What is a Digital Wallet?
Books, music, pet photos — it's amazing what has been digitized in the last few decades. Today, even wallets have gone digital. Here's a look at how digital wallets work and why you should consider using one.
What is a digital wallet?
A digital wallet (also known as a mobile wallet) is a tool or service that lets you perform financial transactions electronically. Rather than relying on a physical wallet full of plastic, you can easily store your bank account, debit card, and credit card information in a digital wallet on your smartphone.
Used in conjunction with mobile payment systems, all you have to do is wave your phone in front of a reader and pay for a purchase in a snap.1 Some of the most well-known and widely used digital wallet services include Apple Pay® and Google Wallet.2
Benefits of using a digital wallet or mobile wallet
CNBC reported that one in 10 millennials use their digital wallets to pay for every purchase.3 But why would you choose to go digital when your trusty leather wallet has served you perfectly well? There are some major benefits to opting for the digital version.
- Convenience: One of the biggest benefits of using a digital wallet is convenience. Not only can you store all your debit card and credit card information, you can even keep store loyalty cards and online coupons in your digital wallet, eliminating the need to carry all these items around with you.
- Safety: If you lose your physical wallet, you have to go through the process of canceling credit cards and checking your statements for fraud. Plus, if you had any cash on you, it's gone for good. On the other hand, a digital wallet protects all your financial information behind a password. Of course, you need to follow proper security protocol for your smartphone (more on that below).
A digital wallet safely and securely stores your bank account, debit card, and credit card information all in one place.
How to use a digital wallet or mobile wallet
To get set up with a digital wallet or mobile wallet, you'll first need to select and download an app, such as Apple Pay or Google Pay™. The app will assign special digital card numbers for each of the debit and credit cards you link up, which are specific to your app and device only. You'll also need to set up a single password for your digital wallet that grants you access to all your payment options. There's no need to memorize any information other than this password — if you're worried about forgetting it, write it down and keep it somewhere secure such as a home safe or password manager (never in your wallet or on your phone!).
To make a purchase or use a coupon with your digital wallet, look for merchants that feature a contactless payment symbol or that accept payments via your particular app.4
Keeping your digital wallet safe
In many cases, using a digital wallet can be safer than carrying a physical one — but only if you follow certain precautions. Here are a few simple things you can do to keep your digital wallet safe.
- Use two-factor authentication.5 It's always a good idea to password-protect your phone to secure it in case it's ever lost or stolen, especially if you're using a digital wallet. Be sure to set a password to unlock your phone, and if possible, enable fingerprint authentication or a similar two-factor authorization system.
- Never use public Wi-Fi. Even if your phone security is tighter than Fort Knox, your sensitive financial information is still vulnerable to hackers if you use open or unsecured public Wi-Fi networks.
- Set up account alerts. To be on the safe side, it's a good idea to monitor your account activity and keep an eye out for any suspicious transactions. An easy way to stay ahead of potential fraud is setting up text alerts from your bank. For instance, you can receive a text any time a purchase for more than $50 is made.
Important Disclosure Information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- “Digital Wallet," Investopedia, https://www.investopedia.com/terms/d/digital-wallet.asp, April 20, 2018. Back
- John Rampton, “These 14 Top Companies Are Creating an Ecash World," Entrepreneur, https://www.entrepreneur.com/article/279498, July 22, 2016. Back
- Jessica Dickler, “Digital wallets are safe, yet Americans remain wary," CNBC, https://www.cnbc.com/2018/03/02/digital-wallets-are-safe-yet-americans-remain-wary.html, March 3, 2018. Back
- Carmen Chai, “Contactless 'tap-and-go' cards finally enter US market," CreditCards.com, https://www.creditcards.com/credit-card-news/contactless-tap-and-go-cards-us-market.php, November 15, 2017. Back
- Matt Elliott, "Two-factor authentication: How and why to use it," CNET,https://www.cnet.com/how-to/how-and-why-to-use-two-factor-authentication/, March 28, 2017. Back
Do you have questions or ideas?
Share your thoughts about this article or suggest a topic for a new one