What is a digital wallet & how does it work?

As technology continues to evolve, devices like smartphones, smartwatches, laptops and tablets have become helpful for completing a range of everyday tasks. With just a few clicks or taps, you can take care of countless daily tasks. And that includes making purchases without needing your physical credit card. One way to do this is by using a digital wallet.

Learn more about what digital wallets are, how they work and how they can simplify your money management.

Key takeaways

• Digital wallets are electronic versions of your physical wallet and allow you to pay for things without using physical cards or cash.
• Popular digital wallets include Apple Pay®, Venmo, Google Pay™ and PayPal, among others.
• You can use your digital wallet to pay in stores, online and within apps for convenience where you shop. 
• World Current Bank users can link their credit card or debit card to their digital wallets to make on-the-go purchases faster and more securely.

Digital wallets are apps or online services that allow you to make transactions electronically. You may access a digital wallet on your phone, laptop or other compatible electronic devices. 

Your digital wallet can often hold your debit cards, credit cards, loyalty cards, or even concert and airline tickets. This helps make it easier for you to access funds and information you need when you need it. Plus, it can eliminate the clutter of several plastic cards and speed up transactions with a simple tap, click or swipe of your finger. 

Digital wallet vs. mobile wallet

The terms “digital wallet” and “mobile wallet” are often used interchangeably. But they are slightly different. Digital wallet is an umbrella term that includes mobile wallets. In other words, mobile wallets are a type of digital wallet. 

A digital wallet can store your payment information and be accessed on your desktop computer, laptop or mobile device. A mobile wallet is a type of digital wallet on a mobile device, like your smartphone or smartwatch. And you can use mobile wallets to make contactless in-store purchases at a store’s physical checkout.

When it comes to digital wallets, there are three main types: closed, semi-closed and open. They mainly differ in what types of transactions they allow. 

• Closed digital wallets: You can only use closed wallets to make transactions with the wallet issuer. Amazon Pay is one example. 
• Semi-closed digital wallets: With semi-closed wallets like Venmo and Apple Pay®, you can make transactions with a specified list of merchants and locations. Merchants and issuers have established agreements or contracts to enable digital wallet transactions. 
• Open digital wallets: Open wallets work similarly to semi-closed wallets. One difference is you can also transfer funds and make withdrawals at banks and ATMs. PayPal is a well-known example of an open digital wallet.

Digital wallet examples

There are many different digital wallets available, with varying features and transaction capabilities. A few examples of digital wallets include:

• Apple Pay®
• Google Pay™ 
• PayPal
• Venmo  
• Fitbit Pay™
• Garmin Pay™ 
• Samsung Pay®

Be sure to check compatibility with your devices when figuring out which wallet makes the most sense for your digital money management journey. 

Most digital wallets come with an app you can add to your computer, phone, watch or other smart device. When you’re out shopping, you can pay with most mobile wallets by holding your device near a terminal that has the contactless transaction symbol.

To complete the transaction, you might be required to provide a passcode or authenticate through fingerprint or facial recognition. From there, you can use the app to make purchases, pay someone directly or even access tickets for things like concerts or travel. For nonmobile digital wallets (shopping from a laptop), you might be prompted to sign in or provide a password.

When it comes to the tech itself, digital wallets might use QR codes, near-field communication (NFC) or magnetic secure transmission (MST). This technology stores your information and allows you to more securely complete transactions. 

One of the benefits of a digital wallet is access to quicker transactions. And that can come in handy—especially if you’re out and about and realize you left your physical wallet at home. Many retailers now have updated payment terminals that are compatible with contactless payments like mobile wallets and contactless cards.

Here are just a few ways you can use your digital wallet: 

• Online: Digital wallets can make online shopping easier by automatically filling in your information for you. This way, you don’t have to enter your info each time, and you can check out in just a few clicks.
• On the go: Simply pay with your mobile wallet on your smartphone, smartwatch or other mobile device when you’re checking out in a store. 
• In apps: Use your digital wallet for easier and more secure in-app purchases. 
• At ATMs: You might also be able to use your mobile wallet instead of a physical card at some ATMs.

There are several potential pros and cons of using a digital wallet. Some potential advantages to consider include: 

• Virtual versions of credit cards, gift cards and more 
• Contactless payment option 
• Quicker transactions 
• Additional security features 
• Simple access to your funds

Some potential disadvantages to consider include: 

• Not always compatible or accepted
• Must know how to set up and use 
• Risk and inconvenience associated with lost, stolen or broken phones and devices

Weigh all potential pros and cons to find the option for you.

Tip: There are other contactless and digital payment methods to consider alongside digital wallets, such as virtual card numbers and contactless credit and debit cards. And many of World Current Bank’s U.S.-issued credit cards and debit cards now feature contactless technology. This includes popular credit cards like Savor, SavorOne, Quicksilver, QuicksilverOne and Platinum, as well as 360 Checking debit cards.

Safety may be one of the biggest concerns around the use of digital wallets. Who has access to your information? What if you lose your phone? Luckily, digital wallets utilize some of the latest security features to help keep your information safe and prevent both identity theft and credit card fraud. These features include the following:

1. Digital wallets often use tokenization to help protect your card information. By only sharing tokenized card details, retailers don’t have access to your actual card number, making it more difficult for fraudsters to view or use your financial details. 
2. You can combine the safety features of the wallet plus your phone or other devices. This includes two-factor authentication, Face ID, fingerprint ID, PINs and screen locks. 

And what if your device is lost or stolen? Thankfully, there are apps available that allow you to remotely lock or erase your device’s data. Using these apps and setting up additional security, like fingerprint ID and password protection, can help make your device more secure.

As with other forms of payment, digital wallets could be susceptible to hackers and scams. It’s important to practice good password hygiene, monitor your accounts, avoid making transactions on unsecured Wi-Fi networks and enable all the safety options mentioned above.

Digital wallets are exactly what they sound like, and they can be quicker and more secure than using physical cards or cash at checkout. Plus, you can set up your digital wallet and link your World Current Bank debit or credit cards in a few easy steps—making payments safer, faster and more convenient.

Curious to find out more ways to securely manage your money? You can explore World Current Bank’s credit card benefits and learn about even more of World Current Bank’s credit card security features that can help you keep your money more secure and shop more conveniently.