These days the term digital wallet is trending. Every other person talks about it. However, the questions must arise in your and others’ minds, i,e. “What is a digital wallet,” “How It Works,” and “is it secure enough” etc.
Precisely, a digital wallet allows users to process contactless payments. It allows users to move digital tokens in exchange for products and services. Users must link their bank account or credit card with the digital wallet. When the digital wallet is linked to your accounts, you can pay your bills, transfer funds and shop online.
Apple Pay, G Pay, Amazon Pay etc., are some of the renowned digital wallets available.
The digital wallet has more features than just clearing bills and transferring funds. Most people lack this knowledge. Therefore, this blog thoroughly analyzes digital wallets, their types and their features.
How Does A Digital Wallet Work?
A digital wallet is a software-based program and online service used on mobile phones. This wallet is programmed to barter currencies and coins. However, the currencies can be traditional and digital ones as well.
It is an encrypted system that accesses your bank account or credit card. So when a user initiates the payment and commands the wallet to move currency or coins to the receiver.
Then the wallet processes the data and verifies the information of the initiator with an OTP or two-factor authentication method. However, the tokens or coins moved from the sender’s wallet land in the receiver’s wallet.
In this way, a buyer buys goods, products or services without having any hard cash or credit card. Also, the digital wallet improves merchant service and makes it easy for merchants to increase their sales.
What Are The Types Of Digital Wallets?
Generally, there are three types of digital wallets.
- Closed Wallets
A closed wallet is a special type that allows users to buy and clear their bills from only a single source. You can use its services only for a single service or website. For example, Amazon Pay is a closed wallet. With this wallet, you can pay for Amazon products only. You can not pay for other sites like eBay or Walmart from your Amazon Pay.
Customers link their bank account or credit card with this wallet, and merchants connect their data and products. So that customers can buy whatever they want. - Semi Closed Wallet
The semi-closed wallet is similar to the closed wallet but contains more options. With this wallet, customers get a list of services or websites rather than a single one. The payments gateways of multiple services allow you to initiate and process your transactions with your semi-closed wallet. Paytm is a prime example of a semi-closed wallet. You can only pay for the vendors listed on the Paytm index. - Open Wallet
The open wallets are more like credit card machines. You can pay at any shop, restaurant or gas station with a credit card. Similarly, with an open wallet, you can pay at any website with payment gateways supporting payments from digital wallets. Examples of open wallets are PayPal, G Pay, and Apple Pay.
Any website with a payment terminal accepting QR code payments, mobile-authorized payments, and contactless payments is good for open wallets.
How Secure Is A Digital Wallet?
As far as the security of a digital wallet is concerned, it is one of the most secure payment methods. The reason digital wallets are so secure is that they are end-to-end encrypted. The transaction information stays between the initiator and the service provider only.
Still, the real-time info of the transaction and OTP or Pincode remains private to the initiator only because of its end-to-end encryption coding. Moreover, every transaction has its specific number valid for one time only. Suppose some hackers attack online payment processors and try to decode the transaction info. They won’t be able to hack this because every transaction has a unique ID.
What Are the Benefits Of Digital Wallets?
Digital wallets are integrated with online payment systems. Online payment systems empower digital wallets to process online transactions. Therefore, to buy or sell anything online, the users and sellers must have access to digital wallets. When talking about the benefits of digital wallets, there are many benefits of a digital wallet. Some of the benefits we enlist are below.
- Ease of Payment
The biggest advantage a digital wallet can provide is ease of payment. Having a digital wallet lets you eliminate any cash or credit card. You don’t need to roam around with cash or credit cards to pay for your shopping. Take out your phone and either transfer the due amount or scan the QR code to clear your payments.
Nowadays, everyone accepts payments via digital wallets, whether a credit card merchant or a traditional merchant. - Additional Security
The 3d security that comes with a digital wallet is a big plus to opting for digital wallets. A digital wallet is an end-to-end encrypted service that allows users to store their funds securely. Unlike credit cards, ATMs and cash payments, digital wallets are efficient and secure. - Fast Service
Digital wallets are very fast when processing transactions, and you do not need to wait in queues to clear your bills. One can easily clear all their payments on their phones in seconds.
Ending Notes
Digital wallets have become the need of the hour. The dependency of everyone on digital wallets is increasing with time, whether it be sellers or buyers. Besides this, digital wallets provide great value as they are efficient, secure, and easy to use. Therefore it’s better to start using digital wallets if you are not using one to enjoy speedy and secure transactions.
