In the digital age, consumers invariably favour fast and secure payment methods that eliminate friction at the point of sale while also keeping their payment information secure. Digital wallets are an increasingly popular way to store data digitally that might otherwise be stored in a physical wallet. We look at what a digital wallet is, how they work and how they can benefit consumers and businesses.
What is a digital wallet?
A digital wallet, also known as an electronic wallet or e-wallet is a payment method that stores payment information from credit cards, debit cards, loyalty cards and virtually anything else that might be carried in a physical wallet securely in the cloud.
These wallets store both unique card numbers and online passwords securely to eliminate friction at the point of sale and provide a combination of speed, convenience and security.
How does a digital wallet work?
Digital wallets are digital apps that use a range of technologies to store and retrieve digital information that approximates the contents of a physical wallet. So, for instance, they can not only store credit card and debit card data but also:
Cinema or theatre tickets (via QR codes)
Bus and train tickets
Loyalty cards, discount codes or coupons
Cryptocurrency account data
As well as storing password information to facilitate faster online payments, they can also be used for on-site transactions such as check-ins or contactless payments using either QR codes or near-field communication (NFC).
Hot vs cold e-wallets
There are two kinds of digital wallets. These are known as hot and cold wallets. A hot wallet is internet-enabled and online. Most digital and mobile wallets are hot wallets and can be used to connect a computer or mobile device to the user’s bank account or cards in real-time via a digital app.
Cold wallets, on the other hand, are physical devices that are offline and not connected to the internet. They usually take the form of a USB stick and are typically used to store cryptocurrency tokens rather than data from credit or debit cards.
Examples of digital wallets
Some of the most popular digital wallet providers include:
Pros and cons of digital wallets
Like any payment method, digital wallets have their own inherent advantages and disadvantages. Let’s take a look at the pros and cons of using an e-wallet as a consumer.
Advantages of a digital wallet
Making sensitive payment information less visible and accessible
Ease of use
Speed and convenience at the point of sale for card payments
Reduces the need to carry physical wallets and cards, reducing the risk of theft or loss
Disadvantages of a digital wallet
Not all outlets accept payment via digital wallet
Largely dependent on mobile devices being charged and connected
Devices that use e-wallets can be stolen or hacked
Digital wallet FAQs
What is the difference between hot and cold e-wallets?
Most of the digital wallets in use today are ‘hot’ wallets. These are always online and connected to the internet via a computer or smart device. They are used to store credit card and debit card information as well as digital tickets and coupons. Cold wallets, on the other hand, are physical devices that are offline and are commonly used to store cryptocurrency keys.
How do digital wallets benefit businesses?
Digital wallets offer consumers a payment method that is easy to use, highly secure, fast and frictionless. Not only can this enhance the customer experience and generate goodwill in-store, it can also help queues move faster on busy days and reduce the pressure on customer-facing staff.