Contactless Payments: Getting Started With Digital Wallets

Published on: October 23, 2023
Last Updated: October 23, 2023

Contactless Payments: Getting Started With Digital Wallets

Published on: October 23, 2023
Last Updated: October 23, 2023

In 2020, digital wallet transactions in the US reached over 500 million and are expected to double by 2025.

This figure suggests that the number of PayPal, Google Wallet, Apple Pay, and other mobile wallet users is steadily increasing.

Although more consumers are shifting to digital wallets, you could be one of those still unfamiliar with these online payment applications.

After seeing a loved one use a digital wallet, you were convinced to download one for convenience. However, you don’t know how to use it.

So, how do you use digital wallets, what makes them convenient, and what are their potential risks? Keep reading to find out.

Understanding Digital Wallets and Their Functions

Digital wallets, or mobile and electronic wallets, are financial applications that store your money and payment information in the cloud.

Digital Wallets and Their Functions

You can access them on your computer, but they are mainly used on mobile devices. They let you pay for goods and services using your smartphone, reducing the need to bring cash or cards.

While digital wallets—like PayPal and Alipay—are generally separate solutions, some banks with mobile apps include them in their features.

Using one, you can store all your financial information in one database, including driver’s licenses and identification cards.

These wallets are powered by the smartphones’ wireless integrations, such as Wi-Fi, Bluetooth, and magnetic signals, to transfer payment data to a point-of-sale (POS) system.

Currently, digital wallets use the following technologies:

  • QR codes: Matrix bar codes that store payment information. You use your smartphone’s camera or the wallet’s scanning system to scan the code and initiate transactions
  • Magnetic secure transmission (MST): Similar to the integration used by magnetic card readers, this technology enables wireless payments with conventional magstripe systems

After transmitting your payment data to POS systems, digital wallets will route your payment through banks or credit card networks to make successful transactions.

As digital wallets continuously expand their capabilities, more integrations are developed to cater to more complex financial services.

They let you monitor other essential financial commitments, such as your mortgage loan.

Why Embrace Digital Wallets?

Reducing the need to carry cards and cash is an obvious advantage of using a digital wallet. Here are the other reasons to embrace one:

Convenient Money Transfers

Besides storing, digital wallets let you transfer money to other wallets and banks. 

Suppose you need money to make an emergency purchase and ask your loved ones for immediate help.

Rather than going to your friend’s or relative’s house to get the cash, they can send you the money using their digital wallets.

This way, you can quickly purchase the item or service you need. You can then pay them back using your digital wallet.

Whether the money comes from your bank account, cards, or mobile wallet balance, you can all send and receive them through a digital wallet, making your payment transactions more convenient.

Immediate Access To Credit Or Debit Cards

When credit or debit card applications get approved, most card issuers require you to wait for physical cards, but some don’t.

Immediate Access To Credit Or Debit Cards

These issuers provide virtual cards or instant numbers you can add to your digital wallet while waiting for the physical ones.

For example, American Express offers the Instant Card Number. Moreover, you can apply for a similar program on Chase under their “Spend Instantly” offers, while others only issue digital cards.  You can immediately use them once they’re approved with a digital wallet.

Quick Online Shopping

With many e-commerce brands available, online shopping has been the norm for most consumers.

A digital wallet lets you pre-save your payment information, making the checkout process quick and easy.

You also get an extra layer of security when you use digital wallets to make online purchases.

Most digital wallets offer biometric authentication or one-time passcodes you must input before completing the transaction. 

Expense Tracking

Digital wallets have transaction history integrations, allowing you to view past purchases, transfers, and payments. Some wallets also allow you to link your bank accounts.

These features provide an overview of your spending habits and remaining balance. They can also provide graphs and charts to summarize your transactions visually.

Thanks to these integrations, you can track your expenses to prevent overspending. They can also help you organize your digital receipts.

Earn Rewards, Vouchers, And Promo Codes

Digital wallets offer rewards, vouchers, and promo codes for specific purchases. They also grant rewards to users with high credit scores.

If you make on-time payments, you can enjoy exclusive benefits to increase your savings.

Moreover, some credit cards offer special incentives when you add them to your mobile wallet.

On top of these rewards programs, many digital wallets also provide mechanisms to earn more benefits when shopping at select vendors. They give you more opportunities to stack rewards and save money.

The Downsides of Using Digital Wallets

Digital wallets come with potential risks you must understand, including:

Not Compatible Everywhere

Since electronic wallets are relatively new, not all businesses, merchants, and e-commerce brands accept digital wallet payments.

When you go to a physical store that doesn’t take digital wallets, you may have to rush to withdraw if you don’t have cash. It’s best to carry cash or your cards just to be sure.

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Data Privacy And Security Concerns

Digital solutions are not immune to cyberattacks. People have data privacy and security concerns because they upload their sensitive information on digital wallets. These concerns generally result in resistance to change.

Fortunately, mobile wallet companies are continuously working to develop innovative features to make their services more secure.

Many digital wallets now have stringent features that detect fraud and unauthorized access.

Remember that security features aren’t enough. You must ensure optimal security by practicing online safety habits, such as creating strong passwords, using biometrics or two-factor authentication, and updating your app regularly.

Convenience Might Affect Spending Habits

People often struggle with their finances due to poor spending habits. Although digital wallets are designed for seamless payment transactions, this can lead to impulse buying or overspending.

Many digital wallets have budgeting features and spending alerts when you make purchases within a short period to mitigate these risks. This way, you can manage your money efficiently and accordingly.

Technical Errors

Digital wallets won’t function properly all the time. Technical errors like glitches occasionally happen when your app isn’t updated.

Digital wallets are also unusable within specific time frames when the service providers fix issues or conduct maintenance.

Reliance On Electricity And An Internet Connection

Digital wallets won’t work without electricity and an internet connection. They are unusable when your battery runs out or your internet connection malfunctions. 

Suppose you forgot to charge your phone before going outside, and its battery runs out after usage.

You won’t be able to pay for your transactions if you rely on a digital wallet. You’ll need to find a charging station to open your phone first.

Know When To Use Your Digital Wallet

Digital wallets offer convenient and efficient virtual payments. Embracing them doesn’t mean ditching traditional payment methods.

Knowing when to use your digital wallet is essential to ensure seamless transactions. This way, you’re always prepared whenever digital wallet payments are unavailable.

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Written by Allison Langstone

Allison produces content for a business SAAS but also contributes to EarthWeb frequently, using her knowledge of both business and technology to bring a unique angle to the site.