Fintech Insights

What is a digital wallet? A small business guide

April 25, 2022

So what is a digital wallet? A digital wallet allows consumers to keep their credit card and debit card (and much more) information in a secure cloud environment. Consumers can use them to make purchases online with their computer, tablet or even make instore purchases via a mobile wallet application on their smartphone as a contactless payment – all without having to pull out their physical cards.

While the use of digital wallets has been on the rise for more than a decade, the pandemic has skyrocketed the use of this contactless payment above cash and credit card payments. Digital and mobile wallets make online and instore payments quick and easy.

Digital wallets are changing the face of payments, and now is a great time to get caught up. So what is a digital wallet and is it right for your business? This quick guide answers the questions business owners and managers like you are asking about mobile and digital wallets.

What is a digital wallet?

A digital wallet is a cloud-based software that allows you to store things like credit card numbers, debit card numbers, loyalty cards, insurance cards and more so that you can access them from your digital devices (laptop, tablet, computer). You might think of Apple Pay, PayPal and Venmo of examples of digital wallets.

What is a mobile wallet?

A mobile wallet is a secure place to store digital valuables for convenient use on-the-go with your smartphone or smartwatch. Mobile wallets store digital versions of the same things we store in physical wallets, like credit and debit cards, airline boarding passes, concert tickets and rewards cards.

What is the difference between a mobile wallet, eWallet and digital wallet?

Though the terminology and individual features may differ, mobile wallet, digital wallet and eWallet all refer to apps that, among other uses, can act as a payment method. The term mobile wallet is sometimes applied to the use of smartphone apps for payment in-store while digital wallet is used more commonly for the use of the same apps to purchase goods and services online. However, this distinction has become even more blurred as applications evolve. These days, the terms digital wallet and mobile wallet are most often used interchangeably.

What are some examples of digital wallets?

The most well-known digital wallets are intended for general use and are broadly accepted by businesses large and small as contactless payments. These include digital wallets like Apple Pay, Samsung Pay and Google Pay. Other mobile wallets are closed loop and intended for use at one company like many of the popular mobile apps offered by a growing list of popular restaurant franchises. Think Starbucks.

How do digital wallets work with payments?

Digital wallets are mobile apps that work like an updated version of a traditional payment card. Instead of swiping or dipping their cards into a terminal, mobile wallets use near-field communication (NFC) chips to allow consumers pay by simply tapping their mobile phone or smartwatch at a properly equipped contactless point of sale terminal.

While additional security is built in to the app, digital wallets or mobile wallets also integrate a traditional PIN, fingerprint or facial recognition security layers. Then the transaction is designed to proceed as if a traditional payment card was used.

Mobile wallet smartphone apps are backed by traditional credit and debit cards as well as bank accounts. Beyond the differences in how a consumer’s payment information is captured at the point of sale, credit card and debit card transactions are processed as if a traditional, physical payment card was used.

Are digital wallets and mobile wallets safe and secure?

Digital wallets are reliable, convenient and they are also safe and secure. The digital wallets use secure technologies like encryption and tokenization to protect sensitive payment data. Mobile wallets build on the successes of EMV “chip card” technology.

Mobile wallets use secure technologies like NFC so customers can tap their phones rather than swiping or dipping a card. Additionally, some mobile wallets utilize QR codes, email address or phone numbers for contactless payments and allow the secure exchange of tokenized payment credentials – easy even for merchants who maintain a low-tech profile. Each of these wireless technologies create secure connections between mobile devices and point of sale systems.

Mobile wallets benefit from additional layers of security compared to plastic, starting with a smartphone’s built-in biometric security.

How many people use digital wallets?

Contactless forms of payments have skyrocketed over the last few years. Digital wallets share of payments increased by five percentage points in 2020, which equates to three years of growth in a single year. Digital wallets are no longer considered an “alternative payment” type and will likely become the most popular online payment method globally by 2024.

The pandemic accelerated contactless and mobile wallet adoption. In-store mobile wallet payments hit a milestone in 2021, reaching 101.2 million. In addition to record level usage, mobile wallet spend has grown and is estimated to average more than $3,000 by 2023.

Are mobile and digital wallets used online and in-store?

Many all-purpose mobile wallets like Apple Pay, Google Pay and Amazon Pay can be used to pay for goods and services online, both online and in-store. Mobile commerce is expanding dramatically, driven in part by payment methods that are also smartphone-native.

Worldpay from FIS 2021 Global Payments Report reported that mobile wallet share at the point of sale jumped 21% in 2021. Digital wallets comprised 48.6% of e-commerce transactions in 2021 and is projected to rise over 52.5% by 2025.

Digital wallets are a popular online payment method as they’re both safe and convenient. Digital wallets also help reduce shopping cart abandonment and increase conversions because they offer seamless checkout solutions. The e-commerce platform provider Big Commerce estimates that sites that encourage digital wallets for payment saw upwards of a triple rise in mobile cart conversion.

Why should my business accept digital wallets?

Accepting digital wallet payments offers three clear benefits for small businesses:

  • Accepting digital wallets, either in-store or online is convenient. With the rising trend of contactless payments and the increasing reliance on our mobile devices, why would we carry around a plastic credit card if that information was securely stored on your phone or smartwatch for easy use?
  • Accepting digital wallets is secure. Security and data privacy is understandably more important than ever to consumers. Payment fraud remains a serious concern for everyone in the payment ecosystem: consumers, businesses, financial institutions and the payment partners that serve them. With biometric security, tokenization and encryption to ensure security, digital wallets are a secure payment method.
  • Accepting digital payments is easy. Mobile wallet acceptance is built into the majority of point of sale systems with NFC technology, from newer credit card terminals to integrated point of sale systems. You can even accept payment from a mobile wallet with a mobile device of your own. Accepting digital wallets is easy to set up and requires minimal training for your staff.

Are you ready to start accepting digital wallets at your business? Worldpay from FIS partners with small businesses like yours to make accepting payments safe and secure. Start by connecting with one of our payments experts today.

Editorial Note : This article was originally published in July 2019. It has been updated for accuracy and comprehensiveness.

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