A digital wallet is an online payment tool or software application that serves as an electronic version of a physical wallet.
Also known as an electronic wallet, e-wallet, or mobile wallet, it enables users to securely store digital versions of payment methods — credit and debit cards, gift cards, cryptocurrency, boarding passes, event tickets, passwords, and coupons — to use on the go with their smartphones or smartwatches.
A customer can use a digital wallet to make purchases at stores, online, or through digital wallet apps.
For in-store purchases, they generally use a contactless payment terminal by tapping their contactless credit card or a payment-enabled smartphone or smartwatch over the contactless payment terminal.
Not all retailers accept mobile payments, so a user must look for the contactless payment symbol on the retailer’s point of sale (POS) system or card reader. The contactless symbol resembles a sideways Wi-Fi icon.
How does a digital wallet work?
Digital wallets employ several technologies — including mobile apps, mobile hardware devices, near-field communication (NFC), and security methods such as tokenization — to create a user-friendly, mobile, and ostensibly secure payment experience.
To use a digital wallet, a user enters their card information into the digital wallet app or site.
The information is encrypted and the wallet is available for use once the device is unlocked and the user authorizes the wallet. To make a mobile payment, the user holds their smartphone close to the contactless terminal.
