So much has changed in the financial industry thanks to technology. One of the significant changes in the finance industry is the introduction of digital wallets. A digital wallet has eliminated the need for individuals to carry cash or debit and credit cards to make payments.
Below is a comprehensive guide on everything there is to know about digital wallets.
What Is a Digital Wallet?
A digital wallet is an online payment app that allows people to link their bank accounts, debit, and credit cards, enabling them to make payments with just a wave or a tap of their smartphones.
This eliminates the need for individuals to have cash, credit, or debit cards with them when making payments. And that’s not all; digital wallets also allow one to store their gift cards, coupons, loyalty and membership cards, and plane and event tickets. Moreover, some digital wallets enable individuals to transfer money to others.
Examples of digital wallets include PayPal, Apple Pay, and Google Pay.
How Do Digital Wallets Work?
When making payments with a digital wallet in a physical store, all an individual has to do is hold or wave their smartphone or smartwatch over the store’s Point of Sale device (POS). Then, the payment processing procedure automatically takes place, and the money is reflected in the merchant accounts.
With online stores, most merchants have digital wallet checkout sections, enabling buyers to use their digital wallets to make payments.
Typically, different digital wallets use various technologies to initiate the online payment processing procedure once an individual use their digital wallet to make a payment. Here’s a brief explanation of each technology.
1. Near Field Communication (NFC)
This technology enables two devices to exchange information once placed near each other. In this case, an individual’s smartphone or smartwatch automatically “communicates” with a store’s card reader once they wave their device over the POS, initiating the online payment processing procedure. However, the store has to have an NFC-enabled POS to enable people to use digital wallets to make payments.
2. Magnetic Secure Transmission (MST)
Magnetic Secure Transmission generates a magnetic signal, similar to the magnetic strip on a credit or debit card. So, when an individual is making a payment using a digital wallet, all they do is place their device near the POS. Then, the magnetic signal is transmitted from their device to the POS, initiating the online payment processing procedure.
3. QR Codes
With this technology, there’s a QR Code that individuals scan using their devices to make their payments. With QR codes, the merchant makes a payment request using their POS. Then, a list of the digital wallets the POS accepts appears, and the merchant chooses the one the buyer uses. Next, the QR code is generated, and the buyer scans it with their device’s camera to initiate the online payment processing procedure. Finally, the payment reflects on the merchant accounts.
4. Digital Wallets Are Secure
As excepted, digital wallets are highly secure, protecting people’s information as they make payments in online and physical stores. One of the security methods these digital wallets use is card tokenization.
With card tokenization, a digital wallet replaces an individual’s credit or debit card information, such as the card’s expiration date, PAN, and CVV2, with surrogate data called a token. So, when the individual uses their digital wallet to make payments, it only presents the token, not the original card information.
However, it’s still essential for individuals to implement extra security measures to protect their confidential information when using digital wallets to make payments. People need to secure their digital wallets with a separate password. Individuals should also not use their digital wallets over unsecured WiFi networks.
5. Downsides of Digital Wallets
One of the main disadvantages of digital wallets is that not every store may allow people to pay using digital wallets. This is because they may not have the necessary technology to do so.
How to Choose the Right Digital Wallet
There are many factors people need to consider when choosing a digital wallet. One of the most important ones is security. One should ensure that the digital wallet they want to use has the necessary security protocols and standards to protect the confidential information and money in the wallet.
Another vital factor to consider is the funding method. A digital wallet should allow users to fund their wallets using different options like bank transfer, cryptocurrency, debit, and credit cards.
A good digital wallet should also support multiple currencies, allowing users to facilitate international transactions. Moreover, it should also be highly customizable to a user’s needs and preferences.
Conclusion
More and more people are now switching to digital wallets as they allow them to make payments with a simple wave or tap of their smartphones or smart watches. However, similar to everything else, individuals should consider all the possible factors to enable them to choose the right digital wallet.
