All Share (J203) = 89 062
Rand / Dollar = 18.40
Rand / Pound = 23.22
Rand / Euro = 19.24
Gold (usd/oz) = 2 931.46
Platinum (usd/oz) = 976.70
Brent (usd/barrel) = 76.02
Trade +10,000 CFDs with Tight Raw Spreads. – Trade Now!

Digital Wallet Explained for Dummies

Digital Wallet Explained

What is a digital wallet?

A digital wallet also referred to as an e-wallet, is an application (app) that enables electronic financial transactions via electronic devices (such as smartphones, iPads, or personal computers), and the internet.

A digital wallet is a digitised version of a physical wallet, which is a flat small folding case that is used to carry, amongst other things, paper money, debit and credit cards, a driver’s license, and cards for transportation.

For example, a Gautrain card enables passengers to travel between Hatfield, Centurion, OR Tambo Airport, and Johannesburg in Gauteng, South Africa.

 

The manner in which digital wallets operate

A digital wallet allows users to make payments electronically for services and goods purchased online or in-store, and to transfer money, and receive funds from other parties, such as family and friends.

Prior to any electronic transactions, money can be deposited in the digital wallet, or a person’s bank account can be linked to the digital wallet.

In order to use a digital wallet, a user is required to download digital wallet software on an electronic device such as a smartphone or personal computer.

Nowadays, digital wallet applications (apps) for smartphones are by far the most popular because of what they provide in terms of mobility and flexibility.

Digital wallet apps for smartphones are available on Google Play Store for Android users or the App Store from Apple for iOS users.

There are numerous digital wallet apps available, including those created by commercial banks for their clients.

As with all trustworthy and reliable apps, digital wallet apps require a user to enter his or her password in order to execute online transactions, such as the buying and selling of goods and services or transferring money over an electronic network.

In order to use a digital wallet to make in-store payments in locations such as hypermarkets, coffee shops, or restaurants, a point of sale (POS) terminal that is compatible with a digital wallet is required. A contactless POS system is recognised by the contactless payment symbol, looking like a sideways wi-fi icon.

At present, near field communication (NFC) technology, which can be used for the contactless exchange of data over short distances, allows users of digital wallets to execute financial transactions.

A digital wallet can also be used to withdraw cash from ATMs that are equipped with NFC technology.

 

Types of digital wallets

There are basically three types of digital wallets:

  • Closed digital wallet

A closed wallet refers to a digital wallet that is specifically developed by a firm to sell goods to or provide services for its customers.

Digital money is stored in the wallet and can only be used in transactions with the issuer of the digital wallet. In addition, money from returns, cancellations, and refunds is kept in the wallet to be used for future transactions.

  • Semi-closed digital wallet

A semi-closed wallet enables users to buy from listed merchants and suppliers. Both online and offline transactions can be executed through a semi-closed wallet.

  • Open digital wallet

An open wallet is not restricted to transactions that can only be done with a few businesses. It allows a variety of transactions, as well as withdrawal and transfer of funds.

 

Advantages of digital wallets

  • A digital wallet secures all the payment information of a user in a compact and electronic form. Hence, the need to carry physical wallets is greatly reduced.
  • Digital wallets enable users to transfer money to family and friends residing in different countries. In addition, friends and family who need money while on holiday in foreign countries, can also receive funds via digital wallets.
  • The need for physical banks, especially in rural areas, is eliminated because the opening and maintaining of a bank account can be done electronically.
  • Digital wallets allow developing countries to increase their participation in global financial markets.
  • Traders of digital currencies are required to use digital wallets in order to execute transactions and maintain balances.
  • Firms that use consumer data for their marketing strategies can benefit from digital wallets. The spending habits of customers are studied to enhance the effectiveness of methods to advertise goods and/or services.

However, this can put the privacy of customers in danger.

  • Digital wallets are more secure and faster than using a debit or credit card, enabling users to purchase goods and service easily and fast with NFC technology.

 

Examples of digital wallets

There are numerous digital wallet apps to choose from. The following are a few examples:

 

Google Pay

Google Pay, presented as G Pay, is a digital wallet tied to an individual’s Google account.

It is a free mobile app available on the Google Play Store. The app can be used to request or send money to other people, and to make payments in stores and restaurants with an Android smartphone.

In use since January 2018, Google Pay is a combination of Android Pay and Google Wallet.

Google Pay uses a virtual account number instead of an individual’s credit or debit card information to make payments.

 

Apple Pay

Apple Pay is a digital wallet app that can only be used by iPhone, Apple Watch, iPad, and Mac users. Hence, it cannot be used on any Android device or any browser running on Windows.

It allows users to make transactions in-store and online seamlessly and securely. Although, to execute in-store payments, a compatible POS system is required.

Venmo

Venmo, owned by PayPal, enables easy and smooth transfers between people and allows individuals to easily buy goods.

Venmo is commonly referred to as ‘a social app for paying.’

Other examples of digital wallets are Samsung Pay (by Samsung Electronics) and LG Pay (by LG Electronics).

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Written by:

Louis Schoeman

Edited by:

Skerdian Meta

Fact checked by:

Arslan Butt

Updated:

November 19, 2021

Written by:

Louis Schoeman

Featured SA Shares Writer and Forex Analyst.

I am an expert in brokerage safety, adept at spotting scam brokers in mere seconds. My guidance, rooted in my firsthand experience with brokers and an in-depth understanding of the regulatory framework, has safeguarded hundreds of users from fraudulent brokerage activities.

Edited by:

Skerdian Meta

Leading Analyst

Skerdian Meta FXL’s Heading Analyst is a professional Forex trader and market analyst and has been actively engaged in market analysis for the past 10 years. Before becoming our leading analyst, Skerdian served as a trader and market analyst at Saxo Bank’s local branch, Aksioner, the forex division and traded small investor’s funds for two years.

Fact checked by:

Arslan Butt

Commodities & Indices Analyst

Arslan Butt, a financial expert with an MBA in Behavioral Finance, leads commodities and indices analysis. His experience as a senior analyst and market knowledge (including day trading) fuel his insightful work on cryptocurrency and forex markets, published in respected outlets like ForexCrunch.

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