5 Min Read | Published: April 16, 2024
What Is a Digital Wallet?
Digital wallets offer convenience, allowing you to make purchases using your phone. This article explores the benefits of digital wallets and how they work.
At-A-Glance
Digital wallets are tremendously popular today and offer a great deal of convenience.
Digital wallets allow you to make payments or transfer funds electronically, using your phone or another mobile device.
By using a digital wallet, you can enjoy security, convenience, and efficiency when you need to purchase something or pay someone.
Digital wallets have surged in popularity in recent years, and for good reason.1 Advancements in technology, combined with the fact that digital wallets offer a tremendous amount of convenience, means that many people today are using them. Digital wallets allow you to make purchases using your phone or another smart device, quickly and easily.
In this article, we’ll look at some of the benefits of using digital wallets, how they work, and if they’re a safe method for making payments.
How Do Digital Wallets Work?
Digital wallets store payment methods, like credit cards and debit cards, allowing you to make purchases or send money straight from your phone.
With digital wallets, you don’t have to carry around a physical wallet or dig for your card every time you need to make a purchase. Instead, you can just use your phone (or another smart device), tapping it to the card reader at the checkout. You can also use a digital wallet to send money online.
While every digital wallet is different, most of them rely on technologies like near-field communication (NFC) and magnetic secure transmission (MST). These technologies can transmit payment information from your phone to another device.
To get started, you can download a digital wallet app on your phone or another mobile device. Once you provide your personal information and add your payment methods, such as your credit card or bank account details, you’ll be able to use the digital wallet.
Keep in mind that some digital wallets are specifically designed to make purchases while others are better for sending money. Also, some digital wallets may only be available on certain devices. Compared to other payment methods, like cash and even cards, digital wallets are very convenient.
In addition to convenience, many digital wallets also track your expenses for you, so you can see instantly where your money is going.2
Here’s an overview of some noteworthy benefits of digital wallets:
Convenience: With a digital wallet, you can access your funds easily, as long as you have a smartphone or mobile device. You’ll be able to make purchases or send funds at the tap of a button.
Security: A digital wallet can be ideal if you’re looking for a safe way to store your confidential payment information. Some digital wallets use encryption, two-factor authentication, and other safety measures for your peace of mind.
Expenses Tracking: If you’d like greater control of your money, you’ll appreciate the fact that a digital wallet can help you keep tabs on your expenses. You can check it any time to see which merchants and individuals you’ve paid and when.
Rewards: Depending on the digital wallet you choose, you may be eligible for rewards. These might include cash-back, gift cards, loyalty points, or special discounts that can save you money in the future.
Environmentally Friendly: Digital wallets are also environmentally friendly, reducing the need for physical receipts and bills.
Globally Accessible: If you travel abroad frequently for business or pleasure, you can find a digital wallet that’s accepted in other countries. It’s a universal solution that may simplify your travels.
Are Digital Wallets Safe?
If you’re considering a digital wallet or already use one, you may be wondering how safe it is. Fortunately, many digital wallets today are equipped with modern safety features that can help reduce the risk of theft and fraudulent charges. These safety features may include encryption or tokens that are used to process payments while keeping your payment information confidential. Some digital wallets also include two-factor authentication and personal identification number (PIN) codes. Of course, to help ensure optimal safety while using them, it’s up to you to set strong passwords and use secure networks.3
Frequently Asked Questions
These days, more businesses accept payments from digital wallets. However, they’re still not as widely accepted as traditional payment methods, like cash, debit cards, and credit cards.4
Digital wallets can store your payment information, which may come from credit cards, debit cards, or your bank account. They can also hold identification cards, gift cards, loyalty cards, boarding passes, concert tickets, and more.
Similar to credit cards, some digital wallets come with transaction limits. Before you use a digital wallet, it’s important to know whether it has a transaction limit.
The Takeaway
Also known as electronic wallets or e-wallets, digital wallets are payment applications that allow you to make purchases or send money from your phone. They’re a convenient solution and becoming more prevalent each year.
1 “53% Of Americans Use Digital Wallets More Than Traditional Payment Methods: Poll,” Forbes
2 “Digital Wallet,” Corporate Finance Institute
3 “Digital Initiatives,” Bureau of the Fiscal Service
Anna Baluch is a personal finance writer from Cleveland, OH. She enjoys helping people from all walks of life make smart financial decisions. Her work can be seen on Credit Karma, Forbes, LendingTree, Insurify, and many other publications. Connect with Anna on LinkedIn.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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