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What Is a Digital Wallet and How Does It Work?

Digital wallets have gained in popularity, but how do you know if it's the right choice for you? Find out what a digital wallet is, how it works, and how it can make your life easier.
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Digital wallets have been around in some form for years, but recently, the technology has grown to become a major part of the way we make transactions across the world. If you're interested in why you might want to adopt a digital wallet, read more.

What Is a Digital Wallet?

A digital wallet, sometimes called an e-wallet, is a service that allows you to pay for things, usually through a mobile phone app. It also stores a number of other items a traditional wallet would hold, such as a driver's license, gift cards, tickets for entertainment events, and transportation passes. Digital wallets are not only easier to use in some cases but are also generally considered to be more secure than a traditional wallet.

How Do Digital Wallets Work?

Digital wallet software is traditionally housed through a mobile app on a smartphone, but can also be used in a variety of other formats such as a physical device or on your personal computer. The smartphone app version of the digital wallet is by far the most popular today due to its flexibility and mobility.

These digital wallets typically require you to download a digital wallet app on your smartphone. These can be created by your bank of choice or a trusted third party. Make sure you do your research and confirm the company's trustworthiness before providing your financial information to an app.

Typically, you must find a point of sale (POS) system terminal that is compatible with your digital wallet in order to use it. Usually, you will be able to identify this through the contactless symbol displayed at checkout. Some POS systems also allow you to pay using Magnetic Secure Transmission technology. While contactless payments can be more difficult to find, many modern POS systems can support Magnetic Secure Transmission payments.

Once you find a POS system that is compatible with your digital wallet app, you can simply hold your smartphone up near the sales terminal to pay. Sometimes you can even pay directly through your app.

This rule can also apply to some ATMs, where you can withdraw cash from the app when in close proximity to a compatible ATM.

What Are the Different Types of Digital Wallets?

Digital wallets have been slowly gaining in popularity over the years. There are a multitude of digital wallet apps to choose from, but which one is right for you?

Paypal One Touch

Paypal is one of the oldest major digital payment companies, so if you're looking for a tried-and-true, trustworthy company, look no further! Paypal One Touch is an extension of Paypal's usual services. The app allows you to transfer money or make payments much faster than usual, having you skip the login screen and the tedious process of entering your password. This experience can also be had across your desktop, tablet, or laptop. The downside is that Paypal (PYPL) - Get PayPal Holdings, Inc. Report still charges a fee to transfer from a credit card or convert a transaction into a different currency.

Apple Pay

Apple (AAPL) - Get Apple Inc. Report Pay is a clean, streamlined digital wallet app that is exclusively for iPhone or Apple Watch users. It allows you to take part in transactions both in-store and online. In-store, you simply need to verify your identity using your smartphone's pin number or FaceID, then hold your device near a compatible POS system to complete the transaction. One of the main advantages of Apple Pay is the ease of experience, allowing you to make payments seamlessly and securely.


Though now owned by Paypal, the app boasts 40 million users as of April 2019. Centered around a social media-like feed, it allows for easy and painless transfers between friends. However, some small companies have even begun to utilize the app in place of cash trips.

All transfers are entirely free, unless you are transferring funds from a credit card, when they apply a 3% charge to the transaction. Instant transfers are also subject to a 1% charge. For all other transfers, there is around a three-day turnaround for bank transfers. One thing that makes this app so great is how easy it is to get started. All you need is an email address and a bank account or credit card.

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Samsung Pay

Samsung Pay is one of the most well-established digital wallet apps available. They have been in operation since 2011. Though it's only for Samsung (SSNLF) users, it's incredibly versatile. It allows you to pay in person, on the app, or online -- with the potential to earn special rewards at major retailers and cash back along the way. This creates a powerful combo that is difficult to resist.

Before committing to Samsung Pay, be sure that your financial institutions of choice are covered. Though they support most major financial institutions and a multitude of smaller ones, it never hurts to double-check.


eWallet is one of the few digital wallet mobile applications that cost $9.99 in the app store. However, the app's robust offerings more than compensate for the cost. eWallet also sells software for Mac or Windows desktops, allowing you to get an even more seamless experience across devices. The app not only holds your credit and debit card information but also your other essentials like:

  • Passports
  • Insurance cards
  • Loyalty program cards
  • Library cards
  • Airline frequent flyer cards

It's important to note that mobile payments aren't possible through this app. Instead, it securely stores sensitive information and allows you to easily access it.

What Are the Benefits of a Digital Wallet?

Aside from simply feeling like you're living in the future, digital wallets have a lot of benefits over a physical wallet. Here are some of the many reasons why you might want to consider adopting a digital wallet app or software.


Rather than digging your card out of your likely bulging wallet, you can simply hold your smartphone up to a terminal at checkout and be ready to go. Online transaction processes are also streamlined, allowing you to shop online quickly. Let's be honest, it's also pretty nice to not have to carry around a heavy wallet brimming with cards and cash.


How many times have you had trouble finding something in your wallet between your ID, credit cards, reward and loyalty cards, and errant receipts? Digital wallets don't have this problem. Most apps allow you to easily organize all of your information in an easy-to-access way, saving you time shuffling through your wallet for the items you need.

More Security

Physical wallets can easily be lost or stolen. If you have ever lost your wallet either through an accident or theft, you know firsthand how time-consuming and stressful it can be to cancel and replace all of your cards, identification, and more. You also lose out on any cash that you were carrying. A digital wallet negates these problems. Even if you lose your phone, the person would need to break your password on your phone, then any passwords or Face IDs used to protect your digital wallet app.

Additional Bonuses and Rewards

Many digital wallet apps give their users access to numerous benefits and rewards that can give you a little more "bang for your buck" on certain purchases. These benefits can be layered on top of cash back and special rewards offered by your credit cards, allowing you to maximize your free bonuses on purchases.

Are Digital Wallets Safe?

While you should always be concerned about your personal information, major digital wallet apps are widely considered to be safe. In fact, they are likely more safe than carrying your financial information and other sensitive documents in a physical wallet.

Additionally, all reliable digital wallet apps heavily encrypt their user's payment information, making it difficult to compromise when the information is being transferred from the application to the payment system. This can actually help protect your information if a retailer or company you purchase from has an information leak or hack.