Apple Pay’s Rise Exposes New Blind Spots for Lenders

Apple Pay’s 11th birthday is a mixed bag. The mobile electronic wallet (e-wallet) now accounts for about $450 billion in in-store payments, an increase from $268 billion last year. However, it still covers only 10% of eligible transactions — 6% of total in-store retail sales.

In spite of its massive growth, Apple Pay hasn’t replaced the physical wallet for most shoppers. Instead, it’s part of a growing crowd of mobile payment options reshaping how people spend money.

Mobile wallets have exploded in popularity. According to PYMNTS Intelligence, 31% of consumers used a mobile wallet in-store in the past week. That’s more than double the 14% a year ago.

Millennials lead the charge. Nearly half of them reported mobile wallet use in the last week. Even baby boomers are joining in. Their usage rose 47% from last year. Consumers seem to like the technology.

Apple Pay Leads, But Rivals Are Catching Up

Apple Pay remains the most used electronic wallet, but its rivals are catching up. The number of users who have tried Google Pay has more than doubled over the past year. PayPal and Cash App also had similar gains. That’s because of rewards and social payment features. Brand familiarity can’t hurt either.

According to PYMNTS Intelligence, 31% of consumers used a mobile wallet in-store in the past week.

The study found that convenience — followed by security — was the biggest motivator for first-time wallet users — especially among Gen Z .

Consumers seem willing to tap a screen to make a payment. But total sales volume isn’t growing at the same pace. Many shoppers continue to replenish e-wallet funds via traditional debit and credit cards.

The Ripple Effect for Lenders

Debit cards are the most popular way folks fund their wallets followed by digital balances payments, the latter of which have climbed from 1% to 3.7% of transactions in the last two years.

In fact, the share of consumers funding a wallet purchase with a debit card (4.1%) is higher than with a credit card (2.5%) or digital balance (3.7%). A lot of low-income consumers are more comfortable with debit as opposed to credit.

That trend could make it harder for subprime lenders to see the full picture of consumer activity.  Wallet transactions often mask the underlying payment source. That obscures our understanding of spending and repaying.

Digital wallet data doesn’t necessarily appear in bank statements and credit files. Customers may look inactive on traditional data feeds, but they still could be transacting through digital wallets.

The PYMNTS report also found that low-income users are more likely to adopt wallets after forgetting their physical wallet or being prompted by their smartphone. These tools appeal to convenience-seekers and debit-oriented consumers, many of whom have subprime credit.

For subprime lenders, this could make the difference between approving a reliable borrower and misjudging their risk.

What Comes Next

Lenders will need new tools as more consumers adopt digital wallets. These include real-time transaction monitoring and cash flow analytics. These tools help lenders understand risk in a world where spending happens behind layers of apps.

Alternative data and cash flow analysis could help close that gap. It can give subprime lenders a clearer picture of borrower activity. 

The success of Apple Pay shows that digital wallets are not a fad. But their rapid adoption leaves some blind spots that lenders face when evaluating subprime borrowers.