What is a Digital Wallet? Understanding Its Benefits and Features

What is a Digital Wallet?

Digital wallets are one of the fastest-growing payment methods, projected to spread to 60% of the world’s population by 2026. 

But what exactly is a digital wallet? This online payment tool is a financial application that serves as a digital version of a physical wallet. It enables users to securely store digital versions of payment methods, such as credit and debit cards, gift cards, and cryptocurrency. Users can then seamlessly make purchases with their wallets. 

Digital wallets are sometimes called e-wallets or mobile wallets. However, keep in mind that while these terms may be used interchangeably, they are technically different. A mobile wallet is a type of digital wallet that you can use on your smartphone, smartwatch or tablet, making it convenient to pay in-store using a digital payment method. These contactless payment methods have become increasingly popular in recent years.

Types of Digital Wallets

There are three common types of digital wallets: closed, semi-closed and open. 

• Closed wallets are developed by companies and can only be used to transfer funds between the user and wallet issuer. Examples include Amazon Pay and other store-specific payment apps.

• Semi-closed wallets can be used to make transactions at a restricted list of merchants. Paytm is an example of a semi-closed digital wallet.  

• Open wallets are issued by banks or their partners and can be used for any kind of transaction. Examples include Apple Pay, Google Pay and Samsung Pay.

How Digital Wallets Work

Digital wallets employ technologies such as software applications, mobile hardware devices, near-field communication (NFC), magnetic secure transmission (MST), and security methods like tokenization. Here’s how it works: 

• Users enter their debit or credit card details into the digital wallet app or site. That information is then encrypted and available for use during transactions. 

• Digital wallets can be used to make payments online.  

• To use a mobile wallet for an in-store purchase, the user must hold their smart device close to the contactless terminal, which uses NFC to read the payment information. QR codes can also be used for mobile payments. In this case, the user scans the QR code with their smart device’s camera or digital wallet's scanning system to make a payment.  

Benefits of Digital Wallets

Over half of Americans use digital wallets, and the value of transactions made with wallets is expected to double by 2027. Learn why this payment tool is popular among consumers and businesses, alike: 

• Security: Digital wallets use encryption to protect digital payment information, like credit or debit card details.

• Convenience: Users can store and manage their payment information in one place, making transactions more convenient—no more having to type in a credit card number when making a purchase. 

• Increased Revenue: Wallets reduce friction during the checkout experience, leading to higher conversion rates and revenue. 

Are Digital Wallets Safe?

Yes, digital wallets are a safe way to pay. While no payment method is risk-free, digital wallets offer multiple layers of security to protect consumers’ payment information. Some measures to keep digital wallets safe include: 

• Tokenization: This security feature involves generating a unique code for each transaction instead of using the consumer’s card number—helping to keep sensitive payment data safe. 

• Encryption: Sensitive information is encrypted to protect it from theft during a data breach. 

• Biometric data: Biometric authentication such as a fingerprint scan or facial recognition can be used to confirm the consumer’s identity.  

Consumers can further reduce risk by using a strong password to secure their accounts, avoiding unsecured public Wi-Fi networks, and taking advantage of their device’s security features.  

Choosing a Digital Wallet Provider

The advantages of accepting digital wallet payments from popular providers may include increased customer satisfaction and reduced cart abandonment. But with various digital wallet providers on the market, how do businesses determine which wallets to accept? 

Start by knowing your customer. For instance, while Apple Pay is a popular mobile wallet accepted by the majority of merchants, it is available only to iPhone users and tends to appeal to young, urban, high-earning demographics. Google Pay has fewer users but is growing rapidly, serves Android phone users, and offers popular options like the ability to add loyalty cards and earn rewards. Many credit card processors allow merchants to accept several popular digital wallets, making it simple to appeal to every user. 

Digital Wallets for Businesses

Digital wallets are a growing trend—one that impacts both payment acceptance and disbursements. For merchants, accepting digital wallets may help reduce friction during checkout, leading to higher conversion rates and revenue. For businesses that routinely make payments to workers or consumers, offering a payment method that is compatible with popular digital wallets can make it easier for consumers to spend their funds—helping to reduce unused funds while improving the recipient experience. Learn how Onbe’s popular payment choices and Send to WalletSM option could help revolutionize your disbursement program. 

Popular Digital Wallet Apps

There’s a digital wallet app for everyone! Apple Pay is currently the most widely used digital wallet app, but other popular options include:  

• Google Pay: This digital wallet app can be used to make online payments or contactless payments in-store. Google Pay is fast-growing and widely accepted.

• Cash App Pay: Cash App was originally designed for peer-to-peer payments but now offers various financial services, including a digital wallet that can be used for online or in-store purchases. 

• PayPal: The PayPal wallet is a popular pick for making international purchases online, since it is widely accepted around the world. 

• Samsung Pay: This secure digital wallet app allows consumers with Galaxy devices to make secure digital payments online or in person. 

These digital wallet examples are the most commonly used, but there are dozens of others on the market.

Conclusion

Digital wallets are a convenient and secure way to make online transactions—or in-store transactions if the wallet can be used with a mobile device. Wallets offer security, accessibility and convenience, leading to their increased popularity among businesses and consumers.  

Onbe’s virtual card payment option is compatible with the most popular digital wallets, enabling businesses to offer a modern, convenient experience for their recipients. Contact us to learn more about our disbursement solutions.  

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