Blog / Testing Digital Wallets and BNPL in a Shifting Marketplace

Blog - Testing Digital Wallets and BNPL in a Shifting Marketplace

Testing Digital Wallets and BNPL in a Shifting Marketplace

As financial institutions seek their share of the e-commerce market, opportunities like buy now, pay later (BNPL) and digital wallets seem like opportunities to capture more revenue. In both instances, customers are exercising alternative payment options that fit their sensibilities, lifestyles or budgets. What’s not to like?

But, while both the digital wallet and BNPL markets are experiencing growth, it’s not without some turmoil. Despite incredible growth in the payment approach, many BNPL providers have cut back on staff in recent years, and a crowded global marketplace offers uncertainty. It’s a similar story for digital wallets, where geographic fragmentation and some behemoth providers threaten to steal the sunlight from smaller providers.

So, what’s the path forward, and how can financial institutions find success with these digital payment options? Let’s look at the challenges that lie ahead.

Mind the marketplace

Consider the consumer when it comes to BNPL solutions and digital wallets. What do they want? Probably a product that is easy to use, accessible and reliable. In fact, in most industries, convenience wins out over price.

These areas are a natural strength for digital wallets, which have grown in popularity over the last few years and will only continue to grow in the future. More than two-thirds of Americans expect to have an e-wallet within the next two years, according to a McKinsey survey. Additionally, the number of respondents planning to use three or more digital wallets nearly doubled from 2021 (18%) to 2022 (30%). These respondents largely used digital wallets from technology companies, such as PayPal or Google Pay, though indicated a preference (54% of respondents) for their banks to deliver these kinds of payment solutions.

Why the increase in adoption? Again, convenience. You can use digital wallets to pay for most goods and services right from your phone. Digital wallets can’t be lost or stolen in the same way a purse or a wallet might be, with mobile OSes providing some level of abstracted protection from thieves.

In the digital wallet space, tech providers dominate, having launched to market more quickly than financial services institutions. Apple, Samsung, Google and PayPal are among the market leaders in digital payment solutions. These providers deliver seamless usage — no coincidence they’re three of the four largest mobile device manufacturers in the United States — along with high-quality experiences that make payments easy. While some worry whether these options sufficiently insure customers’ account balances, there’s no doubt that consumers have placed trust in digital payment solutions.

Is there room for more entrants in the digital wallet space? It might be an uphill battle, especially in geographic markets where these larger providers operate. But as payment flows mature in the digital age and cryptocurrency becomes more of a standard form of payment, some providers might be able to carve out space to grow.

BNPL is a different challenge, but a similar story. Some BNPL providers were hit hard by the economic crunch, while others saw increases from consumers in non-discretionary purchases.

BNPL loans increased roughly 1,000% from 2019 to 2021, according to a report by the Consumer Financial Protection Bureau. In fact, the report states that there were more loan origins in Q4 of 2021 (63.1 million) than in the previous seven quarters combined (53.2) million, which shows increased adoption across a range of age demographics and product sectors.

Not all of these loans are paid back, especially among younger borrowers. The CFPB report found that the younger the age demographic, the larger the share of borrowers with loans in derogatory status (default or collections) — 5.7% of borrowers ages 18-24 had one or more default or charge-off in 2021, and 4.8% for ages 25-33. When consumers default on BNPL loans, providers feel the pain and might have little recourse in recuperating lost revenue.

Some of these challenges, along with greater economic uncertainty, has led to layoffs and budget cutbacks among some of the largest BNPL providers. And the picture gets muddier with the beta launch of Apple Pay Later, which threatens more disruption. The Apple BNPL service enables users to split purchases into four interest-free payments with no fees. Apple’s entry into BNPL — with 85% of U.S. retailers already accepting Apple Pay, according to the company — might even lead to consolidation among those providers that struggle to keep pace. Some of the larger BNPL players such as Klarna, Affirm and Afterpay must fight to stay on top.

Make sure it all works

The minute it becomes easier to pay for an item with a physical payment instrument, that’s the minute you lose viability as a digital payments provider. While the financial services sector has many institutional providers with decades of experience and sterling reputations, customers are fickle, especially with digital products and experiences.

Combine this with the stiff market competition mentioned above, and it’s a bad recipe for new entrants looking to distinguish themselves. But, there are still opportunities for new e-wallet and BNPL providers if they can win on these fronts.

Localization. When you have multiple options for account registration and payments, how do you manage to onboard new customers in the first place, and keep them as loyal customers (cash back, rewards points, etc.)? What incentives do you provide customers and merchants in those markets? What works in one country might fail in another. Credit card companies are well familiar with this challenge, as a highly competitive landscape often means missteps are costly.


Just as localization efforts can reveal a potential strategic advantage, they can also reveal flaws that can cause a product to flop on the spot. What if your product doesn’t meet local payment regulations? What if you use a color, phrasing, imagery, name or poor translations that push away customers? While your workflows and APIs may work smoothly, your potential customers won’t be willing to take the risk.

As these products mature, regulations will evolve and financial services companies will need to adjust. For instance, some digital wallets are only accessible in particular countries. Those standards can change at any time, as recently occurred in an e-wallet agreement between India and Nepal. Make sure that all customers or merchants who are able to use/accept the product can, and those that can’t, such as those one kilometer on the other side of a prohibited country’s border, are blocked.

There’s no way to effectively simulate how a product will be received in a particular market. Conduct in-market research and commission real testers in those geographies to take guesswork out of the equation.

Differentiation. Let’s be honest, most Apple customers will default to Apple payment products, and the same is likely true for Google customers. So, how can a financial services company battle with large tech providers that launched to market quickly — let alone carve out enough of a niche to be relevant — in the e-wallet or BNPL market? The key is differentiation.

If a financial services company can deliver digital payment options that target a niche geography, transaction or market; offer unique promotions or rewards; provide convenience; or better align with the customer’s expectations, they can find some elbow room in the crowded, competitive digital landscape. In the McKinsey survey, respondents were asked what features would be most desirable to them in a digital wallet. Here’s the breakdown of responses, which sheds light on some areas where shrewd financial institutions can deliver:

  • store loyalty (43%)

  • payments consolidation and ease of use (41%)

  • one-time deals (26%)

  • financial services app integration (23%).

To use an example of market differentiation, one digital wallet product scheduled for launch later this year, Paze, plans to initially launch solely for ecommerce transactions. And as an incentive for online merchants to accept the product, Paze will add no extra fees to any transaction.

Of course, thoroughly checking the customer flows and product functionality are essential for making sure these promotions work as expected. What good are store loyalty and promotional offers if the product fails to deliver on those promises? Thorough customer journey testing is critical to ensure a successful launch.

Ease of use. If it’s easier for a customer to purchase with BNPL or a digital wallet, there’s a higher likelihood of completing the transaction. But, if it’s more difficult, there’s a near certainty users will abandon the product. Onboarding, in particular, is an absolutely critical part of the customer journey. Make it too difficult for the customer or merchant to accept your product and you’ve failed before you can even process a transaction.

Keep in mind that BNPL transactions introduce some additional complexity into payments, which can yield friction in the customer’s journey. For example, what happens if a customer uses BNPL for a purchase, but returns that item? Do they get the refund, and does that money return to the customer’s account in the expected amount of time?


For digital wallets, the transactions are more straightforward, but the customer must be able to find and complete the digital payment instrument in mere seconds. Remember with digital wallets that you’re not only competing against major players like Apple or Google that build these payment options right into the navigation under the status bar, but also the credit card inches away in the customer’s wallet.

Some common customer experience issues that occur with digital wallets include:

  • onboarding — confusing navigation, complex registration, difficulty adding payment methods

  • money transfer — rejected transactions, delayed notifications

  • transaction history — incomplete or confusing details, duplicate transactions

  • rewards — defects with points accumulation and redemption

  • customer support — live chat failures, ineffective chatbots

  • account management — biometric authorization failure

User experience or customer journey testing can help you understand where and why customers either complete or abandon these transactions, and ensure that merchants accept your digital wallet in relevant markets.

Validate digital payment programs

How many untapped markets still exist in the world? Not many. While the digital wallet and BNPL markets have room to grow as consumers seek credit card alternatives, financial services providers will need to validate these payment programs over the long term. Everything has to work smoothly, from initial point of sale through final completed payment, which could take months or even years in the case of BNPL transactions, all in an evolving regulatory and competitive landscape.

Rather than sink ongoing time and resources into inefficient internal digital payment testing, turn to Applause as your payment testing partner. Applause digital experts match the demographics, geographies, devices and payment instruments you need to execute customer journeys and BNPL transactions, all to ultimately ensure smooth experiences. Obtain these valuable insights from real users prior to launch to identify and address any issues before customers and merchants have your product in hand.

Our testers follow the pathways you need, such as one in which the customer fails to complete BNPL payments, enabling you to test defaulted payments and other journeys you can’t execute internally. And through localization testing, Applause can ensure adherence to regional or national regulatory requirements, now and in the future.

As the digital payments landscape evolves, make the investment to compete with the giants. Talk with us today about how we can help you achieve your digital quality goals.

Published: April 21, 2023
Reading time: 10 min

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