A digital wallet is a cloud-based software that allows you to store things like credit card numbers, debit card numbers, loyalty cards, insurance cards and more so that you can access them from your digital devices (laptop, tablet, computer). You might think of Apple Pay, PayPal and Venmo as examples of digital wallets.
How do digital wallets work with payments?
Digital wallets are mobile apps that work like an updated version of a traditional payment card. Instead of swiping or dipping their cards into a terminal, mobile wallets use near-field communication (NFC) chips to allow consumers pay by simply tapping their mobile phone or smartwatch at a properly equipped contactless point of sale terminal.
While additional security is built into the app, digital wallets or mobile wallets also integrate a traditional PIN, fingerprint or facial recognition security layers. Then the transaction is designed to proceed as if a traditional payment card was used. Mobile wallet smartphone apps are backed by traditional credit and debit cards as well as bank accounts. Beyond the differences in how a consumer’s payment information is captured at the point of sale, credit card and debit card transactions are processed as if a traditional, physical payment card was used.
Worldpay from FIS 2021 Global Payments Report reported that mobile wallet share at the point of sale jumped 21% in 2021. Digital wallets comprised 48.6% of e-commerce transactions in 2021 and is projected to rise over 52.5% by 2025.
Advantages of using a digital wallet
A seamless purchase experience
Having a digital wallet (or e-wallet), lets you limit the number of cards you carry when you travel. All you need to do is pay via the e-wallet app on your smartphone or scan your smartphone device to a compatible NFC PoS system to make a successful payment. This lets you have a seamless and cash free buying experience that only takes a few seconds to complete.
Use a card of your choice
Sometimes, it might be more favorable to use a specific card to make a specific purchase. For example, using a debit card to buy groceries to redeem attractive cashback offers, or a credit card to earn some points.
With e-wallets, you use the card you prefer, on the fly. Some also let you add a variety of other types of cards. This means you can use your reward cards, gifts cards, loyalty cards and coupons if you so desire.
Enhanced Security
An e-wallet mitigates problems like lost or stolen wallets entirely. Phones get stolen or lost too, but unlike physical wallets, phones can be protected by passwords and biometrics. These features, if activated, let you restrict access allowing only you to access your phone. Many e-wallet apps are often created in the cloud. So your card data is securely accessible even when using a new phone. E-wallets also enforce secure transactions by using randomly generated payment codes and real time OTPs for payments made in-store or online.
Costs
E-wallets typically charge a flat fee for some transactions or functions. For example, reloading a prepaid card from different sources like a credit card may incur a small charge. However, the ease of use, security combined with the time saved and a cashless experience often outweigh these flat fees.
A Digital Wallet is built for Multi-purpose services
With an e-wallet it is possible to book a flight, get movie tickets, pay your electricity bills, loans, and even pay for groceries using a unified payment service. Most retailers and grocery stores have introduced centralized payment services allowing customers to transact through different types of cards.
Compared to the traditional payment systems, e-wallets stand tall when it comes to saving time and availing accessible discounts on purchases and payments.
Disadvantages of using a digital wallet
Dependency on the internet
Because every digital payment gateway relies on the internet to verify a transaction, not having access to a stable internet connection can make it difficult or even impossible to complete the process.
Dependency on devices
With the digital wallet being only available and accessible on your devices, you run the risk of having no access to the wallet if your battery dies or if you misplace your device.
Limited merchants
Not all merchants have adopted digital wallets or payments, you will likely still need to carry around some cash or cards in order to make some transactions.
Conclusions
Digital wallets doubtlessly make transactions easier, faster, and safer. As the world progresses towards technological transformation, we are more likely to witness more advancements in the existing payment systems.
A Digital wallet is something everyone is going to get familiar with in the near future and as of now, keeping some cash for a backup seems like an amicable move.
So, it is fair to say that with the exception of some minor accessibility issues, for the most part, the use of a digital wallet is a convenient option for most people.
