What Is a Digital Wallet?
A digital wallet (also known as an e-wallet) allows users to make electronic commerce transactions quickly and securely. There are two major forms of digital wallets: a service that stores your payment information online and an electronic device such as a cell phone that stores your payment information.
Digital Wallet – Payment Services
A digital wallet payment service functions much like a physical wallet. The digital wallet was first conceived as a method of storing various forms of electronic money (e-cash), but with little popularity of such e-cash services, the digital wallet has evolved into a service that provides internet users with a convenient way to store and use online shopping information. Examples of digital wallet payment services include Paypal, Google Checkout, and Amazon.com’s 1-Click Ordering. This term is also known as “Internet payment services”.
Digital Wallet – Electronic Devices
The term “digital wallet” is also increasingly being used to describe mobile phones, especially smartphones, that store an individual’s credentials and utilize wireless technologies such as near field communication (NFC) to carry out financial transactions. An individual’s bank account and/or credit card information is usually linked to this digital wallet. They might also have their driver’s license, health card, loyalty card(s) and other ID documents stored on the phone. The credentials can be passed to a merchant’s terminal wirelessly via NFC. Certain sources are speculating that these smartphone “digital wallets” will eventually replace physical wallets. The system has already gained popularity in Japan, where digital wallets are known as Osaifu-Keitai or “wallet mobiles” and both Visa and Master Card (with Google) are working on their own systems in the United States.
Although NFC-enabled phones will probably become the standard, any electronic device that allows an individual to make electronic commerce transactions can be considered a digital wallet. This can include purchasing items on-line with a computer or using a smartphone to purchase something at a store. Increasingly, digital wallets are being made not just for basic financial transactions but to also authenticate the holder’s credentials. For example, a digital-wallet could potentially verify the age of the buyer to the store while purchasing alcohol. It is useful to approach the term ‘digital wallet’ not as a singular technology but as three major parts: the system (the electronic infrastructure) and the application (the software) and the device. It can also be used to display apps that store payment services such as Starbuck’s Card Mobile App.
How are Digital Wallets Secure?
Encryption software that works like a physical wallet during electronic commerce transactions. A wallet can hold a user’s payment information, adigital certificate to identify the user, and shipping information to speed transactions. The consumer benefits because his or her information is encrypted against piracy and because some wallets will automatically input shipping information at the merchant’s site and will give the consumer the option of paying by digital cash or check. Merchants benefit by receiving protection against fraud. Most digital wallets reside in individuals’ online accounts or on their electronic devices, but they can also be stored on the credit card issuer’s server in what is called “thin” wallets, which is supported by most modern browsers.