How to Use a Digital Wallet

A man uses an iPhone 7 smartphone to demonstrate the mobile payment service Apple Pay at a cafe in Moscow, Russia, on Oct. 3, 2016. (Maxim Zmeyev/Reuters)

That wallet in your pocket or handbag is probably stuffed with credit cards, store discount cards, insurance cards, etc. Every transaction you can think of likely can be made using your wallet’s contents. Keeping it safe is the priority.

A digital wallet also holds everything you need to make a transaction. The difference between a digital wallet and a physical wallet is convenience and security. You can’t pickpocket a digital wallet. And it keeps up with today’s high-tech commerce. But what exactly is a digital wallet, and how does it work?

How a Digital Wallet Works

A digital wallet, also known as an e-wallet, acts as a payment tool. It refers to software, electronic device, or online service that makes electronic transactions. Usually, in the form of an app, it virtually stores credit cards and debit cards. But it goes beyond just payment.

You also can store your retail loyalty cards, coupons, e-vouchers, plane tickets, etc. Gift cards too can be kept in a digital wallet. These are all accessed through a smartphone.

Your financial information isn’t stored in the smartphone or app. Instead, it’s securely stored virtually in a central location with a unique virtual number. The digital wallet links the vendor you’re purchasing from to your financial institution or credit card company.

Paying With a Digital Wallet

A digital wallet can be used to shop in brick-and-mortar stores. Just look for the contactless symbol. The symbol is a circle with a hand swiping a card. Then just swipe the digital wallet, using your smartphone, over the symbol.

Using a digital wallet is convenient when shopping online. There is usually a digital wallet option at checkout. You'll be able to use the digital wallet instead of inputting your financial information.

A digital wallet can be used for food delivery services, ride sharing, or restaurants.

If you have your debit card in a digital wallet, you can withdraw cash or deposit in an ATM. Many of them display the contactless symbol.

Choosing a Digital Wallet

Sometimes the phone you choose dictates the digital wallet company used. For example, Apple Pay can only be used on iOS, and Google Pay can only be used on Android. Samsung Pay—you guessed it—can only be used on a Samsung phone.

But there are other companies like WeChat Pay, Amazon Pay, PayPal, etc.

There are three different types of digital wallets.

The first is a closed wallet. This is a wallet that can only be used to make transactions at a designated retailer. For example, Amazon Pay is a closed wallet.

Semi-closed wallets allow you to make transactions at specified merchants and locations. The merchants sign an agreement with the digital wallet company. An example is Paytm Wallet. This is especially popular in India.

Finally, an open wallet allows you to make a transaction in addition to withdrawals from banks and ATMs. It also will enable transfers. Apple Pay and Google Pay are examples of open digital wallets.

Digital Wallet Setup

It’s simple to set up a digital wallet, but you will need a smartphone, and most digital wallets use Android or iOS.

Do your research and choose a digital wallet company that meets your needs.

Once you’ve chosen, download the app. You’ll then need to load credit card and debit information. You can also load other cards. Each company’s app provides easy instructions.

Digital Wallet Security

Keep in mind that your financial information isn’t stored on your phone. It isn’t shown. No one can see your sensitive data if your phone is lost or stolen.

Using a digital wallet protects you from fraud. This is because your data are encrypted. When you make a purchase, the actual card number isn’t transmitted. Instead, a random payment code is used. This code is only used once. So, every time you make a purchase, the code changes.

Digital Wallet Benefits

Security is a major benefit. You’re not lugging around a bulky physical wallet that can be stolen or lost.

Digital wallets speed up the buying process. When you’re in a brick-and-mortar store, a quick swipe of your phone completes your buying process. Shopping online is also faster since you’re not typing in credit or debit card numbers. You’re also not giving your sensitive information to an online retailer.

No more stuffing coupons in your physical wallet; you merely swipe your phone and receive your discounts. You'll save money more conveniently.

Using a digital wallet for credit card purchases is the same as using a physical card. You still receive your rewards.

Financial transactions are recorded and available to you. You can track your spending.

Downside to Digital Wallet

A digital wallet is still not universal or compatible with all retailers. So, if you don’t know if a retailer accepts it, you still may need to carry a credit card.

Difficulty in budgeting is a possibility with a digital wallet. It’s just so easy to spend.

Smartphones use wireless networks. This poses a risk of interception. There is a possibility of hackers accessing the data whenever information travels via a wireless network.

You may have to download the app again if a phone is lost or broken. This would mean a loss of your financial records. You'd have to start over.

Digital Wallet a Convenient Way to Shop

Digital wallets can be safer than using a credit or debit card. This is because a stolen credit card can be immediately used by a thief. But a thief can’t use your sensitive information by stealing your phone.

Protect your information further by practicing good password hygiene. In other words, use strong passwords and don’t share them. And turn on two-factor authentication when it comes to your credit card and bank accounts.

Virtual transactions using digital wallets will help you keep up with today’s fast-paced commerce.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.