What Are Digital Wallets?

Find out which digital wallets you should check out.

A digital wallet is a cashless payment system that stores a user’s payment information and allows that user to make transactions through their devices, without swiping a debit or credit card. These systems are also called e-wallets or electronic wallets. Developers trying to meet the growing demand for digital wallets have introduced an assortment of options for consumers who want to find the system that works best for them.

This article will cover the following points to help you understand more about digital wallets:

What Is a Digital Wallet and How Does It Work?

A digital wallet is designed to work in one of two ways. It can be used as an online banking platform to send and receive money and make purchases on the internet. The other option is to download a digital wallet app, such as Google Pay, to a mobile device and then tap the phone on the payment terminal of participating stores to pay for a purchase. To process the payment, the system instantly withdraws the purchase amount from the bank account or a debit or credit card designated when setting up the digital wallet. Other systems let users keep cash or cryptocurrency in their digital wallets and then use that money to pay for purchases. Depending on the terms of service, users might pay a fee for using the service.

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Are Digital Wallets Safe To Use?

Consumers might wonder if digital wallets are safe to use. In fact, they’re safer than many people think. Although the digital wallet is tied to a bank account, the merchant doesn’t ever see that account number. Instead, the system generates a unique, random transaction number for purchases. Account information is encrypted and available only to people with a password. Furthermore, users can lock their digital wallets remotely if they suspect someone has accessed their bank accounts.

Before using a digital wallet, you should take precautions to protect the information you have stored electronically. Take advantage of your smartphone’s built-in safeguards like biometric access from the lock screen. The phone will ask for your fingerprint or scan your face before opening.

The top digital wallet apps are compatible with multiple platforms and offer a variety of services and fee structures. Review the following options if you’re thinking of using one.

More On: How To Invest In Cryptocurrency With Your Digital Wallet

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Apple Pay

Apple Pay is a service available to users with an Apple device, including iPhone, iPad and Apple Watch. Users can pay for goods and services in physical stores, in the App Store, on websites and through text messages using touch ID or facial recognition. There are no fees to use the service unless you want to instantly transfer money from the digital wallet to your bank account.

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Google Pay

Formerly known as Google Wallet, Google Pay lets users send and receive money free of charge to anyone with an email address or phone number and pay for purchases at a point of sale as long as they have near field communication-compatible devices. It’s available as a smartphone and tablet app and also works on desktops. To set up the system, sign in to your Google account and add the payment method you want to assign to it.

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PayPal

Some people might be surprised to learn that PayPal is considered a digital wallet. It’s available via the company website and a mobile app and is compatible with both Apple and Android devices. Users link their PayPal accounts to their checking accounts and have the option of paying from their PayPal balances or bank accounts. The company also offers PayPal Purchase Protection, which can reimburse buyers who don’t receive the items they order.

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Samsung Pay

More merchants accept Samsung’s digital wallet than any other mobile digital wallet service, the company reported. The mobile app is available through the Google Play store and works on select Samsung devices. Before downloading the app, verify that your device is compatible with the system. In addition to paying for goods and services online and in stores, you can store membership and rewards cards in the wallet so you can save time and money at checkout.

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Venmo

Venmo is a digital wallet owned by PayPal. Users link their Venmo accounts to their debit cards or bank accounts to send and receive money from friends, family or businesses. One added feature that makes this digital wallet stand out is the way it allows groups to interact on the platform. You can share your purchases with your real friends and let them comment on them. The service is free to use if you send money from your Venmo balance or withdraw cash at an in-network ATM. There are fees for using out-of-network ATMs, transferring money from your balance instantly or sending money with a credit card.

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Zelle

Zelle allows individuals to send and receive money to each other through their banks and credit unions. This a free service, but some financial institutions charge their own fees for processing the transactions. For this reason, the company recommends that users check with their bank or credit union before assuming they won’t incur extra charges. Zelle works through a smartphone app and through online banking services provided by partner banks and credit unions.

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Cost and Compatibility of Popular Digital Wallets

The following comparison of cost and compatibility shows how the different digital wallets stack up against each other.

Apple Pay

  • $0 to send or receive money
  • Available on: iOS

Google Pay

  • $0 to send or receive money
  • Available on: Android, iOS, desktop

PayPal

  • $0 for standard transfer money to bank account
  • 1% of amount transferred for instant transfer
  • $0 for payment funded by PayPal balance or linked bank account
  • 9% of payment when funded by credit or debit card or PayPal credit
  • 5% transaction fee for international payments
  • Available on: Android, iOS, desktop

Samsung Pay

  • $0 to send or receive money
  • Available on: Select Samsung devices

Venmo

  • $0 to send or receive money
  • $0 for standard withdrawal
  • 1% for instant withdrawal
  • $2.50 to use out-of-network ATM
  • 3% of payment funded by credit card
  • Available on: Android, iOS, desktop

Zelle

  • $0 to send or receive money
  • Available on: Android, iOS, through bank apps

A digital wallet provides easy-to-use convenience. In just a few minutes, you can order groceries from a supermarket, pay a friend for concert tickets and buy a new outfit from an online retailer. The latest digital wallets go a step further and let you store rewards accounts in the wallet — no more keeping track of the plastic cards. With some trial and error, you can find a digital wallet that meets your needs and transforms the way you shop.

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This article has been updated with additional reporting since its original publication.

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About the Author

Alicia Bodine

Alicia Bodine is a New Jersey-based writer specializing in finance, travel, gardening and education. With more than 13 years of experience, her work has appeared in Chron.com, Livestrong, eHow, USA TODAY, GlobalPost, Education.com and wiseGEEK.

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