Digital wallets are applications that allow a person to send or receive money digitally. These tools are becoming standard means for managing payments, both in-store and online.
There are typically three different categories of digital wallets: closed, semi-closed and open. Each has different capabilities and limitations. Some can be used anywhere, while others can only be used at a single business.
This guide will help you understand the types of digital wallets so you can make an informed decision about which one fits your needs.
What are the different types of digital wallets?
Let’s look at the differences between open, closed and semi-closed digital wallets.
Open digital wallets
Open digital wallets may be used across many different merchants and financial institutions for a wide variety of transactions. They may also be provided by smartphone manufacturers and may come preinstalled on some mobile devices.
These digital wallets allow you to store various payment methods and passes, from credit cards and bank accounts to concert and plane tickets.
Users can use their phone’s near-field communication (NFC) function to pay merchants in person, or use information stored in the wallet for online transactions.
Closed digital wallets
Closed digital wallets are issued by a specific company and can only be used for transactions within that company’s platform. These wallets make it easier for companies to issue refunds, provide rewards and retain customers.
Semi-closed digital wallets
A semi-closed digital wallet allows transactions with a select group of merchants. These wallets may be used both online and in store, but not all retailers may accept them.
Some semi-closed digital wallets allow users of participating banks to send and receive money directly within their bank’s app or website, including the Citi Mobile® App.
Pros and cons of digital wallets
There are both pros and cons to using digital wallets.
Pros
- Digital wallets are convenient and typically fast, making it so users don’t have to carry around multiple credit cards, transit passes or tickets
- Contactless technology typically makes it easy to pay for a transaction with a phone
- Payment requires a password or biometric activation like a fingerprint or face scan, adding an extra layer of security
Cons
- Digital wallets might be inaccessible if a device is out of battery and may require a strong internet or cellular connection
- Not every store supports digital wallets
- If log-in information is hacked or stolen, a device’s payment methods may be at risk
When to use a digital wallet
Digital wallets are typically a quick and easy way to pay for everyday transactions. Users with multiple cards or accounts can carry their payment information across different platforms, making digital wallets a convenient tool to send and receive money.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
