an instance where we see both operating in parallel, and you can see it in North America and Europe.”
In terms of the central bank digital currency, she explained that consumers might need a special account “My understanding of what the Bank of Jamaica is doing is that those accounts are going to be managed by financial institutions or other entities that are under the central bank digital currency, so you'd have to have a form of account but not a traditional bank account.”
She continued “One CBDC would equal one Jamaica dollar. So, it uses a methodology of being able to take [a] $100 bill and convert it into digital currency — whether through an ATM, through your traditional bank account or through an agent that's dealing with CBDC.”
In terms of the equipment needed to operate the digital wallet, Cooper noted that most consumers will only need a cellphone.
“You'd have to have a mobile phone and WiFi, although some networks will allow you to use it without WiFi, but a mobile phone will give you the access and the connectivity. All the rest of the infrastructure that the consumer interacts with, like a POS terminal or even an ATM, those will remain. But the ATM and the POS, instead of now talking to your card, it will talk to your phone maybe through a QR code or contactless like what you see with the chip cards.
“From a consumer perspective there's really no major change. They'll have to download the application for the wallet that they select on their mobile phone which will allow them to interact with POS and ATMs as usual,” said Cooper.
An added benefit of the digital wallet is that it is perceived to be safer than the payment methods which currently exist.
“Digital wallets are safer or more secure than our physical wallet. If you lose your physical wallet someone is gone with your cash, and that's it. If you lose your debit or credit card there is potential that the fraudster can use your plastic until you call the card issuer and say 'Someone stole my card. Please don't allow any transactions.' With the digital wallet there's multiple layers of security. The information for your bank account and financial data is all encrypted so it can't be accessed by fraudsters. And then on top of that, there's an additional layer of tokenisation which takes the sensitive encrypted data and replaces it with a digital equivalent like a token. Because they are randomly generated every time a payment is made, it's very difficult for fraudsters to be able to access that information, so it's really useless and unreadable to fraudsters if you lose your cell phone,” she stressed.
In terms of fees and charges, consumers will likely be subject to the same charges they experience now when they use their debit and credit card. However, Cooper explained that the charges may be more nuanced and really depends on a number of factors.
“What we've seen so far in terms of [the] CBDC digital wallet is that they are just as free as cash. The issuer of the wallet is the one who's gonna make that decision and I'm not gonna charge my users, and others might say I'm not gonna charge for these services but for these other ones I may charge. My estimation? For your basic digital wallet you won't have charges outside of what you would have for normal transactions. So if you use your debit card now versus using your digital wallet, the charge should be the same. There's really no reason to make the charge higher but it depends on what your financial institution chooses to do. For the CBDC, if the institutions issuing incur charges, the likelihood is some of those charges will pass along — but it's too early in the pilot to know what's happening as far as fees and charges.”
In the meantime she highlighted that the transition will take time, noting that cash will still be the payment method of choice until digital wallets are widely accepted by both consumers and merchants.
“I wouldn't say throw out your physical wallet, that's not gonna happen; it's not time to ditch your physical wallet just yet. It's gonna take some time for adoption, and not just adoption by the consumer but also the merchants because the person taking the payment has to be ready to take it digitally as well. So, it's going to happen over time. The level of adoption or the speed of transition is going to be dependent on the education levels, the learning curve, the customer education from the wallet providers as well as the central bank and the government who's really pushing digital currency. All of that is going to infer how speedily the adoption is of digital currency and digital wallets versus paper, cash or plastics.”
Nevertheless, she noted that the benefits could be worthwhile for both consumers and merchants.
“On the merchant side, merchants have to view it as a benefit to their business — which it is because the cost of cash is exorbitant to merchants when you have to pay for security guards to transport the cash as well as cash-handling fees. There's really benefits on both sides.”