What is Digital Wallet and How it Works?
Do You know that Cashless transactions and Digital Payment are the future….
The birth of Digital Wallet and the subsequent development of advanced versions of Digital Wallets are the most important events in the world of managing Fund and Cash at the individual and corporate levels.
We all use traditional leather wallets to hold our cash, credit & debit cards, driver’s license, insurance identification, shopping loyalty cards, and more.
But your wallet or purse grows thicker and more unwieldy.
Also, carrying a leather wallet may be risky as sometimes you may forget the place where we have kept it, or might any thief that gets his hands on your physical wallet can easily blow all of your cash and do much more damage with other valuable information.
What is Digital Wallet and How it Works?
A digital wallet is an app on your phone or tablet or any other mobile device.
It allows you to store virtual versions of items you would generally find in a physical wallet, like credit cards, debit cards, driving licenses, gift cards, coupons, even event tickets, and boarding passes.
The information may be stored either on the device itself or in the cloud.
It actually helps in getting mentally free from carrying any cash or other money-related instruments.
The digital wallet comprises of software and information. The users need to have a secured and encrypted transaction.
A survey states that in Asia, one consumer out of five uses a digital wallet.
As per analysis, around 48.5% of consumers made purchases using smartphones in India, Singapore, and China.
The Indian consumer is leading with around 76.4% using a smartphone to purchase.
This gives a boost to companies like many companies including famous e-commerce websites like Amazon, Flipkart, and many other companies.
How Digital wallet Works?
When you add your personal information into a digital wallet, that data is then converted into a unique code via encryption that authorized entities can only access.
Digital wallets go a step further by also adding in tokenization.
It takes that sensitive encrypted data and replaces it with a non-sensitive digital equivalent known as a token.
These unique tokens are randomly generated every time a user makes a payment, and only the merchant’s payment gateway can match this token to accept the payment.
Ultimately, your information is useless and unreadable to fraudsters when encryption and tokenization are used together.
There are different types of digital wallets.
1- Closed Digital Wallets: These ones are simple to make as they will help one make payments only for a simple application or a website.
It is for one particular brand name that doesn’t allow you to make payments outside, like in the case of Walmart Pay.
This is basically for those companies that have been in business for a long time, but the integration of e-wallets came in some time later.
These support only a specific application.
2- Semi-Closed Digital Wallets: Offering a broader scope of making payments, this type is different than the one we discussed earlier.
Allowing the users to make payments at stores that have an association with the app, this type can be used for online payments as well as payments at stores or restaurants.
However, not all stores and shops might be able to receive money through this medium, hence the name semi-closed e-wallets.
3- Open Digital Wallets: These are the most used Digital wallets as they allow the users to make payments online and at stores at any time.
In this type of digital wallet, the users can easily do monetary transactions by sending money through the platform directly to the accounts of other users.
The service provider allows them to make any transactions from any place in the world, provided both the sender and the receiver have their accounts on the same app.
Advantages of using Digital wallets
After knowing What is Digital Wallet and How it Works? Let’s understand the advantage of it.
1. Security: The most significant advantage of a Digital wallet is security. As explained earlier, it’s very difficult for someone to steal your mobile phone, unlock that & use your digital wallet for doing financial transaction
2. Convenient
It offers more convenience for many consumers. Users are able to get through a purchase in mere seconds; all you need to do is tap your device to the payment receptacle, or have your mobile device scanned, to pay for the items you are purchasing.
So, the experience of buying items becomes quicker and easier – leading to a greater sense of satisfaction.
Furthermore, with faster transactions, checkout lines within stores become much shorter.
3. More option
Digital wallet applications provide a more convenient transaction processing method for customers, giving businesses that employ this technology a competitive edge in the market.
It redefines the user experience of paying and incorporates a novelty aspect to each purchase.
Freecharge allows you to use Digital cash in a number of places such as train tickets, bus tickets, gas, water, electricity, etc. PayPal also has partners such an s eBay, best buy, southwest, and many more.
Thus, Digital wallets offer a variety of options and save your time.
4 – Incentives and Promotions
Each wallet comes with its own set of incentives.
Digital wallets give plenty of money-saving avenues through discounts, cashback, offers, and free gifts.
You can benefit the maximum by going through their offer section and making optimum use of promo codes.
5- Range of uses
Starting from bill payments for DTH, post-paid, data card, and broadband to buying air, bus, or train tickets, you can use an e-wallet for a variety of transactions.
From paying at your local grocery stores to paying for your utilities like gas, water, and electricity, the reach of mobile wallets has gone far and wide.
6. Financial Inclusion: Digital wallets do not require a bank account with a physical firm or branch, often allowing those in poorer and rural areas to be served as well and therefore enables a more comprehensive financial inclusion.
Money can be deposited in the digital wallet prior to any transactions, or in other cases, an individual’s bank account can be linked to the digital wallet.
Users might also have their gift card, driving license, health club card, and other ID documents stored within the wallet.
How has Digital Wallets played a vital role in the current situation of the pandemic?
The current pandemic has brought new social norms of social distancing and lockdown.
This gave a boost to online modes of buying essential things and commodities.
A survey conducted by MasterCard in just three Asia-Pacific nations – Thailand, India, and Australia reported that 88 percent of the respondent in these nations have at least used one online payment mode.
Nearly two-thirds said they tried a new payment method because of the pandemic.
As vendors, especially small businesses, start to realize the need for adopting a modern POS solution to accommodate changing shopper behavior, those businesses will likely gravitate towards payment solutions that handle both online and in-store payments, like Square and Stripe, as they’ll allow merchants to accept the same wallets across channels.
During this pandemic time, Digital Wallet is really helping customers to pay to the merchant while literally sitting at home/maintaining the required social distance.
A simple, convenient, and social-distancing friendly mode of option.
Hope you got clarity on What is Digital Wallet and How it Works?
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