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What is a Digital Wallet? How E-wallets Work & the Best Ones to Use


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Home / Resources / Guide / Digital Wallet

Table of Contents

  • What is a Digital Wallet?
  • How Does a Digital Wallet Work?
  • Types of Digital Wallets
  • The Best Digital Wallets for 2022

The global online shopping market is set to hit 5.4 trillion by the end of 2022. Consumers need a quick way to transact. Using a debit card for online payment is one way, but have you ever considered a digital wallet?

What is a Digital Wallet?

A digital wallet (or e-wallet) is a type of software that allows buyers to make quick digital transactions on multiple platforms or websites by securely storing their payment and password information. A consumer can deposit money into a digital wallet directly or it can be connected to their bank account. Think of digital wallets as online financial accounts that can be used to make payments and store payment history.

These days, digital wallets serve more functions than simple transactions. They can also be used to authenticate a user’s credentials. For example, an e-wallet can verify someone’s age while purchasing alcohol (which is already popular in Japan). A cryptocurrency e-wallet can store private keys for bitcoin.  

A digital wallet system enables the use of e-wallet transactions among various retailers in the form of mobile payments and digital applications. An example of this is the MasterCard PayPass app and the M-PESA mobile payments system.

How Does a Digital Wallet Work?

First, a digital wallet works by collecting a user’s personal data, such as driver’s license, social security number, health or loyalty cards, and any other document needed for identification. The data is then passed wirelessly to a merchant’s account via near field communication (NFC). That’s the “tap” between your smartphone and merchant device.

There is both a hardware and software component to e-wallets. The payment system must be secure and fair. The software provides security and encryption for your personal data, while the hardware is all about functionality. Digital wallets are generally stored on the client-side of things and fully compatible with most e-commerce sites.

There is both a hardware and software component to e-wallets. The payment system must be secure and fair. The software provides security and encryption for your personal data, while the hardware is all about functionality. Digital wallets are generally stored on the client-side of things and fully compatible with most e-commerce sites.

The information component of an e-wallet is the database that stores user-input data. This can be things like:

  • Shipping address
  • Billing address
  • Payment information
  • Payment methods
  • Credit card numbers
  • Gift cards
  • ​Etc..

Anything you want a merchant’s computer to know in order to buy a product or service quickly.

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Types of Digital Wallets

There are e-wallets and then there are digital wallet systems. There are also dedicated digital wallet devices like the biometric wallet by the brand Dunhill. It is essentially using a wallet like a credit card. But rather than swiping, you are simply tapping the merchant’s device. It can hold cash and cards like a physical wallet but comes with a Bluetooth mobile connection. 

Companies are now exploring options to integrate NFC digital wallet capabilities into smartphones. Google Nexus mobile phones and the Samsung Galaxy series are using Google‘s Android OS. Others include:

  • Apple Pay
  • Samsung Pay
  • Android Pay

Payment Service Providers

There are also payment services that can function as an e-wallet. The popular brands include:

  • PayPal
  • Venmo

Sometimes these services will issue a physical card an individual can use at an ATM for an additional fee. This is another way these providers stay in business. Your wallet app can translate into the physical realm. 

Thin Wallets

Thin wallets are another form of a digital wallet. This is a server-side digital wallet that a company creates for and about you. It’s another type of ID. The data is kept on its server for easy access and security. This type of e-wallet is becoming increasingly popular with retailers. They use the technology to ensure security, efficiency, and consumer satisfaction. It also makes it easier for these companies to personalize their marketing campaigns to customers and leads.

Client-Side

A client-side digital wallet takes very little setup and is simple to use. After you install the software, download the app, or access the website, you must input the important data. This is stuff like your name, address, and sometimes, bank account information. If you don’t add bank data, chances are you will need to transfer money. One or the other. An electronic wallet is not a loan.

At the check-out page of an e-commerce site, the digital wallet will automatically enter your data to complete the online transaction. Most digital wallets are able to auto-fill immediately. The software recognizes it as an “order form to fill out.” You will then be prompted for a password. This keeps people away from your accounts which stores personal data.

E-wallets are the wave of the future. They make both online and offline transactions a swift, efficient, and convenient process that’s beneficial for all parties involved. Merchants make quicker sales and customers waste less time. It’s a total win-win!

The Best Digital Wallets for 2022

Some of the top-rated digital wallets of 2021 continue to evolve and become top contenders for 2022. These include:

  • Google Pay
  • Venmo
  • Cash App
  • Apple Pay
  • PayPal
  • Zelle
  • Dwolla
  • Walmart Pay
  • Amazon Pay
  • Facebook Pay

E-wallets are the wave of the future. They make both online and offline transactions a swift, efficient, and convenient process that’s beneficial for all parties involved. Merchants make quicker sales and customers waste less time. It’s a total win-win!

About the Author

Brianna Blaney

Brianna Blaney began her career in Boston as a fintech writer for a major corporation. She later progressed to digital media marketing with various finance platforms in San Francisco.
She prides herself on reverse-engineering the logistics of successful content management strategies and implementing techniques that are centered around people (not campaigns).
In her spare time, she’s a self-proclaimed chef, lives in the middle of the woods, and has a frequent flyer card for birdseed and dog bones.


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