What is a digital wallet?
This is shorthand for an app that enables payments either online on in person through a smartphone or other mobile device. Wallets may be for general use, like Apple Pay and Google Wallet, or for use at specific retailers, such as Starbucks.
Digital wallet has two definitions that are used rather frequently in the digital and financial landscape:
- An application for use on a smartphone that can be utilized for making transactions in a physical store.
- A desktop or online application, either native on a user’s computer or hosted by a financial institution in the cloud. This application offers payment and contact information that people can use to expedite the billing process when shopping online by providing card, account and shipping information from a single source.
Some companies have their own digital wallets, also known as merchant wallets, to keep user information at the ready for simple transactions, such as Amazon’s one-click ordering service.
The interaction of digital wallets is changing the billing landscape, both online and off. A host of digital currencies, complete with their own applications and software have changed the way that customers shop and how merchants interact with them.
Some companies are looking to minimize the interference that occurs from different platforms competing for customers with their digital wallet products. They’ve developed tools for merchants to interact with their customers’ varying payment preferences. Square is an example of a tool widely used by small- to medium-sized businesses.
Digital wallet example
If you have an Android phone enabled with Google Wallet, you may choose to store your payment information in this application. This may include your bank account information, credit card number and preferred contact information.
The information in your Google Wallet is secure. When you pay with the app, each payment is encrypted to avoid accidentally transmitting your data from the wallet to the vendors you shop with. This encryption protects your data with each individual purchase and prevents your information from being stored with your merchant apart from your unique transaction identifier.
Perhaps you have a lot of gift cards that you want to consolidate on your smartphone rather than carry them around. A digital wallet can take care of storing card information and categorizing it by store and vendor type for easy access. Some apps, like Apple Pay, even pull up your card when you enter a specific location.