Key insights:
- Digital wallets are applications that let you store payment information and make transactions digitally
- There are many types of digital wallets, all of which can be categorized into open, semi-closed and closed options
- Citi supports most digital wallets, and Citi customers can use Zelle® (a peer-to-peer digital payment) to send or receive money online or through the Citi Mobile® App
Digital wallets are applications that allow a person to send or receive money digitally. These tools are becoming increasingly popular for managing payments both in-store and online.
According to a Consumer Reports survey, about 3 in 4 (76%) of U.S. consumers reported using one or more. But not all digital wallets are the same. Some can be used anywhere, while others can be used only at a single business.
In this guide, you’ll learn about the various types of digital wallets and how they differ, so you can choose the right one for your needs.
Types of digital wallets
Digital wallets can be categorized into open, semi-closed and closed wallets based on their functionality and limitations. Let’s look at several types of digital wallets and how they fit into these 3 categories.
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 come pre-installed on some mobile devices.
These digital wallets let you store multiple payment methods and passes, including credit cards, bank accounts, concert tickets and plane tickets. Users can use their phone’s near-field communication (NFC) to pay merchants in person and use information stored in the wallet for online transactions.
Types of open digital wallets include:
- Mobile wallets: These are integrated into smartphones and allow users to store credit and debit card information (e.g., Apple Pay and Google Pay).
- Peer-to-peer (P2P) payment wallets: These are linked to a bank account or card. They enable users to send and receive money directly to or from other individuals (e.g., Zelle®).
- Bank digital wallets: Banks provide digital wallets that link directly to bank accounts for everyday purchases and bill payments https://www.citi.com/citi-partner/zelle/login.
- Cryptocurrency wallets: These wallets store digital currencies like Bitcoin and Ethereum. Users manage private keys to access and transfer their cryptocurrency.
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. 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.
Types of semi-closed digital wallets include:
- Prepaid wallets: Users load funds into these wallets in advance and use them for transactions
- E-commerce wallets: These are designed for online shopping. Users store their payment details within the e-commerce platform to checkout.
Closed digital wallets
Closed digital wallets are issued by a specific company and can be used only for transactions on that company’s platform. These wallets help to make it simpler for companies to issue refunds, provide points, and retain customers.
Loyalty and points wallets are a type of closed digital wallet. These wallets store loyalty points or gift cards. Users may redeem points or use stored value for purchases within specific brands or platforms.
Pros and cons of digital wallets
As more consumers switch to digital wallets, carrying a physical wallet is becoming less necessary for everyday errands. That said, there are a few things to keep in mind before deciding to leave your wallet at home. Here’s a look at the pros and cons of using digital payment apps:
Pros
- Convenience: Digital wallets are generally quick and easy to use, so you don’t have to carry multiple credit cards, transit passes or tickets.
- Contactless technology: It can be simple to pay for a transaction with a smart device, helping avoid wear and tear on your physical card.
- Security: Access requires a password or biometric authentication, such as a fingerprint or face scan. This adds an extra layer of protection for your accounts.
Cons
- Device dependence: Digital wallets might be inaccessible if your mobile device is out of battery. They may also require a strong internet or cellular connection.
- Location exceptions: Not every store supports digital wallets.
- Identity theft: If your login information is compromised, your device’s payment methods could be at risk.
How to choose the right type of digital wallet
Selecting the right digital wallet depends on your spending habits and your financial goals. For instance, you might want an app that integrates with your bank’s checking account, or you might prioritize points for a specific café. Here are 4 key features to consider when evaluating your options:
- Compatibility: Check if the digital wallet works with your mobile device and your preferred merchants.
- Financial integration: Look for apps that sync directly with your current bank accounts to help with smooth transfers.
- Fees: Review any potential costs associated with sending money or maintaining the account.
- Protection measures: Ensure the app uses strong encryption and requires 2-step authentication to access your funds.
Discover digital wallet compatibility with Citi
Digital wallets offer a modern way to handle your daily transactions, especially when you're on the go. Understanding the different types of digital wallets could help you pick the right one for your lifestyle. From open wallets for general shopping to closed wallets for store loyalty points, these apps help to bring convenience to your fingertips.
Citi supports most digital wallets, so you can manage your money on the go. Citi customers can enroll in Zelle® to quickly send or receive money online or through the Citi Mobile® App.
Explore Citi bank accounts today to find an option that fits your financial journey.
Digital wallets FAQs
What is the most popular digital wallet?
Apple Pay and Google Pay are among the most popular digital wallets due to their integration with major smartphone operating systems. Millions of consumers use them daily for contactless payments and online shopping.
Is Zelle considered a digital payment service?
Yes, Zelle® is considered a peer-to-peer digital payment service and is integrated with bank apps. However, Zelle doesn’t hold funds in a separate app balance like many other digital wallets. It’s a peer-to-peer payment network that allows enrolled users to send and receive money directly between bank accounts.
What is the difference between digital wallets and mobile wallets?
A digital wallet is a broad term for any software that stores payment information for digital use. A mobile wallet is a specific type of digital wallet that lives on a smartphone or smartwatch for in-person contactless payments.
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.
To send or receive money with Zelle®, both parties must have an eligible checking or savings account. Transactions between enrolled users typically occur in minutes. For the protection of your account, Zelle® should only be used to send money to friends, family or others you trust. Sending money with Zelle® is similar to making a payment in cash. Neither Citibank nor Zelle® offers purchase protection for payments made with Zelle® - for example, if you do not receive the item you paid for or the item is not as described or as you expected.
Zelle® and the Zelle® related marks are wholly owned by Early Warning Services, LLC and are used herein under license.
