ARK Invest’s Cathie Wood says digital pockets wars will likely be a ‘winner-take-most’ alternative

In conversation with Coinbase’s CEO Brian Armstrong at the company’s State of Crypto Summit on Thursday, Wood argued that there is a new generation of consumers who want a digital wallet to be their one-stop-shop for all online payments. Citing the absence of traditional banks in the digital wallet space,  “this truly is a winner-take-most opportunity,” she said.

Wood made repeated reference to WeChat Pay—the digital wallet from Chinese social media giant WeChat, which lets users make mobile payments and online transactions—saying its set the “model” for how the market will evolve. WeChat Pay functions like a “bank branch in your pocket,” she said, offering all forms of financial services and commerce. Since its initial release in 2013, the app has accumulated over 1.13 billion active users. Along with Alibaba’s Alipay, the two applications account for over 90% of all over China’s mobile payments.

Digital wallets can be loosely described as phone applications that allow peer-to-peer transactions, real-world purchases and online payments. Major players include PayPal, its subsidiary Venmo, Zelle, and Cash App, which are all digitally native with no brick-and-mortar branches. 

But the services offered by these fintech companies are fast usurping traditional banking. According to Worldpay’s Global Payments 2024 Report, digital wallets account for half of all e-commerce transaction value last year.

Citing a generation coming of age that may never see the four walls of a traditional bank, Armstrong said he wants crypto to be treated as a serious contender in the digital wallet race. Like Wood, he predicted that one’s phone will exist interchangeably with one’s wallet, and consumer demand for a single financial account “where they get paid, make purchases and send money,” will become the norm.

Despite Coinbase’s reputation as an exchange first and foremost, Armstrong noted “the real potential in innovation [in crypto], comes from these peer-to-peer transactions.”

Crypto’s presence in the digital wallet space is growing. In April, PayPal announced users can make fee-free global transfers of its stablecoin PYUSD, while Cash App has let users buy and sell Bitcoin since 2018. Last week, Coinbase debuted its Smart Wallet, a self-custodial crypto wallet that replaces the laborious recovery phrases, apps, and extensions typically associated with accessing DeFi wallets that keeps some users away, with biometric data, such as FaceID and fingerprints. On top of this, the Smart Wallet can draw funds from both the user’s self-custodial wallet and their Coinbase account balance.

In a competitive, saturated digital wallet market, Armstrong touted “interoperability” as DeFi’s comparative advantage. In other words, a Coinbase wallet transaction doesn’t need to be met with another Coinbase wallet, unlike, say, PayPal.

The CEO likened payments to flowing water—it follows the path of least resistance. In lieu of that, he predicted that a quarter of global GDP will be on crypto rails—the term for payment platforms that support the transfer of digital assets—within a decade. Armstrong concluded with an ambitious, final goal: For Coinbase wallets to be the “primary financial account” for the next generation.