Digital Wallets: The Pursuit of a Profitable Business Model in CEMEA
Digital wallets are the fastest growing online payment method globally and have become the people’s payment method of choice. In 2023, digital wallets accounted for 50% of global e-commerce payments and 30% of global POS payments. By 2027 wallets are projected to account for more than $25 trillion in global transaction value (49%) across e-commerce and POS1.
In this piece, we explore how digital wallets gained popularity, the barriers to launching a digital wallet in CEMEA and, importantly, highlight what is needed to achieve profitability. It’s a tough way to make money, and in the absence of a robust wallet-related strategy, players can lose their competitive edge.
The evolving payments landscape
The way consumers are buying things, and the way merchants need to accept payments is changing. The same way that contactless has become the predominant way that people pay for things in person all over the world, the next step of contactless is through digital wallets. However, the picture across the CEMEA region is diverse - there are a few notable hotspots but, in general, most other markets are rapidly playing catch-up to the likes of China, which has seen explosive digital wallets growth.
“The term digital wallet is applied to a bewildering array of different solutions – from single-wallet functions to super apps - so gaining an understanding of the different categories and funding mechanisms is important. While every type of wallet enables some form of payment, there are really only two main funding mechanisms; bank or card connected wallets or stored value wallets.”
According to Visa Consulting & Analytics (VCA) team of global payments advisors, digital wallets are one of ten trends set to shape the payments landscape. In a recent paper published by the VCA team, they explore digital wallets specifically. The paper takes stock of market developments in the CEMEA region, evaluates the strategic options open to any players that wish to enter the market or refine their existing wallet proposition, and sets out a path to profitability.
The digital wallets landscape in CEMEA
The number of digital wallets is set to rise from 564 million to 969 million between 2023 and 2028, across the
The growth has been strongest in e-commerce, with digital wallets accounting for 26% of payments volume (compared to 13% of POS payments).3 Meanwhile, in Central and Eastern Europe and the Commonwealth of Independent States, the use of digital wallets is expected to surge from around 26% of payments in 2020 to approach 30% in 2024.4
Barriers to entry remain strong
The varied and dynamic competitive landscape remains a big barrier to entry - sometimes it’s a “winner takes all market”, with one or two dominant players creating strong network effects. This is evidenced in Middle East & Africa where mobile money stored value wallets such as e& money, M-PESA, MTN MoMo and Orange Money are popular but compete with super apps like Vodapay, pass-through wallets such as stc pay in Saudi Arabia, and Apple Pay and Google Pay across the region.
Another barrier is that the preference for cash remains in some regions. In countries such as Nigeria for example, cash remains the undisputed consumer choice. In 2023, digital wallets contributed to just 11% of Point of Sale (POS) transaction value in comparison to cash which accounted for 55% of 2023 POS transaction value.5
Achieving profitability
From VCA’s analysis, very few digital wallets launched across the CEMEA region have reached their full potential. From the outside, they may look like successful operations but typically, they have strong brands, operated by highly respected organizations, and gain considerable scale. Yet, even after achieving undisputable market success, most are not able to reach breakeven or to start generating cash for their investors. There are two main reasons for this. Players tend to offer core wallet services free of charge or for a very small fee, and they also absorb all wallet transaction costs and the expenses of wallet funding transactions, which often exceed the income.
Four steps towards achieving a profitable business model:
1. Find the right model that is right for your business – there isn’t a silver bullet business model.
2. Develop a robust wallet-related strategy - everyone has something to gain (or lose).
3. Think hard about the wider business case - it’s a tough way to make money.
4. Choose the route to profitability – become a niche payment specialist or transform into a full-service digital bank.
It’s clear that digital wallets have gained significant popularity globally due to their user-friendly design and eco-friendly design but the downside, especially for smaller players, is that few are achieving profitability. Companies have to be very proficient at managing wallets - making sure that their payment credentials are interoperable across wallets, that the wallets themselves are interoperable, and that cross-border payments and money movement through wallets are enabled safely and securely.
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1Global Payments Report 2024, Worldpay: : TheGlobalPaymentsReport2024.pdf (worldpayglobal.com)
2Juniper Research, July 2023. DIGITAL WALLETS Platform Analysis, Key Trends & Market Forecasts 2023-2028, Data & Forecasting.
3FIS/Worldpay, Global Payments Report 2023, 2023: available via https://www.fisglobal.com/en/global-payments-report.
4Corefy, Entering the Central & Eastern European market: business and payment trends, 2021: https://corefy.com/blog/entering-the-central-eastern-european-market-business-and-payment-trends
5Global Payments Report 2024, Worldpay: TheGlobalPaymentsReport2024.pdf (worldpayglobal.com)
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