What Is A Digital Wallet?

A digital wallet is a convenient way of storing user’s payment information and security information like passwords to access them conveniently and conduct transactions quickly and easily. This process is all accomplished through near field communication technology. You can complete e-transactions in a matter of seconds!

The Digital Wallet

Users need not worry about remembering their security information like passwords. The digital wallets will all store it for them.  And all these functions just on their smartphones. The digital payment system holds a wide variety of data, through the digital payment system, including vouchers or coupons. So it is an asset in today’s online world.

How Does A Digital Wallet Work?

For conducting e-transactions through your digital wallet, you must first ensure that your wallet has enough money in it, which means that you will have to top it up or load it. Or you could link it to a bank account so that the money can go from there to your digital wallet and vice versa. This process shows the flexibility of a digital wallet.

They Are All Digital

Most digital wallet software work through apps on smartphones. For example, if you are at the supermarket, you can tap your phone to a relevant checkout register to instantly pay your dues. You can easily use other digital wallets through simple and basic information—for example, your mobile phone number and an associated PIN (personal identification number).

Digital Wallets Are Secure

But no matter which forms it is in, digital wallets are based on encryption soft wares that act as a replacement for your conventional wallet during monetary transactions. A significant benefit of digital wallets is the security and convenience they provide. Merchants can benefit from digital wallets because this makes them more protected against fraud, and they can sell more products faster.

Cloud Or Client

We can divide the types of digital wallets into two broad categories which are:

  • Client-side digital wallets
  • Server-side digital wallets

If we further divide both of these categories, we will find out that wallets only function with specific vendors (online or offline). And others will work with almost any seller or merchant.

Client-Side Digital Wallets


The first category is the client-side wallet. Client-side wallets refer to those digital wallets maintained or managed by the end-user. You can download/install software and insert your relevant payment information (account number or phone number and set up a PIN) and your shipping information (address and billing information).

They stored this all information generally on your personal computer.

After this, when you decide to check out and make a purchase on a website, your digital wallet software will complete the transaction by entering all your relevant information that you already stored on it. So you end up buying a lot of stuff! And all in a matter of minutes.

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Server-Side Digital Wallets


The second type is the server-side wallet. An example of this server-side wallet is Visa’s V.me digital wallet. This example works in a very convenient way. Instead of storing data on your hard drive, all of your wallet data can be stored and maintained by the Visa on the Visa Company’s secure computers. So any ambiguity regarding security is eliminated.

The checkout process at V.me-supported retail sites is speedy. You type your V.me email address and password, and the order will be complete. The store will receive the payments from whichever credit card account you choose, and you will not have to worry about typing all that information. You also don’t have to reveal your credit card information on any website. This possibility further protects you from hackers or misuse of your credit card.


A V.me account works with other cards in addition to your Visa card. It allows you to store data from another bank account or your other cards such as your Master Cards, Discovery cards, and much more. Additionally, V.me also remembers and retains all your shipping information.


In a server-side wallet, the server maintains your e-wallet account. This part means the servers store the company’s relevant information supporting the digital wallet (Visa). You don’t have to use any physical plastic cards. This type of account eliminates the risk of losing the cards and the risk of anyone stealing them.  Both the user and the seller or retailer benefit from this collaboration. Without this system, you could be subject to deal with a high risk of credit card fraud.

Are Digital Wallets Safe?

While most of you may have a hard time believing this, digital wallets are pretty safe. They are much safer than physical cards. And this is all because mobile payments or e-transactions through digital wallets are heavily encrypted and even tokenized. This coding means that the digital wallet stores none of the actual card or account numbers and other information. But how is it stored?

How Does This Process Work?


When you add your information into your digital wallet, it converts into a unique code. This process is called encryption, and highly authorized entities can only access this under specific circumstances.


Digital wallets add more security by going a step further. This step is called tokenization. Tokenization takes your sensitive encrypted data and replaces that with some non-sensitive digital equivalent known as a token. Every time a user makes a payment, it generates unique tokens randomly. The merchant’s gateway has to match for it to make a transaction. So it is an entirely safe procedure!

User Verification

Any information you enter is ultimate of no use to third parties, such as fraud. Thus all your information is protected, and you don’t have to worry. User verification further shields you from fraud. The user can either verify through SMS, face recognition, a fingerprint, PIN, or email. So you have three layers of protection.

The Bottom Line

All in all, digital wallets have made life so much easier. The convenience is immense, and they indeed are an asset to online shopping and businesses. And on top of that, they are pretty safe because of the heavy encryption.

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What to read next?

Hi, we are Lena and Chris. A finance-addicted couple from Germany. Ever since we can remember we are interested in finance. We love to research and review complex topics. As we were quite familiar with the world of finance at all, we thought we should share this information with the rest of the world. Our main reason we do this is to help people to orientate themselves in the confusing daily finance puzzle.


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