Digital Wallets in a Tokenised World: The Future of Financial Identity

Yesterday, I engaged in a thought-provoking discussion with Charles Orton-jones and Sam Boboev during a session on the evolution of digital wallets session in FintechTalk What began as an exploration of their role in payments quickly expanded into a broader conversation on their future as gateways to digital identity, tokenized assets, and decentralised ecosystems. As financial transactions become increasingly digitised, the wallet transforms from a mere payment instrument into a sophisticated trust and ownership mechanism. This shift presents both opportunities and challenges, particularly in the context of a tokenized economy. 

From Payment Tool to Digital Identity Hub

For years, digital wallets have been positioned as a convenient alternative to cash and card-based transactions. Apple Pay, Google Pay, and Paytm have facilitated seamless consumer payments, fundamentally altering traditional financial interactions. However, their evolution extends far beyond payments. In 2024, global digital wallet adoption reached 4.3 billion users, and projections indicate that by 2029, nearly 5.8 billion people—over two-thirds of the global population—will rely on them.

Payments and the increasing use of wallets as integrated repositories for digital identity credentials, financial assets, and decentralized access keys drive this growth. The European Commission's EU Digital Identity Wallet (EUDI) exemplifies this shift, allowing citizens to store government-issued IDs, medical records, and financial data in a unified, secure wallet. Similarly, Apple Wallet in the U.S. now supports driver's licenses and state IDs, setting a precedent for digital identity storage.

The future of wallets extends even further—storing tokenised stocks, fractional ownership in assets, and smart contract-driven agreements. This transformation represents a fundamental departure from traditional financial intermediaries, where individuals now exercise greater autonomy over their financial and identity-related data rather than relying on centralized entities.

Tokenisation and the Financial Ecosystem

A critical question raised during our discussion was whether digital wallets could eventually displace traditional banking structures. While banks will remain integral to the financial ecosystem, digital wallets are rapidly emerging as the primary interface for a tokenised economy, driven by the proliferation of Central Bank Digital Currencies (CBDCs), tokenised assets, and programmable money.

The rise of stablecoins and digital currencies is redefining the role of digital wallets. China's Digital Yuan (e-CNY) has already been used in 260 million transactions across 25 cities, demonstrating the real-world impact of CBDCs. In India, fintech firm Cred recently joined the Reserve Bank of India's (RBI) digital currency project, marking a significant step toward integrating the e-Rupee with mainstream digital wallets.

Meanwhile, the European Central Bank (ECB) is accelerating plans for a Digital Euro, which will be directly accessible through digital wallets rather than traditional banks.

Beyond currencies, Non-Fungible Tokens (NFTs) have evolved from digital art into real estate ownership, intellectual property rights, and medical records. Platforms like Lofty AI enable users to buy fractionalised real estate ownership using blockchain-based digital wallets, reinforcing the wallet's role in financial inclusion and asset ownership.

Programmable payments powered by smart contracts are another defining feature of the tokenized economy. Future digital wallets will store assets and execute logic-based transactions—automating loan repayments, dynamic insurance policies, and conditional fund transfers. Visa has already introduced Auto-Pay Smart Contracts, allowing businesses and individuals to schedule blockchain-based recurring payments directly from their wallets. This level of financial automation is unprecedented in traditional banking systems.

The Privacy Paradox: Centralised vs. Decentralised Wallets

As digital wallets become central to financial and identity management, the data privacy and control debate intensifies. Today, Apple Pay, Google Pay, and PayPal operate within centralised frameworks, offering user-friendly experiences but at the cost of data surveillance and corporate control.

Conversely, Web3 wallets like MetaMask and Phantom offer decentralised control, enabling users to own and manage their private keys without intermediaries. However, self-custody presents usability challenges, requiring users to safeguard their credentials—something many consumers are not yet comfortable with.

This dichotomy between convenience and sovereignty is shaping global regulatory responses. Governments worldwide are introducing data localisation laws, compliance mandates, and security standards that will define the future of digital wallets. The European Union's Markets in Crypto-Assets (MiCA) framework will enforce strict compliance rules for self-custodial wallets, while in the U.S., the SEC is scrutinizing decentralised wallets for regulatory oversight. Whether truly decentralised wallets can operate under increasing government scrutiny remains uncertain.

The Role of Big Tech and Market Disruption

During the discussion, a pertinent question arose: Are companies like Apple and Google innovating enough in the digital wallet space, or will they be disrupted?

While Apple Pay and Google Pay dominate mobile payments, they have not aggressively expanded beyond transactional functionalities. The future will belong to wallet providers and entire infrastructure ecosystems. This means that large players will control the infrastructure. At the same time, third parties build services on top of it—mirroring how India's UPI and Brazil's PIX have enabled private partnerships like PhonePe, Google Pay, and Nubank to scale without owning the underlying rails.

Even PayPal, which invested over $3 billion in innovation last year, has yet to capitalize on Web3 integrations or tokenized asset management fully. The future of wallets will not be limited to who processes transactions fastest but who controls the ecosystem.

Can Small Players Gain Market Share?

This led to another question—Can smaller fintech players compete, or is the market dominated by tech giants?

Smaller players will have opportunities if they leverage interoperability and regulatory tailwinds. We have seen fintech startups like Cred in India and Revolut in Europe carve out substantial market share by offering value-added services on existing infrastructure. The key for these companies is to build services around open digital public infrastructures rather than competing directly against significant platforms.

Governments and regulators are already supporting this trend. India's Digital Public Infrastructure (DPI) ensures that multiple players, from banks to fintech startups, can innovate on top of government-backed financial rails like UPI and the e-Rupee. Similarly, Brazil's PIX has enabled fintech firms to scale without direct banking licenses.

The Road Ahead: Interoperability, Security, and AI Integration

For digital wallets to fully realize their potential in the tokenized economy, three key developments must take place:

1. Interoperability – Wallets must seamlessly interact across blockchains, banking networks, and payment infrastructures to prevent ecosystem fragmentation. The Bank for International Settlements (BIS) advocates for a universal digital wallet standard to facilitate global interoperability.
2. Security Enhancements – As wallets transition from simple payment tools to comprehensive asset managers, they must incorporate biometric verification, multi-factor authentication, and Zero-Knowledge Proofs (ZKP) to safeguard digital assets.
3. AI-Powered Financial Optimization – AI-powered wallets are emerging as personalized financial assistants, offering automated investment recommendations, fraud detection, and compliance monitoring. Companies like Stripe and Square are already integrating machine learning algorithms to enhance fraud prevention and optimize digital transactions.

Conclusion: The Future Belongs to Infrastructure Ecosystems

After our discussion, Charles and Sam acknowledged that digital wallets are not just financial instruments but are becoming digital identities. The ability to store money, credentials, and ownership rights within a single wallet represents a fundamental financial agency and autonomy shift.

As the world transitions into a tokenised financial ecosystem, digital wallets will serve as the cornerstones of decentralized finance, programmable payments, and self-sovereign identity. The real question is not whether digital wallets will replace traditional banks but who owns the infrastructure that powers them.

The future will belong to infrastructure ecosystems—where governments and large platforms build the foundational rails, and third parties create value-added services. India's UPI, Brazil's PIX, and Europe's EUDI wallet are proving this model works.

Ultimately, financial autonomy does not lie in banks or centralised corporations. It lies in the wallets we carry.