digital wallet

What Is a Digital Wallet and How Does It Work

A lot of people are tempted today to throw away their cash cards as digital wallet startups like Google Pay, Apple Pay, Samsung Pay, and Microsoft Pay have arrived in the market. For the past 4-5 years, digital wallet or online wallet companies have successfully lured new customers in with exciting cash rewards, discounts, and many more things. But do you really understand what a digital wallet is? 

Before we dive into what a digital wallet is and it’s inner workings, there are some interesting facts and stats about digital wallets that I would like to share. According to stat by Statista, in 2020, Apple Pay is projected to be the leading digital wallet with 227 million users worldwide. Samsung Pay and Google Pay are expected to catch up soon. Another stat says that 64 percent of the financial transactions done in 2019 were carried out via a digital wallet. Isn’t it interesting?

What Is a Digital Wallet?  

A digital wallet or an online wallet is an electronic device or online service that allows an individual to perform a financial transaction online, without the need for any physical card. A digital wallet can be used for both online shopping and in-store shopping. For purchasing an item or service online, the user just has to scan a QR code or provide their UPI id to the digital store. Whereas, in-store purchases can be done just by scanning a QR code.

One interesting thing that makes a digital wallet more appealing than other payment options is that a user can link their bank account with the wallet. And to do so, they do not have to visit a bank or even fill-up some sort of form online. All they have to do is enter their phone number (linked with the bank account they wish to transact money from) and verify it with a One Time Password (OTP). That’s it! Now the user can use the digital wallet to make send and receive money.

How Does a Digital Wallet Work?

A digital wallet or online wallets works in the same way as that of offline financial transaction systems. It is basically an online accounting system that manages bank account/accounts of a user. In case you are skeptical (rightfully) about digital wallet companies, they do not have a right to make changes to your bank account. 

It is merely a third party software to withdraw and add money to your actual bank account. Also keep in mind that, you cannot modify bank details like username, phone number, email address, residential address with user-interface provided by a digital wallet company.

Is It Safe to Use a Digital Wallet?

Inherently, nothing connecting to the internet is 100 percent safe. How safe it is to use a digital wallet depends on how you use it. Do not link your primary savings account to a digital wallet. Always link a fresh checking account with a small amount of money in it. Even if something unexpected was to happen, the bulk of your wealth will remain safe and secure in other accounts.