What is a digital wallet? That depends. The definition of a digital wallet will probably vary a little from person to person. This term is in the midst of transition, so to understand it we need to look at both the traditional interpretation and what digital wallets are becoming.
Digital Wallet: A Safe Space for Your Financial Data
Traditionally, a digital wallet describes software on your computer that allows you to store financial information like credit card numbers, bank account information, your name and address – the sort of things that you typically keep in your physical wallet. Most important is the swift access to money from a variety of different sources, based on how you want to pay.
Digital wallets make purchasing items from online stores much easier. They often access information and autofill all those credit card numbers, address boxes, customer ID numbers, and other things you really don’t want to try to remember. Another benefit is security: Digital wallets tend to seal financial data offline in an encrypted space on a hard drive, only pulling them and copying them to a web site when required. This helps defend against keystroke trackers and other sneaky bits of malware that can steal your financial information.
This traditional definition of digital wallet still applies, and you can use a digital wallet for all your e-commerce activity if you want. Sometimes companies offer to save your financial information on their own servers, and sometimes you can download software that will keep your cards and accounts saved on your own hard drive. Either way, they tend to function the same way. PayPal has several digital wallet qualities, and even allows you to create your separate account to store cash in. Google Wallet is a very advanced form of a digital wallet that you can use for a variety of purchases.
Digital Wallet: Payment Apps for Mobile Devices
As technology has become more mobile-centric and payment methods have evolved, the term digital wallet has grown to have a more advanced definition as well: An app designed for mobile payments.
These apps aren’t just about saving financial data. They seek to offer an alternative to paying in real stores, a replacement for the physical wallet itself. They also have access to your financial information, but they include additional communication features such as wireless Internet connections and NFC chips that allow them to transmit your financial data wirelessly. Instead of pulling out your wallet, you walk up to checkout, pull out your phone, and open the digital wallet. It then communicates with software owned by the business, transfers money, and you’re done.
The potential for this type of mobile payment is enormous. Not only can it make checkouts speedy (and eventually, a process that does not require employees), but it can change the way you shop. These digital wallets may be able to automatically process deals and discounts, provide recommendations based on past purchases, give you digital receipts, and more. Many of the security features also remain intact – without the need to scan a physical card and store its data, identity thefts lose a lot of opportunities to intercept and steal your information.
Apps like Google Wallet act as bridges between the older and newer definitions of digital wallets, with qualities of each. One of the best digital wallet options to hit the market is Apple Pay, which can be used to pay for goods at a number of major retailers.
If this sounds interesting, you should also keep an eye out for other digital wallets on the rise. Wirecard is a wristband that acts as a physical version of a digital wallet. There are also a number of cards like Wocket and Coin on the market that have digital wallet features.