An article by Ahmed Wahdan, the Marketing Lead at Ezra, a leading micro-lending fintech company.

Providing the power to pay at the touch of a button, e-wallets have become one of the world’s most popular payment solutions. Secure, convenient, and cost-effective, their popularity surged during COVID-19 as more people turned towards online payment methods for daily transactions. As we move forward, mobile payments are expected to comprise 70% of total online transaction value in the Mena region by 2025, indicating a huge shift in the way consumers buy, borrow, bank, and pay.

Before we see where e-wallets are headed, let’s go back to when it all began. The origins of e-wallets are older than you might think. Back in 1997, Coca-Cola installed two vending machines in Finland that accepted payment by text message, deploying the first ever solution that resembles the modern-day e-wallet. Since then, they have come a long way.

E-wallets have become increasingly popular because they enable users to make payments, store money, and access various other financial services simply by using their mobile phone or tablet. They are typically offered by financial institutions (banks), merchants, government organisations, mobile money operators, and there are three main types we use today:

Open-loop wallets, which are issued by banks or institutions partnered with banks, link directly to a user’s credit or debit card. Think Apple Pay, GPay, or PayPal.

Closed-loop wallets, which are offered by merchants of a product or service, allow users to create an account in the merchant’s app and top it using a credit or debit card. The value is then stored in the app for payments. For example, the MAF Carrefour app.

Semi-closed loop wallets, which are typically offered by fintech companies or mobile money operators, do not necessarily require a bank account and allow users to buy from identified merchants who have agreed to accept payments from the wallet issuer. It also enables the transfer of funds to other users within the same wallet network. Examples are Paytm, Mobikwik, and Alipay.

Since the pandemic, consumers have become accustomed to the ease and efficiency of digital payment solutions. In fact, over half of all e-commerce payments this year globally are expected to be made through digital wallets. By 2026, it’s predicted that there will be over 5.2 billion digital wallet users worldwide; a huge jump from the 3.4 million users recorded back in 2022.

There’s no denying that digital wallets are entrenched in our daily lives. Far beyond purchase payments, they often offer peer to peer (P2P) transfers, cross border remittances, microloans, cryptocurrency management, and more, reflecting the dynamic nature of today’s financial landscape. As this landscape evolves, there are a few ways e-wallets will continue to revolutionise the financial sector.

Foster Financial Inclusion

Approximately 22% of the GCC’s population is unbanked, lacking secure access to financial services. This is where e-wallets can make a real difference, offering an array of services that permit more people to become part of the region’s financial ecosystem.

The Mena region includes some of the world’s largest remittance corridors, with the UAE being the second largest globally. This is because many of these countries have extremely high expat populations, who regularly send money back to their home countries. In many of these countries, such as India, Philippines, Pakistan, and Bangladesh, a large proportion of the population is also unbanked. Therefore, e-wallets have become increasingly popular, enabling employers to transfer salaries directly into the wallets of their employees, who can then benefit from cost effective and quick cross border remittance services.

Encourage Microlending

Some digital wallets even offer microloans and other forms of credit, often at lower fees than traditional banks, benefiting those who wouldn’t otherwise qualify for a loan. These loans promote economic growth and improve quality of life, enabling people to start a business, pay utility bills, support their families, and participate in the economy.

Take the digital wallet, M-Pesa, for example. Millions of people in Kenya use M-Pesa to send and receive money, make payments, and pay bills, promoting financial inclusion and reducing poverty in the country.

In my experience with Ezra, microlending can have a significant impact on reducing the global financial literacy gap between developed and developing countries. Ezra’s expertise has helped mobile money operators design, launch, operate, and scale low-risk cash loans across the world. Currently, over 40 million monthly users are accessing fast, secure, and convenient lending solutions powered by Ezra. We even provided the lending solution for M-Pesa in Kenya.

Enhance Cybersecurity

As the popularity of digital wallets grows, so does the risk of cyber fraud, inciting a call from consumers for enhanced cybersecurity measures. Thankfully, gone are the days of passwords, as biometric authentication becomes increasingly prevalent in digital wallets. Whether it's fingerprint scans, facial recognition, or even voice patterns, biometric authentication ensures iron-clad, foolproof security in case someone gets hold of your mobile device.

And it doesn’t stop there. As seen in so many other industries, AI is quickly making its mark in the financial sector, adding a new level of security to digital wallets. AI-equipped wallets can learn from your behavior over time and continuously monitor your transactions for any suspicious activity. The technology can recognise your spending patterns and deviations from them and flag fraudulent activity in real time - an innovative advancement to combat widespread financial fraud experienced by users in the UAE.

The transformative trajectory of e-wallets signifies more than a shift in payment methods- it represents a step forward in financial accessibility and security. Evolved far past transaction tools, e-wallets propel us into a future of inclusive and technologically advanced finance.