What is a digital wallet and why it is a crucial payment method in emerging markets

Amid the rise of smartphones and the surge in online transactions, digital wallets have solidified their position as a secure and convenient payment option. Discover their significance in Latin America and Africa’s digital commerce landscape as we delve into what makes them a vital trend for global brands eyeing expansion in these regions.

João Paulo Notini
July 24, 2023
4 min read
latin america digital wallet

With the mass adoption of smartphones and the increasing popularity of online transactions, digital wallets have emerged as a convenient and secure payment method. During the pandemic, they had the opportunity to prove their value and, afterward, sustained consumer preference and became part of our lives.

This article aims to provide a comprehensive understanding of digital wallets, including what they are, how they work, and why they have become a key payment trend in Latin America and Africa, particularly for digital commerce. 

As these regions keep attracting global brands to sell there, digital wallets and other alternative payment methods are a must-have for any company willing to expand in these markets. 

  • Mercado Pago: available in several countries in Latin America, including Brazil and Mexico, Mercado Pago is the most widely used digital wallet in the region. 
  • PicPay: exclusively used in Brazil, PicPay has a 55 million user base, and it is a popular wallet for P2P (Pay to Play) and QR code payments in physical stores.
  • Nequi: the leading digital wallet for cross-border shopping in Colombia has almost 10% of the country’s population in its user base. This wallet also grabs 10% of the total sales volume share originated from wallets in the Colombian digital commerce.
  • MACHPay: Currently used by more than 10% of Chile’s population MACHPay is popular stored-balance wallet offered by Banco BCI.

How Does Digital Wallets Work?

1. Download and Install

To begin using a digital wallet, users must download a digital wallet app from a trusted provider. Popular global providers include Apple Pay, Google Pay, and Samsung Pay. 

In Latin America and Africa, some popular digital wallets are MercadoPago (several countries), Nequi (Colombia), PicPay (Brazil), MPesa (Kenya, Tanzania, Mozambique), Paga (Nigeria), and Flutterwave (several countries).

2. Add Payment Methods

Once installed, users can link their bank accounts, credit or debit cards, or even cryptocurrencies to their digital wallets. This process typically involves securely entering the required details or scanning the card using the smartphone’s camera.

3. Secure Authentication

To ensure the safety of transactions, digital wallets often employ security measures such as PIN codes, biometric authentication (fingerprint or face recognition), or passwords.

4. Making Payments

With the digital wallet app, users can make payments by simply unlocking their device, opening the app, selecting the payment method, and authorizing the transaction. This process is usually completed by tapping the device on a contactless payment terminal or scanning a QR code.

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Digital Wallet’s Safety and Security Explained

Digital wallet providers change between countries, but each is designed to supply the highest level of security. Encryption technology makes information safer in digital wallet platforms than during credit card transactions.

For in-person transactions, digital wallets are not only easier to manage than shifting through a wallet, but they also provide several levels of security – no card theft, and with the safety of a phone’s password code combined with the wallet encryption, there’s no question that digital wallets are incredibly secure.

Online and Contactless Payments: a must in Latin America and Africa

Only 28% of Latin Americans and 3% of all Africans have credit cards, as per the World Bank and EBANX 2022-2023 Beyond Borders study. This is a trend in most emerging markets, where the population struggles to have access to credit or a bank account. What’s the solution then? Relying on alternative payment methods.

QR codes and other contact-free technologies are also the “new normal”, after the pandemic boosted their usage. In Latin America and Africa, digital, alternative, and contactless payments quickly rose for ease and quickness. 

According to EBANX’s Beyond Borders study, alternative and digital payment methods account for 49% of Latin America’s e-commerce transactions, with digital wallets accounting for 10% of the total.  Meanwhile, 70% of African online commerce is made with alternative payments, such as digital wallets, mobile money, and instant transfers.

As cards and physical cash keep losing space, alternative payment methods are gaining traction. For any company willing to expand in emerging markets, such as Latin America and Africa, knowing exactly which payments should be offered is necessary. Yet, how to do that? Through a payments partner that truly understands the market and your business needs.

Are you ready to check which payment methods are necessary for your business to succeed in emerging markets? Get to know the best alternative payment methods solution for Latin America and Africa with EBANX.

João Paulo Notini
João Paulo Notini
Senior Content Marketing | Cross-Border operations at EBANX

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