Digital Wallets – Changing the Way We Pay

By Dawn Kellogg

We hear the phrase “digital wallet” used regularly, but what exactly is it and how can it simplify your life?

The use of digital wallets has become increasingly popular over the years. According to a study by McKinsey & Company, as of 2022, 89% of Americans have used at least one form of digital payment.

A digital wallet is a transaction app that stores your payment information and passwords in the cloud. You may have encountered them when you make an online purchase, and your card number and details automatically pop up in the “check out” screen. A contactless form of payment which gained popularity during the pandemic, Digital wallets store your payment options, such as credit and debit cards, allowing you to conveniently use your smartphone or smartwatch to make a purchase.

In addition to credit and debit cards, you can store gift cards, membership and loyalty cards, coupons, tickets for events and travel, and more. You can also use digital wallets to transfer money to other people.

ApplePay¹, Google Pay² and Samsung Pay³ use Near Field Communication (NFC) to process payments. This allows two devices to exchange information if they are placed close to each other. Look out for compatible card readers at the checkout of your favorite merchant. Samsung Pay also utilizes Magnetic Secure Transmission (MST) which generates a magnetic signal (like when you swipe the magnetic stripe on a credit or debit card. The signal is transmitted to the payment terminal’s card reader.

Participating merchants will generally have a contactless payment indicator on their point-of-sale system or card reader. The symbol looks like a sideways Wi-Fi icon.

QR Codes are scannable barcodes which you can scan with your smartphone’s camera. If you use PayPal, for example, you can generate a QR code that lets you use your account to pay for an item in a store.

Peer-to-pear payment apps like Zelle⁴ and Venmo are uniquely social digital wallet apps which allow you to directly pay a merchant or an individual, but you can only send money to those accounts with the same app.

There are also “closed” digital wallets, like the Starbucks app which is designed for use only at that specific store, and Walmart Pay which you can use for purchases at Walmart.

The type of phone that you carry will dictate which digital wallet you can use. You can’t use Apple Pay on an Android phone, for example, however, a digital wallet like PayPal is available both through the Apple App Store and Google Play.

With new technology comes a bit of apprehension – especially if it concerns banking and credit card information. Digital wallets are encrypted and have a built-in safety feature called “tokenization” which keeps your credit or debit card number secret. When you pay for an item, instead of sending your actual credit or debit card to the merchant, the digital wallet generates a one-time-use token made up of random numbers. That “token” is what the merchant uses to process the payment, keeping your personal information secure. Plus, a PIN or biometric information (fingerprint or facial recognition) is generally required to access your digital wallet in the first place, adding another layer of security.

Ultimately, your information is useless and unreadable to fraudsters when encryption and tokenization are used jointly. Even if a retailer that visited has their information hacked, your personal information is still protected due to the multiple layers of protection that a digital wallet offers. Paying using a digital wallet is generally safer than paying with a chip or magnetic stripe. If someone steals your card, it’s easier for them to use it, but with a digital wallet, there are added layers of security.

As with everything, you do need to exercise caution. Always keep tabs on your phone and cover your passcode if you are in a public place.

Digital Wallets are a relatively new technology, and not all merchants accept them yet, so you will still need to carry a credit or debit card as a backup payment method. Different types of digital wallets have different features and uses, so you may find yourself using more than one. Look out for more retailers using this technology as consumers become more comfortable with digital financial services.

1. Apple the Apple logo, Apple Wallet, iPad, and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. Apple Pay, Touch ID, and Face ID are trademarks of Apple Inc. ↩︎
2. Google Pay and the Google Pay logo are trademarks of Google LLC. ↩︎
3. Samsung and the Samsung logo are trademarks of The Samsung Group., registered in the U.S. and other countries. Samsung Pay is a trademark of The Samsung Group ↩︎
4. Mobile network carrier fees may apply. Must have a bank account in the U.S. to use Zelle®. Transactions typically occur in minutes when the recipient’s email address or U.S. mobile number is already enrolled with Zelle®. In order to send payment requests or split payment requests to a U.S. mobile number, the mobile number must already be enrolled with Zelle®.
   View the Digital Wallet Terms & Conditions or our Digital Banking Guide for details. ↩︎