# What Is a Digital Wallet?

![Digital Wallet: An application on an electronic device that stores payment information and allows you to securely make purchases without carrying cash or cards.](https://www.investopedia.com/thmb/A_ZZdxQuax3s-XHVCT5chxNbu8E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/digital-wallet.asp-FINAL-2-3a1808ac331f411da5e0e516d9ec69fc.png)

*— Investopedia / Joules Garcia*

## What Is a Digital Wallet?

A digital wallet, also known as an electronic wallet, is a software application that stores your [payment](https://www.investopedia.com/terms/p/payment.asp) details and passwords, enabling seamless transactions on connected devices, chiefly mobile phones. By securely holding your financial data, [digital wallets](https://www.investopedia.com/terms/m/mobile-wallet.asp) remove the necessity for physical wallets. You simply load your credit, debit, or bank account information into the application, allowing you to conduct purchases directly via your device without the need to carry physical cards.

Digital wallets can also store:

*   Gift cards
*   Membership cards
*   Loyalty cards
*   Coupons
*   Event tickets
*   Plane and transit tickets
*   Hotel reservations
*   Driver's license ( only in some states as of now, AZ, CO, GA, MD)
*   Identification cards
*   Cryptocurrency
*   Car keys

Learn more about digital wallets, how they work, and how you can use them.

### Key Takeaways

*   Digital wallets are software applications that store payment information and enable secure transactions using mobile devices, potentially replacing physical wallets.
*   They utilize wireless capabilities like Bluetooth and WiFi to securely transmit payment data to points of sale, offering convenience but relying on device connectivity.
*   Various types of digital wallets exist, with some allowing additional features like cryptocurrency transactions and deposits through partnerships with financial institutions.
*   There are age restrictions for using digital wallets, though some services offer options for minors to participate under parental supervision.
*   While digital wallets enhance access to financial services, not all merchants accept them, and there are security risks if the device is lost or hacked.

## Understanding the Functionality of Digital Wallets

Digital wallets are apps that use mobile devices' features to give better access to financial services. They store all payment info securely, so you don't need a physical wallet.

Digital wallets use a mobile device's wireless capabilities like Bluetooth, WiFi, and magnetic signals to transmit payment data securely from your device to a point of sale designed to read the data and connect via these signals.

Mobile devices and digital wallets currently use these technologies:

*   **QR codes**: Quick response codes are matrix bar codes that store information. You use your device's camera and the wallet's scanning system to initiate payment.
*   **Near field communication (NFC)**: NFC is a technology that allows two smart devices to connect and transfer information using electromagnetic signals. It requires two devices to be close to each other to connect.
*   **Magnetic secure transmission (MST)**: This is primarily for Samsung mobile phone users. It is the same technology used by magnetic card readers that read your card when you swipe it through a slot at a point of sale. Your phone generates this encrypted field that the point of sale can read. Samsung has phased out MST features for Samsung phones from 2021 onwards to focus on NFC, which is more prevalent.

Your stored card info is sent from your device to the point-of-sale terminal that connects to payment processors. Then, through processors, gateways, acquirers, and other third parties, your payment travels through [card](https://www.investopedia.com/terms/d/debitcard.asp) networks and banks to complete the transaction.

### Note

When you hold your phone over a point of sale to make a purchase, you're using your digital wallet to conduct the transaction.

As cryptocurrency becomes part of the financial system, companies like Coinbase offer cards for [crypto payment](https://www.investopedia.com/ask/answers/100314/what-are-advantages-paying-bitcoin.asp), with Visa issuing Coinbase's card. Digital wallets like Apple Pay let you add a crypto debit card, which converts cryptocurrency to dollars at current rates for purchases.

## Different Types of Digital Wallets Explained

Many digital wallets are available. Here are some well-known ones:

*   Cash App
*   Apple Pay
*   Google Wallet
*   Samsung Wallet
*   PayPal
*   Venmo
*   AliPay
*   Walmart Pay
*   Vodafone M-PESA

Most wallets attempt to distinguish themselves from their competitors with different methods. For example, Google's digital wallet service allows you to add funds to the wallet on your phone or device.

Apple, on the other hand, entered into a strategic partnership with Goldman Sachs to issue Apple credit cards and expand its Apple Pay services.

### Age Restrictions and Access for Using Digital Wallets

Most digital wallets have age limits. You can't have your own [Apple Pay](https://www.investopedia.com/terms/a/apple-pay.asp) account if you're under 18, but Apple offers "Apple Cash Family." This lets kids in a family send or receive money and make purchases. Parents must set it up and approve it from their accounts.

Cash App limits services for users under 18. They can make peer-to-peer payments up to $1,000 every 30 days. Services like borrowing, deposits, cross-border payments, and phone support are for those 18 and older.

## Advantages and Disadvantages of Digital Wallets

### Advantages

*   **Limits exposure for financial and personal information**: Having a digital wallet adds security for your credit cards and identification.
*   **Ends carrying a physical wallet and cards**: Possessing forms of payment and ID in your mobile device means you can carry less, avoiding the chance of losing those items.
*   **Can improve financial services access**: The availability of digital wallets gives people in underserved areas more options for payment and commerce.  
    

### Disadvantages

*   **May not be accepted everywhere**: Smaller shops or less-developed areas may not be set up to accept payment via a digital wallet.
*   **May not work if Bluetooth or WiFi isn't available**: If an Internet setup or electronic point-of-sale network isn't functioning, it may not be possible to pay using a digital wallet.
*   **Vulnerable to identify theft or fraud**: If your mobile device is stolen and isn't protected by a password or biometric data, or if your digital wallet is hacked, you could suffer criminal use of the information.

Advantages

*   Limits exposure of financial and personal information
    
*   Ends carrying a physical wallet and cards
    
*   Can improve access to financial services in underserved areas
    

Disadvantages

*   Payment method may not be accepted everywhere
    
*   May not work if Bluetooth or WiFi isn't available or your device isn't charged
    
*   Can be vulnerable to identity theft or fraud if your mobile device is stolen while unprotected, or hacked
    

Digital wallets don't need [accounts at traditional banks](https://www.investopedia.com/personal-finance/banking-101/). Funds can be stored in online-only banks, giving [unbanked](https://www.investopedia.com/terms/u/unbanked.asp) or [underbanked](https://www.investopedia.com/terms/u/underbanked.asp) communities access to financial services and promoting financial inclusion.

Security might become an issue if you use a digital wallet from a provider that hasn't been vetted or doesn't have an established reputation. If your phone isn't password-protected, you risk giving someone else access to your finances if you lose your phone. Additionally, there might be local businesses you prefer to shop at that don't yet have a point of sale that accepts this technology.

## What Is a Digital Wallet Example?

Apple Pay is an example of one of the more well-known digital wallets. It allows you to access your financial products through your devices and to make purchases.

## Is PayPal a Digital Wallet?

PayPal is a peer-to-peer payment and money exchange platform, but it has a digital wallet included in its app.

## Do I Need a Digital Wallet?

You don't necessarily need a digital wallet. However, they offer a convenient way to pay for your purchases because you don't have to carry credit and debit cards around; that information is instead stored in the cloud. This also increases card security—you can't lose your cards if you don't carry them.

## The Bottom Line

A digital wallet is a type of financial transaction app that runs on any connected device. It securely stores your payment information and passwords. Mobile wallets are a form of digital wallet most often used on mobile devices.

One of the biggest advantages of digital wallets is that they let you pay for things without credit or debit cards, once you enter and store your card and banking information in the mobile payment platform.

> **Article Sources**
>
> 1.  Host Merchant Services. "[MST Payment Explained: Samsung MST Compared to NFC](https://www.hostmerchantservices.com/2022/12/samsung-pay-mst-payment/)."
>     
> 2.  The Verge. "[The Galaxy S21 Doesn't Support Samsung Pay's Most Convenient Feature](https://www.theverge.com/2021/1/14/22231392/samsung-pay-mst-feature-discontinued-galaxy-s21)."
>     
> 3.  Coinbase. "[Coinbase Card](https://card.coinbase.com/)."
>     
> 4.  Apple. “[Introducing Apple Card, a New Kind of Credit Card Created By Apple](https://www.apple.com/newsroom/2019/03/introducing-apple-card-a-new-kind-of-credit-card-created-by-apple/).”
>     
> 5.  Apple Support. "[What Is Family Sharing?](https://support.apple.com/en-us/105062)"
>     
> 6.  Apple Support. “[Set Up and Use Apple Cash Family](https://support.apple.com/en-us/HT211324).”
>     
> 7.  Cash App. "[Features and Limits for Family Accounts](https://cash.app/help/us/en-us/64866-features-limits-family-accounts).