What is a digital wallet? Definition and examples
A digital wallet is a system that securely stores a person’s payment information. It stores the user’s cards digitally for payments that will be made online through an electronic device. ‘Digitally‘ means using digital or computer technology. If something is ‘digital,’ it exists purely in electronic form.
We also call it an E-wallet. Some E-wallets let the user add their driver’s license, loyalty cards, and insurance cards.
Some also let users store their health cards and other IDs that we usually keep in a wallet. The term ‘ID’ means ‘identification.’
A digital wallet can also refer to where a person stores their cryptocurrencies, i.e., a cryptocurrency wallet. A cryptocurrency is a kind of digital money, i.e., online money, such as Bitcoin.
Digital wallets, banking apps, and other innovations in the world of finance are examples of fintech, which stands for financial technology.
Why have a digital wallet?
A digital wallet aims to eliminate the need of carrying a physical wallet. It is also more difficult to steal an E-wallet than a physical one.
However, users may lose some of their privacy. Unlike a physical wallet, a digital wallet has information on the owner’s purchasing habits. Companies can get hold of that information.
What makes up a digital wallet?
The digital wallet consists of two things:
- The software, and
- the data.
Software
The software keeps the entire information stored in the wallet. It also secures the information by encrypting it.
Data
The data, on the other hand, is all the information that users provide. Users’ names, card details, addresses, for example, form part of the data that the digital wallet stores.
To be able to use an e-wallet, users must have the software installed on their electronic device. They then add the necessary information. Only then can they perform a transaction.
Transaction processes
Transaction processes are not all the same. Wallets’ processes depend on the software that they use.
Some wallets may ask the users to insert their password to confirm transactions.
Others, on the other hand, may give users a different identification code for each transaction.
The electronic wallet updates every transaction. It stores the details of all transactions on an online database.
Many companies have their own digital wallets. Paytm, Mobikwik, Alipay, American Express, Apple pay, Microsoft Wallet, Samsung Pay, for example, are digital wallets.
The largest companies to provide users with this service are Google, Amazon, and Paypal.