Have you ever thought that we have witnessed another global evolution of the financial system associated with the most important aspect of our life - money? As the experts note, there are four types of currencies that now rule the world: cash (fiat), non-cash, electronic, and crypto.
According to the World Bank, two-thirds of adults all over the world now make and receive digital payments. This way, we can confidently say that virtual money has already affected the world we're living in. But if e-currencies exist, where should you keep them? And that's the moment when e-wallets come in.
E-wallets or e-purses are financial apps that allow users to manage their virtual money via smartphones. E-wallets can store your digital money or payment methods, such as debit or credit cards and bank accounts, allowing you to make payments in stores and on the Internet without carrying around your physical cards. Besides your payment cards, e-wallets can also store your gift or membership cards, coupons, tickets, IDs, and more.
Simply put, an e-purse is a digital equivalent of your physical wallet. E-wallets store funds and payment information in the same way that a wallet stores cash, cards, or checks. If you know what ApplePay, Google Wallet, Samsung Pay, Venmo, or Cash App are, you've probably already used e-wallets.
Digital wallets eliminate the need to have a physical wallet or cards. If you want to start using an e-wallet, you need to install or open an app on your device. Then, you either need to have funds in it or add an available payment method by linking your card or bank account to it. You can deposit funds into your e-wallet via online money transfer from your bank account, debit card, or other digital wallets.
Thus, you can make payments using the available balance or one of the saved payment methods.
There are three main technologies that digital wallets use:
QR codes. QR, or quick response codes, are designed to store various information in the form of matrix barcodes. Your wallet's scanning system can use this code to initiate a payment via your smartphone's camera;
Near field communication (NFC). NFC technology is made to connect two smart devices and let them transfer information through electromagnetic signals. As the name suggests, NFC technology requires two devices to be close to each other to start a payment procedure;
Magnetic secure transmission (MST). MST is the same technology that is used by your credit or debit cards with magnetic readers. To initiate a payment using MST, you need to swipe a card through a slot on the point of sale. Your phone generates this encrypted field that the point of sale can read. But when it comes to e-wallets, it works differently. Your mobile device generates the encrypted field and becomes the point of sale itself. This point of sale can be read by other digital payment machines.
Digital wallets use the highest security standards and methods to protect your financial information. Thus, they are considered safe. Here's what makes e-wallets a secure option:
Your phone and wallet app are secured with a password, fingerprint, or biometric authentication, which provides security at the moment you pay;
Your major payment details, such as credit card number, CVV code, bank account number, etc., are never shown. This data is not displayed anywhere when you make a payment using your e-wallet;
Your data is encrypted, meaning that it's converted into encoded format. This makes it unreadable and secure;
The card issuer also keeps track of fraudulent and unauthorized transactions. If any suspicious activity is detected, an issuer is likely to block your card or account.
There are three main types of digital wallets. Let's find out what they are and how they differ from each other.
Closed wallets are created by specific companies and are used for transactions with the issuer only. This means that you can't use the wallet balance to pay for some third-party products or services. Closed wallets are usually used by businesses that sell items online. They allow users to store money for cancellations, refunds, and returns. An Amazon Wallet is the most popular closed wallet in the US.
Semi-closed wallets are e-purses with limited coverage areas. They can be used to pay for goods and services at specific merchants and locations. If you want to pay using a semi-closed wallet, a merchant must have an agreement to accept such a payment.
Open wallets are issued by banks or other institutions that partner with them. They allow users to make multiple online and offline transactions, transfer funds, and conduct any other transactions from anywhere in the world, provided that a sender and receiver have accounts in the same app. Additionally, open wallets allow users to withdraw money in ATMs.
Although you can easily live without an e-wallet, it comes with many benefits that you can enjoy. Here are some of them:
Security. Many online stores and services accept payments from electronic wallets. You can create one specifically for purchasing goods on the Internet and simply transfer the required amount to it right before paying the seller. It's much safer than paying by your debit or credit card with a large limit. You don't have to specify your card number, expiration date, or CVV code. This means that scammers won't be able to access your bank account and empty it;
Convenience. Digital wallets are easy and convenient to use. All you need is to replenish its balance or link your card or account to it. Then, you can simply pay for any goods and services without carrying a physical card that can be stolen. Additionally, they are handy options for travelers as they can be used all over the world;
Fast processing. All transactions typically process quickly. Even if you want to transfer funds to your friends or relatives that live in other countries, you can do it in a matter of minutes;
Easy to open. E-wallets can be created in a few minutes, with no fees for use and opening. The whole process is digitalized. All you need is your smartphone and a few minutes of your spare time.
Here are some potential risks that you should be aware of before you start using a digital wallet:
Technical issues. System failures or connectivity issues may happen at any moment, preventing you from accessing your wallet account. This way, you may have to change your plans or wait until the problem is fixed;
Hidden fees. Some wallets have additional fees that they don't display openly. There may be transaction fees, account maintenance fees, or foreign exchange fees. Thus, you need to check out a wallet provider's fee schedule to make sure you know what additional costs can be caused by your actions;
Fraud. Scammers can try to get access to your e-wallet account and use it for unauthorized transactions. This can result in money losses. If you notice any suspicious activity, you need to immediately report it to your digital wallet provider;
Inconsistent security. You need to use only verified e-wallets with two-factor authentication. Although digital wallets are considered safe, they can still be hacked. There are no wallets that will be 100% impervious to cyberattacks. Thus, when you use a reputable provider with high security standards, you're more likely to keep your money safe.
Digital wallets are quite simple to open. Follow these steps and enjoy an innovative and convenient way of managing your finance:
Choose a suitable wallet app and download it on your device.
Enter all the required information. Most wallet providers will require your personal and contact information.
Set a PIN. There can also be additional security methods, such as fingerprint or biometric authentication.
Add your payment methods. You can link several cards and choose the right one at the moment you pay.
Enjoy! Make payments with your smartphone without the need to have your physical wallet or card with you.
Contactless payments became pretty popular during the COVID pandemic years, and the upward trend continues. Many experts think that almost a third of the world's population will be using digital wallets by 2024. More than that, we can expect the merger of e-wallets with super apps to meet the demand of users who are looking for multifunction tools that can give them access to various core features and mini apps. Thus, we can say that the current single-function payment apps will eventually disappear.
E-wallets are digital equivalents of physical wallets. They offer more convenience and new opportunities to users who want to manage their finances efficiently. All you need to get started is to install an app, enter your data, and link your payment cards to it. E-wallets are safe, convenient, fast, and easy to open and maintain. However, they also come with several potential risks that you should be aware of.
As e-wallets keep gaining popularity, you can also appreciate them and benefit from this innovative way of making payments and transactions without worrying about a limited coverage area. Just choose a reliable e-wallet provider to ensure your finances are safe.