The pandemic may have catalyzed the contactless payment movement, but the ease, convenience, and speed of digital wallets is helping make them a permanent fixture in both retail and banking environments. Today’s lifestyles are set to go-go-go, and we want to be able to do everything from pay the electric bill to order a pizza while we’re on the move. Mobile and digital wallets make it possible by giving us the freedom to pay for goods and services with only a smartphone and an internet connection. But how much do you really know about this technology and how it is shaping today’s buying experiences? A digital wallet, also known as an e-wallet, is a software-enabled payment technology that allows users to store their credit, debit, or customer loyalty card information in the cloud. Digital wallets can be used on any connected device to make online purchases or transfer money. A mobile wallet is a type of digital wallet that is used to make contactless payments in place of a physical credit card or cash. Unlike e-wallets, mobile wallets require users to download an app to their smart devices. Payments are made by tapping or holding the device near a sensor at the checkout terminal and completing a secondary verification task such as entering a passcode or scanning your fingerprint. The three most well-known examples of digital wallets are Google Pay, Apple Pay, and Samsung Pay. All three services also have an app-based version, so they function as mobile wallets, as well. Digital and mobile wallet usage is on the rise, even among consumer groups that are traditionally slower to adopt new technologies. According to The Global Payments Report for Financial Institutions and Merchants, digital wallets made up more than 48 percent of global e-commerce transaction value in 2021 and are projected to reach 52.5 percent of transaction value in 2025. Let’s look at some of the benefits these electronic payment solutions provide that are helping to drive rapid growth.What Are Mobile and Digital Wallets?
Benefits of Using Digital and Mobile Wallets
Accessibility
One of the biggest draws for digital and mobile wallets is ease of access. All of your payment details are stored in the cloud, so they are accessible from anywhere at any time. Because your smartphone takes the place of a traditional wallet, there is no need to carry cash or credit cards on shopping trips or nights out.
Efficiency
Mobile wallets increase efficiency for both physical and online purchase transactions. In a brick-and-mortar setting, tap-to-pay mobile wallet technology eliminates the need to swipe a card, enter a PIN, and wait for the system to respond.
Using your mobile wallet to pay for online purchases means there is no need to type in your credit card number, CVV number, or expiration date. Transactions can be completed in a matter of seconds.
Convenience
Digital wallets can do more than pay for your groceries with a single tap. Some mobile wallets can store many different types of documents, including concert tickets, boarding passes, and store loyalty cards. With the convenience of having everything from travel documents to business invoices in a centralized location, it’s easier to stay organized and stress less.
Flexibility
Tap-to-pay purchases are usually the first thing that comes to mind when you think about mobile and digital wallets. However, electronic funds can be used to pay for many different kinds of goods and services. Depending on the type of wallet you have, you can use your digital wallet to pay bills, transfer money, and even make deposits to your bank account.
Types of Mobile and Digital Wallets
There are three main types of mobile and digital wallets: open, semi-closed, and closed. The major differences between the three types are who the wallets are issued by and what kinds of transactions are permitted.
Open Wallet
Open wallets are issued by banks either directly or through an authorized third party. This type of digital wallet allows users to withdraw money from their bank account at an ATM or to transfer funds to another person or business.
PayPal, Zelle, and Venmo are examples of open wallets.
Semi-Closed Wallet
Semi-closed wallets allow users to pay for goods and services both online and at brick-and-mortar locations. However, semi-closed wallets can only be used with vendors that have contracted with the wallet issuer.
Stripe and Square are examples of semi-closed wallets.
Closed Wallet
Closed wallets are issued by a private company or merchant, and the money can only be used to pay for goods or services provided by the issuer. Closed wallet funds cannot be transferred to a bank account or withdrawn from the wallet.
Amazon Pay is an example of a closed wallet.
Are Digital and Mobile Wallets Safe?
Absolutely. In fact, because there are no physical cards or cash to lose or steal, digital wallets are often even safer than traditional payment methods.
Digital and mobile wallet issuers protect platform users with a variety of access management and cybersecurity tools.
Encryption
Digital wallets do not display or transmit your credit card or bank account numbers when you make a payment. Instead, the information is encrypted and turned into a random code that is useless to thieves without the key to decode it.
Passcodes and Biometrics
If someone steals your smartphone or tablet, they won’t automatically have access to your mobile wallet. Most applications require the user to complete a transaction by entering a passcode or a biometric verification like a fingerprint or face scan.
Tokenization
This type of encryption takes your credit card number, CVV number, and expiration date and replaces them with a token. When the digital wallet makes a payment, it presents the token rather than your actual account details, so your information is never exposed.
Remote Data Erasure
Apple, Samsung, and Google let you remotely wipe your data from your devices if your smartphone, laptop, or tablet are stolen. This is a great security feature, but because your actual account information isn’t stored in your digital wallet, there is little risk of that information being accessed in any case.
Digital and Mobile Wallets Are Changing How We Do Business
Many of today’s consumers are looking for the easiest, fastest, and most secure ways to make purchases and conduct business transactions. This quest for friction-free payments is driving rapid growth in the digital and mobile wallet industry.
In fact, a recent study found that 71 percent of the U.S. consumers surveyed had used a digital wallet in the past year, with 56 percent of U.S. respondents saying they would feel comfortable leaving their wallet at home and going out with just their smartphone.
First State Community Bank offers a variety of digital and online banking services that make it easy to make payments and manage your money on the go. With services ranging from mobile check deposit to picture pay, you can bank anywhere, anytime.
Download Why You Should Switch to a Community Bank to discover how banking locally provides the technology you need for your mobile lifestyle as well as unmatched personal service from people who know your community.
Stay connected
I've spent years immersed in the world of digital finance and mobile payment technologies. From observing market trends to actively using and analyzing various digital wallet platforms, my expertise in this domain is well-founded.
Digital wallets, also known as e-wallets, are software-based payment systems enabling users to securely store credit, debit, or loyalty card details in the cloud. They facilitate online purchases and fund transfers across connected devices. Mobile wallets, a subset of digital wallets, specifically enable contactless payments via smartphone apps. The authentication process often involves biometric scans or passcodes, enhancing security.
Among the prominent digital wallets, Google Pay, Apple Pay, and Samsung Pay have garnered substantial recognition. Their usage has surged globally, constituting a significant portion of e-commerce transactions, as evidenced by the Global Payments Report.
The benefits of digital and mobile wallets encompass accessibility, efficiency, convenience, and flexibility. These wallets streamline transactions, reducing the need for physical cards and expediting both in-store and online purchases. Moreover, their multifunctionality extends beyond payments, allowing storage of various documents and tickets, promoting organizational efficiency.
Categorically, digital wallets fall into three types: open, semi-closed, and closed. Each type differs in issuer authorization and transaction accessibility. Open wallets, like PayPal and Venmo, offer broader transaction capabilities, whereas semi-closed wallets, exemplified by Stripe and Square, are limited to specific contracted vendors. Closed wallets, typified by Amazon Pay, confine funds for issuer-specific purchases.
Security measures embedded within digital wallets ensure robust protection. Encryption protocols, passcode or biometric authentication, tokenization of sensitive information, and remote data wiping features mitigate risks associated with theft or unauthorized access.
The proliferation of digital wallets is reshaping consumer behavior, with a significant percentage opting for these streamlined payment methods. The ease, security, and efficiency they offer have spurred widespread adoption, with a majority of consumers comfortable using digital wallets as their primary payment mode.
Financial institutions, recognizing this shift, have integrated digital banking services to accommodate the evolving consumer preferences. Services like mobile check deposits and picture pay offered by entities like First State Community Bank exemplify this trend, providing users the convenience of managing finances on the go.
In summary, the trajectory of digital and mobile wallets reflects an evolving landscape where convenience, security, and accessibility converge to redefine modern payment experiences.
