In light of the pandemic, contactless payment options are becoming increasingly popular among customers and businesses. Using digital wallets is one such technique. They keep track of your payment methods, including credit and debit cards, so that you can make purchases with your smartphone or smartwatch.
A digital wallet, however, can store more than just credit and debit cards. You can also save coupons, event tickets, airline tickets, membership and loyalty cards, and other items. You can also send money to others using various digital wallets. Continue reading to learn more about its features and services.
What Is A Digital Wallet?
A digital wallet is a software, electronic gadget, or internet service that enables people or organizations to conduct transactions electronically. Along with other things like gift cards and driver’s licenses, it also maintains users’ payment information for various payment methods on different websites. E-wallets are another name for digital wallets.
It might seem apparent, but a digital wallet is just your traditional wallet on the computer. You would store your debit and credit cards on your phone rather than keeping them all with you most of the time in your wallet. You always had your cards on hand when you went to buy something.
Online payment methods called digital wallets are frequently presented as mobile applications. You may make purchases without entering your card information or carrying a physical card because the wallet securely holds digital versions of your debit and credit cards.
How Does A Digital Wallet Work?
Digital wallets work with the processing of payments. It employs the use of various technologies such as:
1. NFC (Near Field Communication)
This enables information sharing between two devices when positioned close. Apple Pay and Google Play use this technology. The retailer’s checkout area must have compatible card readers to utilize one of these digital wallets.
2. MST (Magnetic Secure Transmission)
These produce a magnetic signal similar to when a credit card’s magnetic stripe is scanned. The card reader at the payment terminal receives the signal. MST and NFC are both used by Samsung Pay.
3. QR codes
These are barcodes that can be scanned using the camera on your smartphone. For instance, using the PayPal app, you can create a QR code to use your account to buy something in a store.
There are “closed” digital wallets, like the Starbucks app, that are intended to be used only at a particular location, in contrast to the preceding examples of digital wallets, which can also be utilized at any merchant that accepts them.
Types of Digital Wallets
The following are the three types of digital wallets:
1. Closed Wallet
A trade that sells goods and services may create closed wallets for its clients. Users using closed wallets are only permitted to conduct transactions with the wallet’s issuer using the funds they have on hand. The wallets contain the money from cancellations, returns, or refunds. An illustration of a secure wallet is Amazon Pay.
2. Open Wallet
Open wallets are issued by financial institutions that work with banks. In addition to cashing out money through ATMs and banks, users of open wallets can utilize them for all other transactions permitted with a semi-closed wallet.
3. A Semi-Closed Wallet
Users of a semi-closed wallet can conduct transactions at the mentioned businesses and locations. The wallets can be used for both online and offline purchases, notwithstanding the limited coverage area of such wallets.
However, retailers must engage in agreements or contracts to accept payments using mobile wallets with the issuers.
Examples Of Digital Wallets
There are several examples of digital wallets being used around the world. Some examples are Qiwi Wallet, PaySpace, Tapwallet, and many more. The common examples are explained below:
1. PayPal One Touch
The PayPal One Touch app is an addition to the company’s standard offerings. Allowing users to skip the login screen and do away with the need to input passwords enables them to make payments or transfer funds more quickly. The mobile wallet app for PayPal can also be used on a tablet, laptop, or desktop.
2. Google Pay
Using credit or debit card information saved to the user’s Google Account, Google Play, Chrome, YouTube, Android phones, and watches, users may purchase any app or website using the Google Pay app.
The app also supports other electronic papers, like student IDs, cinema tickets, gift cards, store cards, and transportation tickets.
3. Apple Pay
Also, you can unlock phones and place them close to a suitable point-of-sale system for in-store transactions. The Apple Pay app makes it possible to make payments easily and securely.
How To Choose A Digital Wallet?
Your phone must be used for popular digital wallets like Apple Pay, Samsung Pay, and Google Pay. Apple Pay, for instance, is not compatible with Android phones. You’ve therefore chosen a prospective digital wallet by sticking with a particular phone brand. PayPal is an exception due to the app’s accessibility via Google Play and Apple App Store.
Sometimes, where you shop may also impact how you can utilize a digital wallet. You will still need to carry a credit or debit card as a backup payment option because not all retailers presently accept digital wallets.
How Can A Digital Wallet Be Put To Use?
Okay, you can now begin using it after setting up all of your cards. Keep in mind that you can only use your digital wallets in locations that support contactless payments. A typical credit card’s tap limit is CAD $250. You will also need to swipe or insert your card if your purchase exceeds that amount.
To make a payment, you’ll typically complete these steps:
Activate your payment app.
Hold your phone near the payment terminal and choose the card you want to use to make the purchase.
Wait for the transaction to complete.
Remember that most digital wallets will ask you to input your PIN or biometrics before making a transaction.
Significance Of Digital Wallets
Digital wallets are increasingly important in this time of high-profile security breaches and identity theft. A few of its significance include:
All of a user’s payment information is securely stored in a digital wallet in a small format. So there is almost no need to carry around physical wallets.
Digital wallets can be extremely advantageous for businesses that need to gather user data for marketing purposes. They learn about consumer buying patterns and improve the efficiency of their product’s marketing strategies. For customers, it results in a loss of privacy, though.
By utilizing digital wallets, many developing nations may be able to participate more actively in the global financial economy.
Digital wallets also do away with the necessity to open and maintain a bank account with physical banks and businesses. Consequently, they also link people and businesses in remote locations.
To conduct transactions and keep track of cryptocurrency balances, you need a digital wallet.
Are Digital Wallets Secure?
Are electronic wallets secure? One of the first inquiries individuals make when learning about what a digital wallet is this one. Although it’s unsettling to consider having all the most sensitive information on your phone, it’s one of the safest places to save your banking information.
Digital wallets do not keep your basic card information on file, unlike physical debit and credit cards. Your digital wallet cannot access the PIN code, expiration date, or credit card numbers. This is due to the fact that digital wallets use tokenization, which substitutes random integers for true information. In essence, all of your information is hidden by this tokenization.
Merchants never have access to your information is another tempting aspect of this. Any payments you make with your digital wallet would be 100 percent safe, even if your favorite store ever experiences a data breach. Your PIN or biometrics would be required if you ever lost your phone for thieves to be able to access your cards. Even then, they are only able to use them for minor amounts.
Since you are limiting your exposure, it is reasonable to conclude that using a digital wallet is safer than carrying a physical wallet. If you don’t have the information on you, thieves can’t steal it.
It’s also vital to know that using your digital wallet for payment does not affect the standard zero-liability guarantee offered by the companies that issue your credit cards.
Convenience is what matters. With digital wallets, you can keep as many credits, debits, and loyalty cards as you want. Since each of these cards is kept in its app, keeping track of everything you have available is simple. Digital wallets also offer the convenience of depositing and withdrawing funds quickly and easily.
Additionally, you may be shopping at a specific location. If you enter your passcode in public, keep an eye on your phone and cover the screen. Remember to use the security tools. Unlike traditional cards, never put your information at risk when using your digital wallet.
Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.