What Exactly is a Digital Wallet?

Summary: Ever wondered what a digital wallet is or how it works? Or if it’s secure? We’ve got the answers on what they are, how to choose the one that’s right for you, how a digital wallet differs from a mobile wallet, and more. Read on and leave your money clip at home.

The last few years have seen a shift to contactless payments, tickets, and more. Many merchants are accepting them as a form of payment and more consumers than ever are using them. In fact, according to Square, 80% of people in the 35- to 50-year-old range used mobile wallets in 2020 compared to 39% in 2019.

But what is a digital wallet? And is it actually safe to use, or should you stick to the physical card? Let’s find out.

What is a Digital Wallet?

A digital wallet is a software that stores your payment information, letting you use your phone or smartwatch to make a purchase. But you can keep more than your credit or debit card in a digital wallet. Think things like gift cards, membership or loyalty cards, coupons, event tickets, plane tickets, and more. Plus, you can even use them to transfer money to other people or split a bill.

Digital wallets are virtually instant and you’ll probably always have it on you. A digital wallet is an umbrella term — you can have it on your desktop or laptop, a mobile device, or wearable tech. Within the umbrella of digital wallets falls mobile wallets, which are only on a mobile device. You can use a mobile wallet to make contactless, in-store payments.

In other words, a mobile wallet is a type of digital wallet, but not all digital wallets are mobile wallets. It all depends on what device you’re on.

What are the Types of Digital Wallets?

There are five different types of digital wallets to know about.

• Closed Wallet: delivered by a company for a consumer to use exclusively at that company. For example, paying for your drink through a card you have loaded on your Starbucks app is a closed wallet. That form of payment only works at that company.
• Semi-Closed Wallet: used to store, send, and receive digital payments. All the information is kept in one place but a key or password may be shared with another person before making a transaction. For example, the Pay TM app doesn’t allow you to withdraw cash, but you can use the money in it to shop online or pay bills.
• Open Wallet: a digital wallet that allows you to manage and track your payments online. They can be downloaded to any browser or device and are compatible across platforms. This includes things like bank wallets and PayPal.
• Crypto Wallet: a digital wallet made specifically for cryptocurrencies. This is one of the most common ways to use cryptocurrencies for transactions.
• IoT Wallet: contains information about your identity and is used to store, send, and receive transactions by using blockchain technology on Internet of Things (IoT) devices. You can access an IoT wallet on a smartwatch, phone, laptop, and more.

What are the Types of Mobile Wallets?

Technically, you could also call a mobile wallet an IoT wallet, as there is some overlap there. But the types of mobile wallets are generally more straightforward because the type you have is tied to your phone brand. You can’t use Samsung Pay on an iPhone, for instance. The major apps are: Apple Pay, Google Pay, and Samsung Pay.

There are also options like Cash App and Venmo, which work on any phone, but can’t store information that is not payment-related. You can have multiple digital wallets on your mobile device, and many people have several options on their phone (think the built-in wallet function plus Venmo).

Which Digital Wallet Should You Pick?

Because the major wallets are dependent on your phone, choosing your phone is like choosing your wallet. But, if you’ve chosen a Google phone, you probably prefer Google’s products over Samsung or Apple, so this shouldn’t be a problem.

When it comes to PayPal, Venmo, Cash App, Zelle, and other similar apps, those are available in multiple app stores, so it won’t matter what phone model you have. Always make sure that you’re downloading a legitimate app and never set up your payment information on an unsecured WiFi network. An unsecured network is easier for hackers to access your personal information, particularly when that’s the app you’re working in.

Whatever you opt for, you’ll probably want to carry at least one physical card with you as a backup option in case a merchant doesn’t accept digital payments or your phone dies.

Are Digital Wallets Safe?

When technology is tied to sensitive information (such as your bank accounts), it’s good to be wary. So how does a digital wallet work to keep your information secure?

Digital and mobile wallets use a process called tokenization. Instead of giving your actual debit or credit card number to the merchant, it picks random numbers and creates a one-time-use token to process the payment. That keeps your information more secure.

Still, we always recommend taking precautions like: creating strong passwords, having a passcode requirement on your devices, and shielding your screen when entering a password in public places. And those tips don’t just apply to digital wallet safety! We’re advocates for cyber security in every part of your life.

Did you know? Digital wallets can hold more than payment information: you can store things like plane tickets, concert tickets, vaccine records, and even your driver’s license! All the more reason to take security seriously and invest in a cyber safety solution that offers dark web monitoring, identity theft protection, and more.

Now that you know about digital wallets, you can make the decision that’s right for you. And whether you continue to carry physical cards or fully embrace technology, you deserve the high-speed internet and mobile phone plans that are right for you.