Digital Wallet Explained: All You Need to Know

In recent years, you may have noticed that there has been a shift from physical to digital wallets. But what exactly is a digital wallet? How do they work? And most importantly, do you need one?  

A digital wallet is a way to store your payment information, such as your credit and debit card, in a secure digital format. You can then use your digital wallet to make purchases online, in-app, and in person. Additionally, you can use it for sending or receiving money as well. They are also used for managing your digital currency, such as Bitcoin, Ethereum, or Litecoin.  

There are many benefits to using a digital wallet. For one, it’s more secure than carrying around physical cards. If your phone is lost or stolen, you can cancel your cards immediately and prevent any unauthorized charges. In addition, you can use a digital wallet to store loyalty cards and coupons. There are many different types, but they all work in essentially the same way.

What Exactly Is a Digital Wallet?

A digital wallet is an electronic device that stores your financial information and allows you to make electronic payments. You can use a digital wallet to store your credit card, debit card, and bank account information in one place.   

When you make a purchase, you can simply enter your digital wallet information instead of reaching for your physical one. Many people find them more convenient than traditional wallets because they can be used anywhere that accepts electronic payments.  

Digital wallets are becoming increasingly popular as more people shop online and use mobile devices to make payments.  

They are also typically free to set up and use. Some may charge a small fee for certain transactions, but this is usually much lower than traditional banking fees. It is also important to mention that they are safe and secure to use. Wallets are encrypted so that only you have access to your funds and most of them offer two-factor authentication for added security.

How Do Digital Wallets Work?

Now that we explained what it is, let’s take a look at how to use a digital wallet.  

Depending on the phone you have, you can install either Apple digital wallet or Google digital wallet, and after signing up you should be able to access the My digital wallet page. Here you can provide any additional information about yourself as well as connect your actual cards. This will allow you to make payments using your mobile device.  

Some digital wallets also allow consumers to make in-store payments by using their mobile devices. To do this, the customer would need to open the digital wallet app and then scan a QR code or NFC tag on the terminal.  

These wallets are also known as e-wallets, virtual wallets, or in some cases digital crypto wallets if you use them for crypto.  

Different Types of Digital Wallets

There are three types of digital wallets:   

• Closed. These are produced by companies, and can only be used to transfer funds between the user and wallet-issuer such as Amazon Pay.  
• Semi-closed. They are for users making transactions at a given list of merchants.  
• Open. They are issued by banks or their partners and can be used for any kind of transaction, including ATM withdrawals.  

Different digital wallets store different types of information. Some may just store a few credit or debit card numbers, while others may also store loyalty card information, gift card balances, and even bitcoins.   

Pros and Cons of Digital Wallets

As we already mentioned, digital wallets are becoming increasingly popular. This is no surprise as people always look for ways to simplify their lives and reduce their dependence on physical cash and credit cards.  

However, this doesn’t mean that they don’t have their drawbacks. Here, we will take a look at both pros and cons of using a digital wallet that you should be aware of before making the switch. Be sure to weigh them out carefully to figure out if a digital wallet is the best option for you.  

Pros  

• Increased security. With a digital wallet, your payment information is stored securely on your device rather than in your physical wallet where it could be lost or stolen.  

• More convenience. They can make paying for things quicker and more convenient as all you need to do is tap your phone or device to pay.  

• Rewarding loyalty. Some wallets offer rewards or loyalty points when you use them to make purchases at certain stores or businesses.   

• Flexibility. With them, you can usually choose how you want to pay for something. For example, some digital wallets allow you to link your bank account, credit card, and debit card so you can choose which one to use at checkout.  

Cons  

• Limited acceptance. While many businesses are beginning to accept digital payments, there are still some that do not yet have the technology in place to do so.   

• Requires battery power. Digital wallets rely on your phone or other devices to function, if your battery dies then you will not be able to use it to make payments.  

• In case you forget your PIN or password, you may not be able to access your digital wallet.   

• There have been some concerns about the security of these wallets, as they can be hacked just like any other online account.  

How to Get a Digital Wallet

Getting a digital wallet is fairly simple. All you need to do is go to the app store on your phone, or another device you wish to use for paying and install the digital wallet app. The next step is signing up, where you will need to provide various information about yourself. The last step is to link a card or cards you wish to use for your purchases in the future.  

The important thing to mention here is that you can use this wallet for a variety of other purposes as well. If you were wondering, can you or how to use a digital wallet at an ATM, all you need to do is access your app, and when you are at the ATM select the amount of money you want to withdraw.  

Are Digital Wallets Safe?

There are a few different types of digital wallets, each with its own set of security features. The most common type of digital wallet is the web-based wallet, which is accessed through a website or app. Web-based wallets are usually the most secure, as they allow you to set up two-factor authentication and have a variety of security measures in place to protect your account.  

Another type of digital wallet is the hardware wallet, which stores your information on a physical device like a USB drive or an external hard drive. Hardware wallets are considered to be very secure, as they’re not connected to the internet and can’t be hacked.  

So, they are generally safe, as long as you take precautions to protect your account. Choose the one that offers two-factor authentication and strong security measures.  

Bottom Line

A digital wallet is a payment method that allows you to store, send, and receive digital currency. You can use it to make purchases online, in-store, or anywhere that accepts digital payments.   

Some digital wallets also allow you to hold multiple currencies, so you can use them for both domestic and international transactions. While they are generally safe in case you are still afraid of someone stealing your credit card and later on using it without your knowledge, we suggest you start with a prepaid digital wallet.