Cash, coins, and cards are disappearing. Yes, they're still around but more and more of us are using digital wallets online and in-store for everyday purchases.
Digital wallets have many advantages including offering convenience and improved security.
Does this mean we'll never have to carry around a wallet or purse again? While many enjoy the ability to just tap and go, other consumers prefer using real bills and coins or at least a credit or debit card. That said, while it can seem hard to believe for some, in the not so distant future, cash will likely be obsolete. As such, it's a good idea to become acquainted with digital wallets and how to use them.
In this post, we explain exactly what digital wallets are and discuss their advantages and drawbacks. We also provide tips for choosing the right digital wallet and using it properly.
What Is a Digital Wallet and How Does It Work?
A digital wallet (also called an electronic wallet or e-wallet) can take on various forms, but broadly, it’s a software-based system that stores payment information and passwords. You can think of it as a virtual account that holds your money. A digital wallet can be used to buy goods or services at local or online stores.
There are several different types of digital wallet you may come across:
Closed Wallet
These are online payment systems that are typically developed by individual companies to enable users to make payments for goods or services through a website or application. These wallets only allow for payments to the wallet issuer and cannot be used for payments to other parties. Many e-commerce websites (online stores) use these types of systems.
Semi-Closed Wallet
This is what we traditionally think of when we discuss an e-wallet. A semi-closed wallet allows users to perform transactions at certain local or online merchants that have agreed to accept payment from the specific wallet. Payment can involve entering a password online or using your phone (or other device) instead of a card at an in-store payment terminal. Google Pay and Apple Pay are two popular examples of a semi-closed wallet.
You can use ApplePay on various devices including an iPhone or Apple Watch.
Open Wallet
Open wallets are similar to semi-closed but have extra functionality. They are usually offered by banks and can be used in any transaction in which a card would be accepted, including ATM and bank withdrawals.
Pros And Cons Of Using A Digital Wallet
There are many advantages to using digital wallets, including:
They are more convenient than using cards or cash.
You can pay for things online without having to enter your card details each time.
They offer improved security over using a credit card or cash as a thief would need to unlock your device or hack your online account.
They are easy to use and can save time.
While there are many advantages to using digital wallets, they may not be right for everyone all the time. Some potential drawbacks include:
You may not be able to use them everywhere as some businesses still don't accept digital wallets.
If you tend not to lock your phone, anyone with physical possession of your device can use your e-wallet to make purchases.
They can be hacked, a particular risk if you don't keep your phone updated with the latest security features.
If your phone runs out of battery or doesn't have a signal, you won't be able to complete transactions.
That said, most users find that these disadvantages can be easily mitigated, and the benefits of convenience and security make the switch worthwhile.
Using A Digital Wallet
Now that you know what a digital wallet is, let’s discuss how to choose the right one and use it properly. If you plan on using your e-wallet for in-person transactions, you’ll need to set up a wallet that’s compatible with your device, for example, Apple Pay for iOS users or Google Pay for Android users. Setting up a digital wallet is very straightforward and both Apple Pay and Google Pay offer easy-to-follow instructions.
Once your wallet is set up, to make in-person transactions, you can essentially treat your phone as you would a credit or debit card and use the tap feature at in-store terminals. You will just have to unlock your phone before tapping. On that note, to ensure security, always make sure you set up a lock on your phone, so that it can only be accessed with a passcode, a pattern, or a biometric identification method such as your fingerprint.
When making purchases online, in many cases, you will automatically be referred to the online merchant’s own closed wallet payment system. You may already have a card on file with the merchant, in which case, you often won’t be asked to re-enter your details. Some merchants enable you to enter the details of multiple payment methods and choose which one you want to use each time you check out. For example, Amazon Pay enables you to store the details of multiple cards.
Many online merchants will also offer the alternative of paying using a semi-closed digital wallet such as Google Pay or Apple Pay. This makes things more convenient and secure as you don’t have to share credit card details with multiple third parties.
Digital wallets are the future of money. They offer advantages over traditional methods such as cash, coins, and cards, including convenience, safety, and ease of use. Indeed, many consumers have used digital wallets on a regular basis without even realizing. While paying with your phone can sound intimidating, it’s really pretty straightforward once you get used to it. Of course, if you don’t always have your phone handy, it doesn’t hurt to carry a little cash as back up.
Have you made the switch to a digital wallet? Or do you have concerns about these payment systems? Let us know your comments or questions below!