What is a Digital Wallet and Do I Need One?

Cashless payments are continuing to grow in popularity due to their ease and security. One such method is having a digital wallet that works as an online payment tool for all of your spending and purchases.

So what exactly is a digital wallet? And is this something you need for your daily life? In this article, we’ll give you the rundown on how a digital wallet works and what to expect when using one.

What is a Digital Wallet?
Digital wallets store your payment options such as your debit and credit cards, meaning you can make purchases using your smartphone or smartwatch.

It allows you to leave your home without needing to take a physical wallet with you. All of your credit card and debit card data is stored on your device and offers convenience whilst you are purchasing goods or services.

But it’s not just debit or credit cards that a digital wallet can store. It can also hold gift vouchers, loyalty cards, plane tickets, event tickets, membership accounts, and much more. A digital wallet can also transfer money to others through an app. Learn about web 3.0 wallet here to find out more.

How Does a Digital Wallet Work?
Depending on the type of digital wallet, they implement different technologies for everyday use.

Near field communication (NFC) is where two devices in close proximity to each other can trade or exchange information. For these digital wallets, a merchant will need to have a compatible card reader and will usually have a sign to indicate this.

QR codes are barcodes that are compatible for scanning by a smartphone camera. QR codes are a great way to receive and pay for items without the need for a human element. This was a popular technique for many restaurants and bars in the COVID-19 pandemic to minimize contact with customers and servers.

Magnetic secure transmission (MST) is where a magnetic signal is generated, similar to the magnetic swipe on the back of a debit or credit card. This signal is fed back to a card reader and payment can be taken.

How Safe is a Digital Wallet?
When a new technology surrounding payment tools comes on the market, everybody is understandably always concerned about its safety and security. This is especially the case when it involves sensitive payment information like banking and credit card details. The last thing you want to do is to expose yourself and your details to scammers.

However, digital wallets operate with a level of security known as ‘tokenization’ whenever you make a purchase or buy an item. To put it simply, whenever you use your digital wallet, it generates a one-time use token that’s comprised of random numbers. The token is what’s used to make the purchase and your personal information remains secure and confidential.

There are also additional layers of security with digital wallets that credit and debit cards don’t have. For example, if you’re using your smartphone or smartwatch, you can add a PIN or incorporate biometric data (such as a fingerprint or face scan) before every purchase. Having said that, it’s still important to remember to always be discreet when entering a pin or passcode in a public domain.

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