Customers can purchase goods and services more quickly and easily thanks to digital payment options, such as wallets. Businesses enable clients to safely store their credit and membership cards online by introducing digital wallets. You may have a better understanding of how these online wallets operate and how point-of-sale (PoS) firms can use them by learning more about them.
A software-based tool called a digital wallet, commonly referred to as an online wallet or e-wallet, keeps users’ payment information and enables them to make rapid and secure online purchases. The majority of contemporary e-wallets connect consumers’ payment methods, including their credit card details, to the merchant who facilitates the transaction. The vendor could be, for instance, any e-commerce site or a particular manufacturer or reseller. E-wallets are also highly popular among smartphone users, as they allow them to make quick mobile app purchases.
A digital wallet, which is typically carried as a smartphone app, can also be found on a desktop. However, due to its portability and flexibility, the smartphone app is the most widely used version of the digital wallet.
In some situations, using a digital wallet is not only more practical but also safer than using a physical wallet. To use the service, users of digital wallets must download the specialized apps made by banks or reliable third parties.
Significance of a Digital Wallet
- A digital wallet securely stores all the payment information of users in a compact form. Thus, it greatly reduces the need to carry physical wallets.
- Companies that need to collect consumer data for their marketing needs can benefit greatly from digital wallets. They get to know the purchasing habits of consumers and increase the effectiveness of the marketing methods of their products. However, it leads to a loss of privacy for consumers.
- Many developing countries using digital wallets may be able to increase their participation in the global financial market.
- Digital wallets allow users to transfer funds to friends and family residing in different nations.
- Moreover, digital wallets eliminate the need for physical banks and companies in order to open and maintain a bank account. Hence, they also connect individuals and businesses in rural areas.
- A digital wallet is required to make transactions and maintain balances of cryptocurrencies.
Types of Digital Wallets
Depending on the type of device and how your customers would use their e-wallets to make purchases, there are several common types of e-wallets to consider. The most popular types of e-wallets include:
A closed e-wallet is a type of online payment method that allows users to store their funds and spend them only with the issuer of the wallet. These wallets can handle transactions of all kinds, including purchases, returns or refunds. Most commonly, large businesses that sell to many customers from different countries choose this option. This happens because closed wallets often use companies’ internal systems, which can be expensive to implement and maintain.
A semi-closed wallet allows customers to purchase from various affiliated merchants. What’s useful about wallets of this type is that, in addition to enabling purchases, many of these wallets allow their users within the network to send funds to one another. Many semi-closed e-wallets allow customers to make both online and offline purchases.
Open wallets are usually products that banks and other financial institutions offer their clients. They have similar capabilities as semi-closed wallets and, in addition to that, also make it possible to withdraw money from them at local cash points. Other types of services that open wallets provide include online banking and purchasing through swiping a card at the register.
A crypto wallet is an e-wallet, which you can use to purchase, store, send and receive cryptocurrencies. There are many subtypes of crypto wallets, including hardware wallets, which come in a form similar to physical USB sticks. Still, the most popular crypto wallets are online platforms that store customers’ keys to protect their funds with two-step encryption.
Examples of Digital Wallets
- 1. PayPal One Touch™
The PayPal One Touch™ app is an extension of the usual services offered by PayPal. It enables users to make payments or transfer funds faster by allowing them to skip the login screen and eliminate the need to enter passwords. PayPal’s mobile wallet app can also be operated on a desktop, laptop, or tablet.
- 2. Apple Pay
The Apple Pay digital app is streamlined and available exclusively for users of iPhones, iPads, and Apple watches. It allows users to make transactions for both online and in-store purchases. For in-store transactions, users can unlock their phones and hold them near a compatible point of sale system. The Apple Pay app enables a seamless and secure way of payments, providing ease of experience.
- 3. Google Pay
The Google Pay app enables users to make transactions on an app or any website using debit or credit card details saved to the users’ Google Account, Google Play, Chrome, YouTube, Android phones, and watches. The app also supports other electronic documents such as student ID, movie tickets, gift coupons, store cards, and transportation tickets.
Benefits of Digital Wallets
The advantages of digital wallets are numerous. No more filling in your card details every time you check out, or fumbling for your wallet at the store. Your payment information is saved in one protected, central location. The card number is never stored in the app itself but is instead assigned a unique virtual number. This protects your money even if your smartphone is lost or stolen. Still, always research the digital wallet issuer before testing it out, just to make sure it’s legitimate.
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Modern e-wallets are highly secure and convenient digital payment methods that have many benefits that help businesses simplify and improve customer experience. Here are the key benefits of online wallets:
E-wallets store your bank and payment information, but they don’t share it with merchants’ systems. This is possible because they act as hubs that generate unique codes or payment codes that external systems can use only once, without accessing vulnerable banking data. As a result of this, it’s impossible for fraudulent systems to capture your information, making customer payments more anonymous and safe.
A great advantage of online wallets is that customers can access them from their mobile phones or any other device that supports a specific wallet’s system. This means that customers who make online purchases can simply add items to their shopping cart and pay for them with just a few clicks, without logging into their bank account or entering shipping information. It also makes it possible for them to shop online from any location, even when they don’t have their credit card on them.
Many e-wallets allow contactless in-store purchases, which makes them a highly convenient payment method. To finalize a purchase, a customer can simply tap their phone or watch in the checkout line, which speeds up in-person transactions. Fast payments of this type are becoming popular and most large stores use them these days.
Loyalty card access
Online wallets often have additional built-in features, like loyalty card membership numbers. Customers can access their digital coupons or membership perks without looking for their physical member cards. This provides benefits for both customers and businesses, as making improving customer experience allows brands to build a loyal and happy customer base.
Many e-wallets that smartphone developers make available to users can store their documents. This includes IDs, plane or bus tickets or even their health certificates. Thanks to having access to their personal records at all times, users can avoid keeping physical copies of their documents with them and have the information available whenever it’s necessary to present it without notice. Other things that users can store in an e-wallet include:
- concert tickets
- gift cards
- boarding passes
- debit cards
- hotel reservations
Reduction of card abandonment
One significant benefit of e-wallets for businesses is that they help reduce cart abandonment. Cart abandonment is a phenomenon that occurs when a user adds items to their shopping cart but decides not to finalize the purchase because they don’t have the time to enter all the shipping and payment information manually. Luckily, online wallets can store this information and fill it in automatically.
Smaller transaction fees
By making e-wallets available to their customers, merchants can lower their bank transaction fees. This is possible because digital payment systems make it possible for businesses to issue their own virtual cards to use with the e-wallet. As a result, they can offer their customers more attractive promotions, including discounts, as a part of the store’s loyalty or membership program.
Top 8 Digital Wallet Companies
Consumers’ ability to make purchases is facilitated by digital wallets. Users may rapidly make purchases online without having to fumble around in their wallets for a card or get their credit card information. Customers can communicate with digital wallets as well. These wallets, for instance, can inform users of the expiration date of a voucher.
There are digital wallets that are specific to certain smartphone models, but there are also options that work with all smartphones.
1. Apple Pay
Apple Pay is similar to Google Pay, but is only available on iOS devices, including iPad, iPhone and Apple Watch. Users can keep money right in their Apple Pay account. Apple Pay uses Device Primary Account Number (DPAN) technology to protect account information by changing account numbers and encrypting the data.
Money in Apple Pay accounts can be transferred to bank accounts. People can use Apple Pay anywhere that accepts contactless payments and on websites by selecting the Apple Pay option.
2. Cash App
Cash App stores payment information like other digital wallets, but this information is converted to tokens that can only be accessed with the user’s fingerprint.
Users can store coupons, loyalty cards, membership cards, tickets and boarding passes in the wallet area, as well as have paychecks directly deposited into Cash App. Moreover, users can access and purchase investments and cryptocurrencies with Cash App.
Cash App is available for both Android and Apple devices.
Dwolla transfers money between bank accounts and credit unions, and businesses can also use it to pay employees. Dwolla offers other options with digital wallet functions for businesses, including recurring payments, and receiving payments for services or products.
Dwolla is more business-friendly because it can integrate with other business apps, such as QuickBooks, Slack and Plaid.
4. Google Pay
Google Pay also uses DPAN to securely protect financial information. It allows users to deposit funds in the digital wallet or add a credit card, debit card, bank account or PayPal account.
Google Pay can be used on both Apple and Android devices, and businesses can link up loyalty rewards with Google Pay to build relationships with customers. Users can also access Google Pay online from any device, including a computer, by using the account holder’s email address.
PayPal uses encryption and is one of the oldest digital wallets, where users can make payments online and transfer money. PayPal is available for both Android and Apple devices. Customers can also use and link their PayPal account with other digital wallets, including Apple Pay.
For businesses, there are fees for PayPal transactions. For consumers, there is a fee for instant transfers instead of the typical one- to three-day free transfers. Businesses can also use PayPal to pay employees.
6. Samsung Wallet
Along with payment information, users can store gift cards, membership cards, rewards cards and vaccination records with Samsung Wallet.
Samsung Wallet is only for mobile purchases and is not set up for managing payments on websites, while other digital wallets like Venmo, Apple Pay and Google Pay let users pay online. Samsung Wallet only works with Samsung devices, so it is a bit more limited.
Venmo is a subsidiary of PayPal and is one of the most popular digital wallets with 83 million users. Venmo lets users shop online and in person with participating retailers. People can also request and receive payments from other users. To find the right user, Venmo uses QR codes.
There is a 3% fee for using a credit card. In addition, people can also have paychecks directly deposited into their Venmo account. There is a 1.75% fee for instant transfers from a Venmo wallet to a bank account.
Zelle sends payments quickly so that recipients do not have to wait or pay an additional fee to get the money sooner. It uses bank account information for transfers. Most Zelle payments are set up directly on a bank account’s site.
Both the sender and receiver need a Zelle account, but they do not have to have bank accounts with the same institution. People cannot get money back from Zelle after sending it, so they should only use Zelle with trusted parties.
There can be either daily or monthly transfer limits, depending on the bank.