How does a digital wallet work?

A digital wallet is a software application that allows you to store most of the things you would keep in a physical wallet, including payment information such as debit or credit cards, cash, coupons, plane tickets, bus passes, etc.

With the growing popularity of digital wallets around the world, it's important to take a closer look at what these apps have to offer.

What is a digital wallet?

Un digital wallet, sometimes called an e-wallet, is a service that lets you pay for things, usually through a mobile app. It also stores a number of other items that a traditional wallet would hold. These include items such as driver's license, gift cards, tickets to entertainment events, etc.

Digital wallets are not only easier to use in some cases, but are also generally considered more secure than a traditional wallet.

How do digital wallets work?

Digital wallet software is traditionally hosted through a mobile app on a smartphone. It can also be used in a variety of other formats such as a physical device or on your personal computer. The smartphone version of the digital wallet is by far the most popular today due to its flexibility and mobility.

These digital wallets usually require you to download a digital wallet app to your smartphone. These can be created by the bank of your choice or by a trusted third party. Be sure to do your research and confirm the reliability of the company before providing your financial information to an application.

Typically, you need to find a system terminal of point of sale (POS) compatible with your digital wallet so you can use it. Usually, you will be able to identify it by the contactless symbol displayed at checkout.

Some point-of-sale systems also allow you to pay using the technology of secure magnetic transmission. Although contactless payments may be more difficult to find, many modern point-of-sale systems can support payments via magnetic secure transmission. E-wallets are based on artificial intelligence.

Once you've found a POS system that's compatible with your digital wallet app, you can simply hold your smartphone up to the point of sale to pay. Sometimes you can even pay directly through your app.

Use a digital wallet

Each digital wallet comes with its own set of unique features. However, many wallets will allow you to combine the following:

• Store credit and debit card information to make payments.
• Make transactions online or in person with a single click.
• Send and receive money with friends, family or employers.
• Store money and earn sometimes interest on deposits.
• Link a financial account to send and receive money.
• Save non-payment information such as concert tickets, passes, coupons, reward points, etc.
• Send, receive and store cryptocurrencies, such as Bitcoin.

Benefits of a digital wallet

There are many advantages to using a digital wallet, including easy access, convenience, and security when transacting.

Easy access

Accessibility is one of the main benefits of using a digital wallet. There are people around the world who do not have access to the traditional financial system in the form of credit and the ability to send or to recieve money.

Digital wallets bridge this gap and can provide people with easy access to send and receive money without having to open a financial account. This opens the doors of the financial system to many people who would not have had access to it before.

Practical

Digital wallets can also be simple to use. Most have mobile apps that allow you to transact online or in person in seconds. Many merchants allow individuals to pay with a tap on their phone, especially when using digital wallets like Apple or Google Pay.

They also have the added benefit of keeping your cards organized in one place and not having to remember to bring your wallet when you're on the go, which is especially beneficial for those of us who tend to forgetting our wallets when leaving the house.

Protects information

Digital wallets are generally considered a more secure way to store payment information than a physical wallet. With a physical wallet, if you lose it, it's gone.

If there was money in the wallet, you can usually assume you won't get it back, and you'll probably have to cancel any credit cards you had there as well.

On the other hand, a digital wallet is usually protected using a one-time passcode or biometric authentication on your mobile device. So even if you lose your phone containing your digital wallet, someone will need to be able to open your phone and your digital wallet app, both of which may be protected, to gain access to your information.

Additionally, most digital wallet providers encrypt or tokenize your financial information when you make a transaction. Which means it would be impossible or difficult for hackers to steal your credit or debit card information.

Potential Disadvantages of a Digital Wallet

Despite the many potential benefits of using a digital wallet, it is not without its drawbacks.

Track your expenses

One of the biggest downsides is the ability for digital wallet providers to track your purchase information. Companies are incentivized to collect data about your spending history, purchases, likes and dislikes.

Each provider will have different rules regarding the type of information they can collect. It can therefore be useful to read the fine print when setting up a digital wallet.

Not accepted by all companies

Another potential downside of using a digital wallet is that not all merchants can accept payments from a digital wallet. Some businesses choose to only accept cash or the checks, and others who accept cards may not accept Payments from a digital wallet.

However, over time this may become less of an issue as digital wallets become more widely used and accepted.

Popular digital wallets around the world

The competition between digital wallets is fierce. Consumers now have many options available to them. Often people choose a digital wallet that matches the type of mobile device they use.

For example, someone with an iPhone can quickly set up Apple Pay on their device and start adding their payment information. Alternatively, Android users will generally use Google Pay as it is compatible with Android devices. Consumers will also have different options to choose from depending on where they live.

For example, Alipay is one of the most popular digital wallets in China. M-Pesa is more popular in Africa.

Some other well-known digital wallets include:

• Venmo
• Pay Walmart
• PayPal
• Alipay
• Vodafone M-Pesa
• Cash app
• Apple Pay
• Google Pay
• Samsung Pay

Are digital wallets safe?

Although you still need to worry about your personal information, the leading digital wallet apps are widely considered safe. In fact, they're probably safer than carrying your financial information and other sensitive documents in a physical wallet.

Additionally, all reliable digital wallet apps strongly encrypt their users' payment information. This makes it difficult to compromise when information is transferred from the application to the payment system.

This can actually help protect your information if a retailer or company you buy from has an information leak or hack.

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