Do you know what a digital wallet is? With the development of internet technology, the virtual world has become a space for multiple types of transactions. Physical documents are being replaced by digital versions, and you no longer need to pass your card through a machine to complete a payment.
That's where digital wallets come in; they were developed to simplify financial transactions and help you keep all your credit and debit cards in a single place, virtually.
What Is a Digital Wallet?
A digital wallet, also known as an e-wallet or electronic wallet, is a software application that stores your cards and payment information online. It enables you to pay for purchases directly from your devices instead of having to use physical cards.
You can install the app on your computer or mobile devices; however, it's more commonly used on smartphones since you can carry it wherever you go. A digital wallet dismissed the need for using a physical one, as you will have access to your cards and other documents in the electronic version.
A digital wallet holds:
- Credit and debit card information
- Gift cards
- Membership cards
- Loyalty cards
- Coupons
- Event tickets
- Plane and transit tickets
- Hotel reservations
- Driver's license
- Digital IDs
- Cryptocurrency
- Insurance cards
With over 4.3 billion digital wallet users in the world, this type of app is increasing in popularity. The global total value of digital wallet transactions was $10 trillion in 2024.
Types of Digital Wallets
Closed-Loop
Closed wallets can be used just by one merchant; therefore, it allows only transactions between the company that owns the app and its clients. Walmart and Starbucks are examples of businesses that have this type of digital wallet.
Open-Loop
Open wallets enable you to add multiple cards for different companies, and other items such as tickets, reservations, loyalty and reward cards, and ID documents. You can connect to as many bank accounts as you wish; the app isn't restricted to only one company. Google Wallet and Apple Wallet are examples of open-loop digital wallets.
Crypto Wallets
As the name suggests, crypto wallets enable you to make transactions with cryptocurrency. They store your public and private keys so you have access to your digital assets, and you can receive and send payments using them.
How Does a Digital Wallet Work?
Digital wallet apps are easy to use; they tend to have an intuitive interface, so you can enjoy their features. First, you will need to download the digital wallet app of your choice, create an account, and then add the payment methods you want to store in your wallet. Depending on the type of wallet, you can include tickets, gift cards, loyalty program cards, and much more.
You will need to set up a password, or enable fingerprint identification or facial recognition to access your digital wallet. If you want to use the digital wallet to pay for purchases in physical stores, you have to access the app, choose the payment method, and approach your smartphone to the card reader. The transaction will be completed via wireless, electromagnetic, and Bluetooth capabilities.
For online payments, you can complete the checkout process as usual, then choose the digital wallet option as a payment method, and select the payment option inside the wallet you wish to proceed with.
The main technologies most digital wallets use are:
QR Codes
You can use your smartphone camera to scan QR codes that provide you with the necessary information to complete a payment with your digital wallet.
Near Field Communication (NFC)
NFC enables smart devices to connect and transmit information to one another using electromagnetic signals when they are close to each other. This is one of the ways the digital wallet in your smartphone or smartwatch transmits the payment information to a card reader or payment terminal when you approach it.
Magnetic Secure Transmission (MST)
With magnetic secure transmission, mobile devices emit an encrypted signal that the point of sale can read. It works as the magnetic stripe on credit and debit cards.
Are Digital Wallets Safe?
Digital wallets are considered safer than using virtual or physical credit cards because you don't need to type your card number. Instead, the app creates a code with a random number, which will be used just once, to send the information to the card reader. If there is any data breach, you don't need to worry about your card number because it wasn't shared during the transaction.
Besides, you usually need to use security measures such as facial recognition or a PIN to access a digital wallet app to prevent other people from accessing your account. For example, in case your smartphone is stolen. A transaction can only be completed using your digital wallet if you authenticate it.
Digital Wallet Advantages and Disadvantages
Advantages
- Limits financial and personal information exposure
- No need to carry a physical wallet
- Simplifies the checkout process
- Withdraw cash without your card
- Keep track of every digital wallet transaction on your smartphone
- Unify all your payment information in a single app
- Contactless transactions
- Encrypted data
- Faster transactions
Disadvantages
- May not work if Wi-Fi or Bluetooth isn't available
- It isn't accepted everywhere
- Digital wallets are vulnerable to cyber attacks
Digital Wallet Examples
Wirex
Digital wallet - Wirex
Wirex is a crypto wallet that allows you to manage your cryptocurrency in a single app. It includes a reward program that offers cryptoback on all purchases made with your Wirex card. You can use your account to buy and exchange cryptocurrency as well, such as Bitcoin and Ether.
Key features:
- Free account
- Manage cryptocurrency
- Cryptoback program
- Buy digital assets
- Free ATM withdrawals
- Support top stablecoins
Google Wallet
Digital wallet - Google Wallet
Google Wallet stores not only your credit and debit cards, but also your tickets, loyalty cards, digital car keys, proof of vaccination, and identification documents. You can add your favorite payment methods and tap to pay anywhere Google Pay is accepted. It also enables you to add your MetroCard and travel tickets, and shows notifications such as the departure time or flight gate.
Key features:
- Google pay
- Store travel tickets
- Keep track of departure information
- Add loyalty and gift cards
- Tickets for events
- Digital ID
Apple Wallet
Digital wallet - Apple Wallet
The Apple Wallet app already comes installed when you purchase the latest iPhone models. It stores credit and debit cards, an eligible driver’s license or state ID, transit cards, event tickets, keys, and more — all in one place. It also works with Apple Watch, so you can choose to pay using your Apple Wallet on your smartphone or watch. It's also possible to use it to send cash with a text or a tap.
Key features:
- Add credit and debit cards
- Check balances
- Transfer cash
- Apple card
- Identity cards
- Boarding passes
- Tickets
- Keys
