Digital Wallet Growth Will Enable More Closed-Loop Transactions

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Arc Invest, a crypto and fintech investment firm, has made bold predictions about digital wallets, It estimates that more than half of the world will soon use at least one.

In its January 31 ‘Big Ideas 2023’ research report, Arc Invest revealed that digital wallet Global population penetration is currently 40%. This equates to around 3.2 billion users, the company added.

However, research suggests that the number of online wallet users will increase by 8% annually. The agency predicts that this will account for 65% of global population penetration by 2030:

“By onboarding billions of consumers and millions of merchants, digital wallets can transform the economics associated with traditional payment transactions, saving them nearly $50 billion in costs.”

It also noted that digital wallets are gaining market share in both online and offline transactions. Of late, the currency has definitely been devalued by government efforts to go digital Seen in Nigeria.

Payment System Trends - ArcInvest
Payment System Trends – ArcInvest

Digital wallets will continue to evolve

Arc reports that digital wallets are scaling faster than accounts at traditional financial institutions. Also, US digital wallet adoption rose again in 2022, surpassing previous highs following the Covid-induced decline.

The company estimates that US digital wallet users will grow by 7% annually over the next eight years. This will increase to about 160 million in 2022 and more than 260 million by the end of the decade.

Digital Wallet User Development - Arc Invest
Digital Wallet User Development – Arc Invest

Also, online wallets enable “closed-loop” ecosystems. This is where consumers and merchants can transact directly, cutting out the middleman.

“Digital wallets connect millions of merchants on platforms that enable direct consumer-merchant transactions, disrupting traditional financial institutions,” it noted.

In this closed-loop environment, wallet providers get more value per transaction so that savings can be shared with merchants and consumers.

Open and Closed Loop Transactions - Arc Invest
Open and Closed Loop Transactions – Arc Invest

In addition, Ark noted that closed-loop transactions could increase the margin structure of wallet providers.

It was used Block Inc. (formerly Square) for example, says that in 2022, approximately 60% of customer transaction fees were paid to third parties. Transfer, valuation, processing and bank settlement fees are charged. If customers transact directly with merchants, the block’s net take rate doubles.

Block Inc. Payment System - Arc Invest
Block Inc. Payment System – Arc Invest

Closed loop transactions can be more than 50%

Finally, Arc predicts that these closed-loop transactions will account for 50% of digital payments by 2030.

It was used China An example of wallets and merchants being mostly local or local only.

Closed Loop Cost Savings - Arc Invest
Closed Loop Cost Savings – Arc Invest

Ultimately, digital wallet growth will continue. Cutting out the middlemen they facilitate is beneficial for both the consumer and the merchant.


BeInCrypto has reached out to the company or person involved in the story to get an official statement on the latest developments, but has yet to hear back.


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