A digital wallet (also called an electronic wallet) is a software application that securely stores digital payment information, banking details, and credentials—enabling users to make payments from their devices without entering data for each transaction.
What is a Digital Wallet?
A digital wallet (also called an electronic wallet) is a software application that securely stores digital payment information, banking details, and credentials—enabling users to make payments from their devices without entering data for each transaction.
Most digital wallets allow you to:
- Store virtual versions of credit or debit cards
- Link to bank accounts for ACH-based payments
- Pay in-store using a phone or wearable
- Pay online without manually entering details
- Hold and spend from a wallet balance
Popular examples include Apple Pay, Google Pay, Samsung Pay, PayPal, CashApp, and Venmo. There are retailer-specific digital wallets, too; Starbucks and Target, for example, offer built-in wallets for payments, loyalty points, and coupons.
How do Digital Wallets work?
When a user adds a card or bank account to their wallet app, the details are encrypted and stored as a token. When it’s time to make a payment, the wallet securely passes that token to a merchant or payment processor.
What Can Be Stored in a Digital Wallet?
Beyond payment details, digital wallets may also store:
- Transit or boarding passes
- Loyalty and membership cards
- Gift cards or store credit
- Event tickets or hotel keys
- IDs (e.g., driver’s licenses)
- Car keys (supported on certain platforms)
How To Make A Purchase With A Digital Wallet
- Online Payments: Many websites let you choose a digital wallet as a payment option to complete a purchase. You can use the stored cards or bank accounts to pay, instead of having to re-enter your card or bank information each time you make a purchase.
- In-Person Payments: Digital wallets rely on wireless communication to transmit payment data to a point-of-sale (POS) terminal. Common technologies include:
- Near Field Communication (NFC): The phone and reader exchange encrypted data when held within ~1 inch of each other
- Magnetic Secure Transmission (MST): MST simulates the magnetic stripe signal allowing POS readers to process contactless payments when held close (within 3 inches)
- QR code: Scan a merchant’s code or display to initiate a payment
Are Digital Wallets Secure?
Yes. In many ways, digital wallets are much more secure than their physical counterparts. Here’s why:
- Encryption: Card and bank data is never exposed during transactions
- Biometric Protection: Accessing a wallet typically a Face ID, Touch ID, or passcode to enter the device, and then again to authenticate a payment
- Per-Transaction Tokenization: Each payment generates a unique token that only the merchant’s processor can validate
- No Stored-Card Data: The actual card number is never shared with merchants or stored on your phone.
What is the difference between a Digital Wallet and a Crypto Wallet?
| Feature | Digital Wallet | Crypto Wallet |
|---|---|---|
Purpose | Store card/bank info for payments | Store private keys that give access to crypto assets on the blockchain |
Backed by | Traditional banks/payment networks | Blockchain protocols |
Common use | Everyday purchases | Buying/selling crypto, some purchases |
Regulations | Often FDIC-insured | Typically uninsured |
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