Back »

All About Digital Wallets

A digital wallet refers to an electronic application that allows an individual to make electronic commerce transactions. These transactions include purchasing items on-line with a desktop computer, smartphone or other mobile device. Digital wallet software is being developed to do more than just basic financial transactions. They are also increasingly being used as a security feature to authenticate the account holder’s credentials. The uses for this technology are expanding all the time. For example, a digital-wallet could be used to verify the age of the buyer to the store while purchasing alcohol or tobacco products.

Bank account can also be linked to a digital wallet. These accounts can include accounts at a traditional brick-and-mortar bank branch, as well as virtual bank accounts such as PayPal. Driver’s licenses, health cards, loyalty cards and other identification documents can stored in a digital wallet. These credentials can be transmitted to a service provider or merchant’s terminal wirelessly via near field communication (NFC). It is not inconceivable that digital wallets will replace physical wallets, paper currency and plastic cards in the not too distant future.


The term “digital wallet” comprises three major parts: the system, the application, and the device. It has both a software and information component. The software provides security and encryption for the personal information and for the actual transaction. Digital wallets are either stored on the client side, where they are easily self-maintained and fully compatible with most e-commerce Web sites. They can also be what is known as a “thin wallet”, which is a server-side wallet created and maintained by an organization on its own servers. Server-side digital wallets are gaining popularity among major retailers due to the security, efficiency, and added utility it provides to the end-user. They are considered a value-added benefit to their customers, which increases their satisfaction of their overall purchase.

Digital wallet systems enable the widespread use of digital wallet transactions among various retail vendors in the form of mobile payments systems and digital wallet applications. There are various mobile payment systems in use around the world. One system in widespread use across the United States and worldwide is the MasterCard PayPass application.

Digital wallets are always available to consumers free of charge, although vendors charge merchants for wallets. Some wallet vendors charge merchants a percentage of every successful purchase directed through their wallets, quite similar to a credit card processing fee. In other cases, digital wallet vendors process the transactions between cardholders and participating merchants and charge merchants a flat fee.

Digital wallets make electronic commerce easy and secure. It is estimated that more than 25% of online shoppers abandon their order due to frustration in filling in forms when making purchases using a credit or debit card on a website. Digital wallet software combats this problem by transferring consumer’s information securely and accurately. This simplified approach to completing transactions results in better usability and ultimately a more satisfying experience for the customer.