Feature
Digital wallets offer more security and convenience to consumers, with the flexibility to pay from mobile devices.
By
- Amanda Hetler,Senior Editor
Published: 13 Jul 2022
Consumers are ditching conventional physical wallets and turning to digital wallets for their security and convenience.
Smartphones, tablets, laptops and smartwatches are a part of everyday life in the digital world. People can use these devices for many everyday tasks, such as checking email, accessing bank accounts and making purchases -- with and without a physical credit card.
The digital wallet revolution is here, and more businesses are getting into the market. As the metaverse continues to evolve, digital payments are going beyond in-store and online contactless payments, as people can store payment information -- both cryptocurrency and digital currency -- directly in the platform for virtual metaverse stores. Recently, Meta announced it is expanding its digital wallet, Meta Pay, for the metaverse by eliminating the need to enter payment information multiple times and speeding up consumer spending. This digital wallet will also store virtual goods in the metaverse.
What is a digital wallet?
A digital wallet stores payment information on a mobile device -- including bank accounts, debit cards and credit cards. Contactless payment grew in popularity during the pandemic and helped increase the usage of digital wallets.
Digital wallets are more secure than conventional wallets because they use secure technology such as tokenization and encryption. Some digital wallets are also password protected or use facial recognition -- a form of biometric authentication -- for an extra layer of protection if someone's smartphone is stolen.
People can also store and organize other items in a digital wallet, including the following:
- membership cards
- plane tickets
- driver's license
- loyalty cards
- gift cards
- hotel reservations
- event tickets
- coupons
Digital wallets are also used to transfer money to other people. Moreover, people can review transaction history, store money and withdraw cash from a digital wallet at an ATM.
Digital wallets are different from cryptocurrency wallets, which store cryptocurrencies from platforms such as Bitcoin and Ethereum. There are companies, such as BitPay, that allow consumers to use cryptocurrency to pay for goods and services. Some digital wallets, such as Google Pay and Apple Pay, allow users to add a BitPay debit card to convert their cryptocurrency to current market value so that the person can pay with cryptocurrency.
Learn how to protect a bitcoin wallet.
How does a digital wallet work?
Digital wallets use the wireless capabilities of a mobile device, such as Wi-Fi, magnetic signals and Bluetooth, to transmit data. Technologies used by digital wallets and mobile devices include the following:
- Near-field communication (NFC). Enables two devices to connect to one another and transfer information through electromagnetic signals. The devices need to be within 3 to 4 inches of each other for NFC to connect.
- QR codes. These barcodes store information and use a smartphone's camera and scanning system. The QR code confirms payment is sent to the right person or business.
- Magnetic secure transmission. This is the same technology used by magnetic card readers when a credit card is swiped in the card machine's slot. The smartphone uses an encrypted field that the point-of-sale system reads.
When consumers hold their phone over the point-of-sale system, the digital wallet conducts the transaction.
Top 8 digital wallet companies
Digital wallets make it easier for consumers to make purchases. Users do not have to dig in their wallet for a card and can make purchases online quickly without having to fetch payment information. Digital wallets can also communicate with customers. For example, these wallets can let users know when a coupon will expire.
Some digital wallets are dependent on the type of smartphone a person has, but there are also universal choices for all types of devices.
1. Apple Pay
Apple Pay is similar to Google Pay, but is only available on iOS devices, including iPad, iPhone and Apple Watch. Users can keep money right in their Apple Pay account.
Apple Pay uses Device Primary Account Number (DPAN) technology to protect account information by changing account numbers and encrypting the data.
Money in Apple Pay accounts can be transferred to bank accounts. People can use Apple Pay anywhere that accepts contactless payments and on websites by selecting the Apple Pay option.
Learn more about Apple's Tap to Pay and Face ID update.
2. Cash App
Cash App stores payment information like other digital wallets, but this information is converted to tokens that can only be accessed with the user's fingerprint.
Users can store coupons, loyalty cards, membership cards, tickets and boarding passes in the wallet area, as well as have paychecks directly deposited into Cash App. Moreover, users can access and purchase investments and cryptocurrencies with Cash App.
Cash App is available for both Android and Apple devices.
3. Dwolla
Dwolla transfers money between bank accounts and credit unions, and businesses can also use it to pay employees. Dwolla offers other options with digital wallet functions for businesses, including recurring payments, and receiving payments for services or products.
Dwolla is more business-friendly because it can integrate with other business apps, such as QuickBooks, Slack and Plaid.
4. Google Pay
Google Pay also uses DPAN to securely protect financial information. It allows users to deposit funds in the digital wallet or add a credit card, debit card, bank account or PayPal account.
Google Pay can be used on both Apple and Android devices, and businesses can link up loyalty rewards with Google Pay to build relationships with customers. Users can also access Google Pay online from any device, including a computer, by using the account holder's email address.
5. PayPal
PayPal uses encryption and is one of the oldest digital wallets, where users can make payments online and transfer money. PayPal is available for both Android and Apple devices.
Customers can also use and link their PayPal account with other digital wallets, including Apple Pay.
For businesses, there are fees for PayPal transactions. For consumers, there is a fee for instant transfers instead of the typical one- to three-day free transfers. Businesses can also use PayPal to pay employees.
6. Samsung Wallet
Along with payment information, users can store gift cards, membership cards, rewards cards and vaccination records with Samsung Wallet.
Samsung Wallet is only for mobile purchases and is not set up for managing payments on websites, while other digital wallets like Venmo, Apple Pay and Google Pay let users pay online. Samsung Wallet only works with Samsung devices, so it is a bit more limited.
7. Venmo
Venmo is a subsidiary of PayPal and is one of the most popular digital wallets with 83 million users. Venmo lets users shop online and in person with participating retailers. People can also request and receive payments from other users. To find the right user, Venmo uses QR codes.
There is a 3% fee for using a credit card. In addition, people can also have paychecks directly deposited into their Venmo account. There is a 1.75% fee for instant transfers from Venmo wallet to bank account.
8. Zelle
Zelle sends payments quickly so that recipients do not have to wait or pay an additional fee to get the money sooner. It uses bank account information for transfers. Most Zelle payments are set up directly on a bank account's site.
Both the sender and receiver need a Zelle account, but they do not have to have bank accounts with the same institution. People cannot get money back from Zelle after sending, so they should only use Zelle with trusted parties.
There can be either daily or monthly transfer limits, depending on the bank.
Next Steps
Crypto winter explained: Everything you need to know
Palm scanning tech explained: Everything you need to know
Related Resources
- Tips on Managing the Deluge of Information Security Threat Reports–TechTarget Security
- Cloud Endpoint Security: Considerations for Cloud Security Services–TechTarget Security
- Information Security Magazine - May 2012–TechTarget Security
- E-Guide: Prioritizing Application Security Concerns–TechTarget Security
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By: BryanBetts
As an expert in the field of digital wallets and financial technology, my comprehensive knowledge extends across the various aspects of this rapidly evolving landscape. With a depth of understanding demonstrated through hands-on experience and a commitment to staying abreast of the latest developments, I am well-positioned to shed light on the concepts explored in the provided article.
The article delves into the growing trend of consumers transitioning from traditional physical wallets to digital wallets for enhanced security and convenience. Digital wallets, stored on mobile devices, facilitate a wide range of transactions beyond conventional in-store and online payments, particularly in the emerging realm of the metaverse.
Digital Wallet Definition: A digital wallet is a mobile-based repository that securely stores payment information, including bank accounts, credit cards, and debit cards. In addition to conventional financial items, digital wallets can organize and store various non-financial items such as membership cards, plane tickets, driver's licenses, loyalty cards, gift cards, hotel reservations, event tickets, and coupons.
Security Features: Digital wallets leverage advanced security technologies such as tokenization and encryption to ensure the safety of stored information. Some wallets incorporate additional layers of protection, including password authentication and facial recognition (biometric authentication), enhancing security in case of device theft.
Functionality Beyond Payments: Digital wallets serve as multifunctional tools, allowing users to transfer money, review transaction history, store funds, and even withdraw cash from ATMs. They differ from cryptocurrency wallets, which specifically store cryptocurrencies like Bitcoin and Ethereum.
Wireless Technologies: The functionality of digital wallets relies on wireless technologies, including Near-field Communication (NFC), QR codes, and Magnetic Secure Transmission. These technologies enable data transmission between devices, confirm payments through barcodes, and mimic the functionality of magnetic card readers, respectively.
Top Digital Wallet Companies: The article highlights eight prominent digital wallet companies:
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Apple Pay: Exclusive to iOS devices, Apple Pay utilizes DPAN technology for secure transactions and offers functionality for online and in-store payments.
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Cash App: Available on both Android and Apple devices, Cash App employs fingerprint authentication and allows users to store various items, including coupons and boarding passes.
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Dwolla: Primarily focused on money transfers between bank accounts and businesses, Dwolla integrates with business apps like QuickBooks, Slack, and Plaid.
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Google Pay: Compatible with both Apple and Android devices, Google Pay uses DPAN for secure financial information storage and offers online accessibility.
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PayPal: A pioneer in digital wallets, PayPal supports online payments, money transfers, and integration with other digital wallets, including Apple Pay.
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Samsung Wallet: Exclusive to Samsung devices, this mobile-only wallet facilitates the storage of gift cards, membership cards, and vaccination records.
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Venmo: A subsidiary of PayPal, Venmo is popular for online and in-person transactions, utilizing QR codes for user identification.
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Zelle: Facilitating quick payments through bank account transfers, Zelle requires both sender and receiver to have Zelle accounts, with limits on daily or monthly transfers.
In conclusion, the landscape of digital wallets continues to evolve, driven by technological advancements and changing consumer preferences. The integration of digital wallets into the metaverse and the diverse functionalities offered by different providers showcase the dynamic nature of this financial technology space.
