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How Does A Digital Wallet Work?

Your wallet holds any number of items you need to get through your day – driver’s license, pictures of your family, and different payment options. With the increased use of credit cards, we are carrying more cards in our wallets than ever. We have different cards to use at certain stores, cards that give us rewards on certain items, store rewards cards, and maybe even a business credit card for work. 

Keeping track of all these cards can be stressful, and there’s nothing more anxiety-inducing than digging through your wallet to make a purchase in a store while other customers are waiting for you.

But what if you didn’t have to carry a wallet? What if all of this information could be stored safely on your phone, which you take with you anyway?

The digital wallet does precisely this.

What is a digital wallet?

A digital wallet, sometimes called an e-wallet, is a service that allows you to pay for things through an app. The app will let you select which payment method you use, and it can even store your driver’s license, library cards, and store rewards cards.

You can even use one on a tablet or desktop computer, so it can also make shopping online more efficient. 

How do you get a digital wallet?

There are several apps you can use. Some of the most well-known companies that offer digital wallet apps include PayPal, Google Pay, and Apple Pay. Other companies offer them as well. As with anything, it’s important to do your research before handing over your financial information to any app. Many apps will allow you to securely enter your information and organize your wallet in a way that is most convenient for you, making it easy to use and find whatever it is you’re looking for.

How do you use a digital wallet?

To use your digital wallet at an in-person retailer, your phone must be equipped with an NFC (near field communication) chip. Over 80% of phones produced in 2019 worldwide contain this technology, so there’s a good chance your phone already has it. 

If the retailer has a point of service (POS) system that accepts NFC, you can pay by opening your app, selecting your card, and waving your phone over the POS system. You may have to use a PIN, your fingerprint, or another security measure as an additional precaution. 

What are the benefits of a digital wallet?

There are several benefits to using a digital wallet. The most obvious is that you won’t have to carry around a wallet packed with the myriad cards you use regularly.

In addition, when you pay using your digital wallet, the retailer never has access to your credit card numbers. Instead, all of your information is encrypted. This helps keep your information safe, even if the retailer’s system is hacked.

Some credit cards even offer rewards specifically for digital wallet purchases, adding even more incentive to swipe your phone instead of the physical card. 

Is it safe?

A digital wallet is very safe. In fact, it may even be safer than using your standard wallet. If you lose your physical wallet, whoever finds it immediately has access to all of your credit cards and any cash you may be carrying. 

However, if you lose your phone, whoever finds it won’t be able to access the information in your digital wallet unless they can unlock your phone and the wallet itself. Since most phones use fingerprints or facial recognition, the person who finds your phone will be out of luck. Of course, you might have to replace your phone, but all the information you have stored on it will most likely remain secure. 

How much does it cost to maintain?

Be wary of exchange fees that apply to certain digital wallets. Check with the wallet's support team to get a full disclosure of fees.

Most digital wallet apps are free to use, though some may charge for services such as reloading the cash in the wallet. Some may also charge a fee for certain transactions or for exchanging currencies. Carefully read the terms of service before making this type of purchase. Just like avoiding bank fees, knowing the cost of transactions keeps more of your hard-earned cash in your pocket.

More and more retailers are adding the capability to accept payments from digital wallets. Many digital wallets have the added convenience of allowing you to send money directly to friends and family. Using a digital wallet can help keep you organized, and your digital wallet provider may even reward you for using it.