A digital wallet is an app that securely stores your payment information like credit cards, debit cards or bank account details. That way, you can make purchases online or in person without needing your physical wallet. If you've ever tapped your phone to pay or sent money through a peer-to-peer payment app, you've already used one.
Let's learn more about what a digital wallet is and how it works so you can shop, travel and pay with greater ease and security.
How does a digital wallet work?
To understand how a digital wallet works, start by adding your credit card, debit card or payment information to the app. You can usually do this by manually entering your details or scanning your card with your phone's camera. Once set up, you can use your digital wallet to pay in stores, online, or even send money to friends.
Digital wallets use several secure technologies to process payments:
- Near Field Communication (NFC): Allows your phone to communicate wirelessly with payment terminals when you tap or hold it near the reader
- Magnetic Secure Transmission (MST): Sends a magnetic signal similar to swiping a physical card, helping your phone work with older terminals
- QR codes: Some wallets use QR codes for payments either by generating one that a merchant scans or by scanning a merchant's code to complete your transaction
How to use a digital wallet
Learning how to use a digital wallet is straightforward:
- Set up your wallet: Download or open your preferred wallet app on your phone or wearable device
- Add payment methods: Link your credit or debit card, or connect your bank account
- Verify your identity: Follow your bank's or card issuer's verification steps
- Pay with your wallet: Tap your phone at checkout, scan a QR code, or choose your digital wallet as the payment method when shopping online
You can also use your digital wallet to send or receive money, store travel passes and organize gift cards or rewards programs.
Types of digital wallets
There are several types of digital wallets, each designed for different needs:
- Device-based wallets: Digital wallets built into your smartphone or smartwatch
- Bank or card issuer wallets: Many banks and credit card providers offer their own wallet apps for secure online payments and transfers
- Peer-to-peer (P2P) wallets: Apps that can let you send money directly to friends or family
- Merchant wallets: Retailers may offer in-app wallets for faster checkouts and loyalty rewards
What else can a digital wallet do?
Beyond payments, a digital wallet can hold travel documents and other digital items you use regularly. Depending on the app, you may be able to store:
- Boarding passes and event tickets
- Gift cards and loyalty cards
- Membership and rewards cards
- Transit passes
- Even some forms of digital ID (in certain regions)
