Digital Wallet
A digital wallet (or electronic wallet) is a financial transaction application that runs on mobile devices. It securely stores your payment information and passwords. These applications allow you to pay when you're shopping using your device so that you don't need to carry your cards around. You enter and store your credit card, debit card, or bank account information and can then use your device to pay for purchases.
Source: Visa
How a Digital Wallet Works
Digital wallets are applications designed to take advantage of the abilities of mobile devices to improve access to financial products and services. Digital wallets essentially eliminate the need to carry a physical wallet by storing all of a consumer's payment information securely and compactly.
Digital wallets use a mobile device's wireless capabilities like Bluetooth, Wi-Fi, and magnetic signals to transmit payment data securely from your device to a point of sale designed to read the data and connect via these signals.
Currently, the technologies used by mobile devices and digital wallets are:
QR codes: Quick response codes are matrix bar codes that store information. You use your device's camera and the wallet's scanning system to initiate payment.
Near field communication (NFC): NFC is a technology that allows two smart devices to connect and transfer information using electromagnetic signals. It requires two devices to be within about an inch and a half (4 centimeters) from each other to connect.
Magnetic secure transmission (MST): The same technology used by magnetic card readers that read your card when you swipe it through a slot on a point of sale. Your phone generates this encrypted field that the point of sale can read.
The card information you've stored in your wallet and choose to use for a transaction is transmitted from your device to the point-of-sale terminal, which is connected to payment processors. Then, through the processors, gateways, acquirers, or any other third parties involved in credit and debit card transactions, the payment is routed through the credit card networks and banks to make a payment.
Types of Digital Wallets
There are several digital wallets available. Here are some of the most well-known:
Cash App
ApplePay
Google Wallet
Samsung Pay
PayPal
Venmo
AliPay
Walmart Pay
Dwolla
Vodafone-M-Pesa
