Retailers Adopt Digital Wallets as Unified Commerce Blends Online and Offline Shopping

Digital wallets are becoming increasingly popular, especially among younger generations, as they offer a convenient way to make payments without physical cash or cards. The potential introduction of a Digital Euro by 2028 is expected to simplify, secure, and expedite payments in the euro area.

As the digitalization of markets accelerates, rising Customer Expectations are driving a shift in shopping and payment habits, leading to the convergence of online and offline experiences into what is now known as Unified Commerce. The increasing adoption of Digital Wallets, alongside the rise of automated systems, promises to streamline transactions, while innovations like Tokenization, Biometric Authentication, and AI-Driven Fraud Detection are significantly enhancing security.

The future of payments will largely depend on consumer acceptance and the seamless integration of these new technologies into everyday life.

With the rapid pace of market digitalization, the way we shop and pay is evolving, blending online and offline experiences into a unified whole. This transformation, driven by changing payment habits and customer expectations, is ushering in the era of Unified Commerce. Consumers now engage with products and services across multiple channels—whether online, via mobile, or through traditional in-store experiences. They can order items from home and pick them up in-store, or hear about a service in person and then book it online. Alternatively, they might pay in-store but prefer the convenience of home delivery and setup.

To keep their customers loyal, retailers must integrate their online and offline sales channels. Unified Commerce is now the standard.

Digital Wallets and card payments are on the rise as shopping habits evolve alongside new payment methods. Younger generations, in particular, favor E-wallets, which allow for instant electronic transactions without the need for cash or cards. Leading Digital Wallets such as Apple Pay, Google Wallet, Klarna, Amazon Pay, and PayPal are at the forefront of this shift.

Technically, digital wallets serve as secure repositories for various funding sources, eliminating the need for users to enter card details at the point of sale. Users can link their debit or credit cards and make payments both online and offline using their smartphones. Debit and credit cards, or SEPA direct debit, still underpin these transactions.

As a result, wallet providers are fiercely competing to become the preferred payment method, heavily investing in new features and capabilities. A notable example of this competition is Klarna, which, having established itself as a leading invoice purchase provider, is now entering the wallet market.

In-store payment habits are also shifting. In central and southern Europe, nearly one-third of retail transactions still involve coins and bills. However, the trend is clearly moving towards card payments, especially for larger amounts.

As trends indicate, Europeans increasingly prefer using debit cards over traditional payment methods. In contrast, in the US, credit cards remain almost as popular as debit cards. Additionally, more and more consumers are using mobile wallets like Apple Pay to make payments in stores.

A Digital Euro Could Transform Payments

The shift in consumer preferences brings us to a crucial topic: the Digital Euro.

If the European Central Bank (ECB) moves forward with its plans, the Digital Euro could become a reality by 2028. Payments would be made via smartphones or chip cards, allowing consumers to exchange cash for digital euros at ATMs and vice versa. Online payments with the Digital Euro would be directly linked to a bank account, while offline use would require loading money into a special wallet in advance.

The Digital Euro aims to make payments simpler, faster, and more secure, while also enhancing the autonomy and monetary sovereignty of the euro area. The ECB also envisions the Digital Euro spurring innovations like autonomous cars that can refuel themselves or fridges that can order and pay for groceries at the supermarket.

The success of this initiative will largely depend on consumer acceptance rather than the technology itself. While infrastructure and merchant acceptance are crucial, the real test will be how quickly and widely consumers adopt the Digital Euro for their transactions.

For the Digital Euro to succeed, it must be affordable, secure, risk-free, easy to use, and convenient. Achieving the last two criteria could be challenging, especially given the growing popularity of Digital Wallets.

Trust Is Essential for Change

When it comes to security, the latest advancements in online payment security include Tokenization, multi-factor authentication, and the use of AI for Fraud Detection.

Tokenization replaces sensitive card data with a unique code, making it more difficult for hackers to steal information. Multi-factor authentication, such as fingerprint or facial recognition, adds an extra layer of security. Real-time AI-Driven Fraud Detection is also making significant progress, helping to identify fraud and preemptively reject certain payments.

In retail, the trend is towards more automated systems. Biometric Authentication methods like fingerprints and facial recognition could make physical payment devices obsolete.

Traditional checkouts are being replaced by self-service checkouts that automatically collect payments using weight sensors or image recognition. Technologies such as near-field communication (NFC) or QR code payments promise to make transactions faster, more secure, and more convenient.

In the near future, queuing at the checkout may become a thing of the past, as purchases could be automatically charged to your account as you leave the store—or even as your fridge at home places an order for you.

The Future of Payments

The future of payments is set to be exciting, with Connected Retail offering convenience, security, and choice. Imagine a world where watches and rings replace coins and notes at the checkout, and fridges reorder groceries automatically.

However, the success of these advancements will depend on their ability to seamlessly integrate into our daily lives, ensuring that consumers feel secure and empowered in their financial interactions. The rapid changes in consumer payment preferences are poised to redefine how we perceive and interact with money, ushering in a new era of digital convenience and security.