What types of Digital Wallets are there?

Digital wallets can be divided into several categories based on the actions they allow users to perform.

Closed wallets

Closed wallets enable users to make online transactions through a mobile application or website. Generally developed and offered by businesses to their customers, these wallets allow users to make transactions only with the issuer of the wallet. Any purchases or refunds go through and stay in the wallet.

A popular example of a closed wallet is Amazon Pay.

Semi-closed wallets

Semi-closed wallets similarly allow users to make payments at certain merchants. Though they have limited coverage − meaning merchants that accept payments via those wallets must first enter into an agreement with the issuer of the wallet − they generally allow both online and offline transactions.

Open wallets

Open wallets are the least restrictive type of digital wallet. The issuers of such applications are either banks or partnered with banks, and they allow their users almost all types of online and offline transactions. In addition, users can easily transfer funds to someone else’s wallet, as long as the parties have accounts in the same application.

How does a Digital Wallet work?

Digital wallets are easy-to-use applications that are designed to be used on mobile devices. They store all the user’s information, either payment information or personal information and important documents or assets, removing the need for carrying a physical wallet.

When making a purchase, there are different technologies leveraged by digital wallets; they can do the following:

Read QR codes

By simply viewing a QR (Quick Response) code through the camera of your phone, most if not all digital wallets will open and allow users to make a single transaction, regardless of whether it’s an online or offline purchase.

Use NFC

NFC (Near-field Communication) is a technology that has been present in mobile devices for over a decade now and existed for decades before that. It is simple, yet effective, and allows two electronic devices to connect and conduct a transaction wirelessly.

Do you have a chip that opens the entrance to your home or an access card for your office? Chances are very high that those devices use NFC.

Use MST

MST (Magnetic Secure Transmission) is almost the same as NFC in that it allows users to make wireless transactions. The difference is that it uses magnetic waves to transmit information, so it also works with devices that allow you to swipe your credit card, for instance. If your mobile device supports it, the chances are good that almost all popular digital wallets will allow you to use it.

You might wonder, if payment wallets are used for payments, what the value is of wallets that store information about assets and personal documents? These wallets, despite not being used for payments, also provide high value for users.

Apart from the obvious fact that all your important documents are easily accessible 24×7 without being physically with you, these wallets provide many handy additional capabilities, for example, reminding you of the expiration dates of policies, ID documents, and credit cards.

Is a Digital Wallet safe?

Digital wallets are considered safe to use. They are designed with several layers of protection:

• First, your payment method (credit card, bank account, etc.) has its own protection, which most definitely should include two-factor authentication. In other words, before adding your card to a digital wallet, you’re asked to explicitly authorize that action.
• In addition, those applications are usually built by companies who take security very seriously. Working with banks (or being a bank) involves countless security audits and certifications that ensure the processes and practices within the developer or issuer of a digital wallet are secure.
• Digital wallets also have their own customer-facing protection, which involves two-factor authentication as well, be it by email, phone or the built-in capabilities of your device (such as fingerprint scanning, face recognition, and pass codes). If you chose to, you could authenticate every single transaction with those several layers of protection.
• Last, but not least, a mandatory expectation is that the information in digital wallets is securely stored with bank-level encryption.

While digital wallets and the whole ecosystem they are part of is inherently safe, don’t rely solely on someone else to protect your valuable data. Make sure you:

• regularly change your passwords
• use different passwords or passcodes for your device and your digital wallet
• avoid using unsecure networks
• lock your phone or other device when you’re not using it.

How to choose a Digital Wallet?

There is a huge variety of digital wallet applications available today. You may find it overwhelming when trying to choose one. There are, however, some factors to consider that may help you make the right choice:

1. Check the safety and security features of the applications you’re considering. The more security options you have access to, the better you’ll be protected

2. Be aware of additional charges. With such a dense market in terms of available digital wallets, there are plenty of options that do not involve additional charges when using them.

3. Don’t neglect user experience and the simplicity of registration and use. Verification software has evolved significantly, and there’s no point in using an application that has an unnecessarily complicated verification process.

4. Consider the type of digital wallet and transaction options. It’s always better to go with the application that allows you the most options in terms of usage.

5. It’s never a bad idea to go through the reviews other users have left for each application. People will rarely leave a review if they’re satisfied, but they’re very likely to do so if they’ve faced certain problems.