Visa has launched its digital wallet, V.me, across Europe and says it hopes 4,000 merchants will have signed up by January.

What is a digital wallet?

A digital wallet is a payment method using any device that connects to the internet, such as smartphones. They are designed to help people shop more quickly and securely online and in-store. The digital wallet software allows those connected to the internet to transfer money to businesses or other mobile users using near field communication technology.

The digital wallet, which can hold store cards, loyalty cards and travel cards, alongside bank account information, can be accessed via a PIN. In-store, contactless payment terminals can be used to transact, while at home it can speed up online shopping, storing payment details. Providers such as Visa can update consumers on their usage via text alerts.

Why are we talking about it now?

Visa has just launched its digital wallet service, V.me, across Europe. It is now available in the UK, France, Spain and Poland and Visa says 1,400 merchants are already signed up. This is expected to grow to 4,000 by January and will expand throughout 2014, before a commercial launch and consumer marketing campaign later in the year. Dixons and Clarks are among the retailers already signed up. The launch is significant because it is the first Europe-wide digital wallet launch with a consumer campaign planned as part of it. O2, Google and Mastercard all also have digital wallet offers.

What are the advantages for retailers?

Digital wallets allow retailers to streamline their customer checkout process, enabling shoppers to purchase more quickly and easily, meaning retailers can take advantage of impulse purchases and the psychological advantage of not using cash. It also means shoppers have more choice in how to pay and it may reduce queues and checkout abandonment, which the IMRG says costs retailers £6bn a year. Perhaps most importantly, if use of digital wallets becomes widespread in-store, they could give retailers access to more data than they have previously been able to collect on shoppers. In conjunction with shoppers using their mobiles more in store, this could lead to better targeted promotions.

What are the drawbacks?

The success of e-wallets relies on changing consumer habits, which can never been taken for granted and are hard to predict. There’s no way to tell how fast the tipping point will come with these technologies, although other innovative mobile technologies such as smartphones have tended to surprise retailers with the speed of their adoption by consumers. In addition, retailers will need to invest in their in-store wifi to enable the wallets to work in stores where 3G coverage is poor.

What’s next for e-wallets?

Providers are working hard to persuade retailers to sign up and increase the scale of the use of digital wallets. Visa Europe says 50% of all UK transactions will be via mobile by 2020, making this a crucial battleground for payments processors and other interested companies.