What is a Digital Wallet?

C. Mitchell

Increasingly, the Internet is being used not just as a place for information, but also as a place for shopping and commercial transactions. Most of the time, online purchases require payment by credit card or bank account transfer. Technology known as a digital wallet makes online shopping easier and faster by offering consumers an electronic way to store payment information. Digital wallet programs eliminate the need to enter payment information into individual electronic commerce websites. Digital wallets can be created either for general use or for use with a specific web vendor, and can often even be accessed and used from smartphones.

Digital wallets allow consumers to store credit card information online.
Digital wallets allow consumers to store credit card information online.

The term “digital wallet” applies to a range of programs that allow consumers to electronically transfer money from personal accounts in order to pay for goods or services. The concept of the digital wallet emerged as a way to promote safe electronic cash transactions, as well as a way to make online shopping more efficient. The basic premise of a digital wallet, also sometimes called an e-wallet, is to create a secure online space for storing payment information that can be accessed by an authorized user anytime, in any place. No manual entry of account information is required when using an e-wallet program.

More and more purchases are being made with web-capable phones.
More and more purchases are being made with web-capable phones.

There are two basic types of digital wallets: those owned by consumers, and those owned by seller-websites. The simplest wallets are owned by sellers. When a website offers to store payment information for next time, usually accessible by password, the website is offering to set up an e-wallet. That e-wallet will act like a tangible wallet next time that user visits the site. The user will be able to enter his identifying information, and usually then do little more than click to pay. Never once must he reach for his real wallet, or enter any numbers into the site.

A more complicated digital wallet program is a user-owned wallet system. User-owned wallet systems allow users to manually enter their payment information, including credit cards and bank routing data, to create a personalized account. Again, that account is typically secured with a variety of passwords and authentication challenges. Once activated, the account can often be used across the web to make payments on any website that supports its technology. The accounts support electronic commerce by enabling purchases, debits, and deposits using information that has already been stored and validated. Examples of some of the more popular personal e-wallet programs are PayPal™, Neteller®, and Moneybookers, to name a few.

Security is a top priority for digital wallet programs. On the Internet, information can often be captured in transit by third parties, who may or may not have malicious intent. Most digital wallet programs are protected by several layers of encryption to prevent unintended sharing. The programs are also usually secured with passwords and other authentication devices to guarantee that only the named owner can access the stored accounts to make purchases.

Many digital wallets are also mobile-compatible, which means that users can access and manage accounts from their phones. More and more purchases are being made with web-enabled phones, and with that trend, more and more phones support digital wallet programs. Digital wallet programs are also typically equipped to handle micropayment — that is, a payment of a small amount of money — which can be useful in purchasing apps and other accessories for the phone, from the phone. Technology experts and professionals predict that digital wallets will increasingly be the preferred way to pay for most every purchase.

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