Big spenders: Almost two-thirds of Gen Z spend more when using digital wallets

Digital wallets are quickly transforming the payments landscapewith projections indicating they will exceed debit cards in transaction value within three years. This transition highlights the role of digital wallets not only as a payment option, but also as a versatile tool that encourages consumer engagement and spending.

A recent PYMNTS intelligence report,”Top of Wallet: Digital Wallets’ Ascent for Payments – and More“, in collaboration with Ingo paymentsexplores how digital wallets are becoming more prevalent, giving merchants both opportunities and challenges in adapting to this trend.

Soaring popularity and expenses

Digital wallets are on track to surpass debit cards in transaction volume at physical points of sale by 2027, according to a recent Worldpay report. The report reveals that digital wallets are used by 53% of Americans and are set to dominate nearly half of all point-of-sale (POS) transactions worldwide by the end of the decade. The value of transactions made through digital wallets is expected to double from 15% to 31% by 2027, while debit card transaction value will decrease from 28% to 23% in the same period.

A driver behind this shift is the convenience of digital wallets, leading to increased consumer spending. Digital wallet users spend an average of 31% more than those who use other payment methods. The trend is particularly pronounced among younger generations, with 60% of gen Z and 51% of millennials reporting higher expenses when using digital wallets. High income too show a tendency to spend more with digital wallets, with 61% of individuals earning more than $150,000 annually, indicating increased spending.

Merchant Adoption Lags

Despite the clear consumer preference for digital wallets, merchant adoption remains inconsistent. Only 57% of small businesses currently accept digital wallet payments, compared to almost universal acceptance of credit and debit cards. This hole presents an opportunity for companies which adapt quickly. The hesitancy among merchants stems from concerns about the cost and complexity of technology upgrades, as well as concerns about security and fraud.

A recent JD Power report points out that 22% of merchants do not accept credit cards and 21% do not accept debit cards because fraud concernsWhich suggests a similar reluctance to digital wallets. The perceived complexity of integrating digital wallets into existing ones POS systems is another barrier. Mar the report notes that upgrading to NFC standard card readers is relatively affordable, with costs ranging from free to $500, depending on the provider.

Expanding usage and expectations

The functionality of digital wallets evolves beyond simple transactions. Consumers are interested in using digital wallets for a variety of purposes, such as storing driver’s licenses, passports and event tickets. According to PYMNTS Intelligence, 45% of consumers are eager to use digital wallets for new money mobility options, including account-to-account transfers and recurring payments.

The demand for extended functions is especially strong among younger consumers, with 66% of gen Z indicates they would switch providers to access new features. This trend is reflected in the broader consumer base, with 37% of customers willing to change digital wallet providers for improved functionality. Merchants must recognize that offering comprehensive digital wallet services can not only meet consumer expectations, but avoid potential loss of business to competitors who offer more advanced features.

Digital wallets are expected to surpass debit cards in transaction volume within a few years, driven by their convenience and the increased spending power of users. Merchants face challenges in adopting this technology due to security issues and the need for system upgrades. To remain competitive, companies must address these issues and improve digital wallet features to meet consumer demands. As digital wallets become more popular, they will have an impact both payment methods and consumer involvement.