Digital Wallets: Everything You Need to Know About Them
Digital wallets have become an integral part of the digital market. When all goods and services can now be redeemed online, there is a very urgent need for digital wallets to make the transactions much more efficient, cost-effective, easy, and compact. Therefore, the popularity of the concept of digital wallets is occupying the mainstream limelight, especially in the world of online shopping. But even today, some people aren’t aware or are new to the use of digital wallets and how they work. Digital wallets are changing the landscape of the transactions and payment world. So, here we have explained everything that you should know about digital wallets.
What are Digital Wallets?
Digital wallets are software-based wallets that can be installed on an electronic device and used to make payments online. They store the user’s payment information like credit cards, debit cards, gift cards, coupons, and other payment methods virtually. So, whenever a user makes online purchases and transactions, they don’t have to pull out their cards from their pockets and enter the details. Instead of this, users can easily select the digital wallet as a payment method and make the transaction easily.
How do Digital Wallets Work?
Digital wallets, as mentioned above, are software-based wallets. This means that they use dedicated software to connect your bank account to the merchant to which the transaction is being made. Different types of wallets allow different levels of access to merchant transactions. For example, open wallets allow transactions across all the online platforms, whereas closed wallets allow you to make payments only on the issuing platform.
Types of Digital Wallets
There are mainly three types of digital wallets that are used in the market. These are closed wallets, semi-closed wallets, and open wallets.
Closed wallets are the type of digital wallets. The company that originally sells goods and services can issue such wallets to their users. So when the user deposits some funds in that wallet, they can use the money to buy goods and services from the issuing company only. Also, the wallet can not be used to pay money on other online shopping platforms. When the transactions are canceled, the refunds reflect in the wallet balance. Ola Money, Uber cash, Amazon Pay are some of the examples of closed digital wallets.
You can regard semi-closed wallets as a sub-type of closed wallets. The only difference is that these wallets allow you to make payments to the merchants and locations listed on their partners’ list. In addition to this, the merchants have to enter agreements in order to receive payments from these digital wallets. Some of the examples of semi-closed wallets are PayTM wallet, PayU Money, etc.
Open wallets are issued by banks. They allow you to make payments and transactions on all platforms. You can use these open wallets to withdraw funds from ATMs. Open wallets allow users to make transactions across the globe, provided that the sender and receiver of the payment have an account on the wallet application. PayPal, m-pesa are some of the examples of open wallets.
Why are Digital Wallets Important?
Digital wallets are important for many reasons besides increasing the comfort level of the users and allowing payments at their fingertips. Some of these reasons are as follows.
- The payment information and history stay in the digital wallets in a very compact form. Also, they reduce the need for traditional physical wallets and the hassle of carrying them.
- The use of digital wallets by customers largely helps them in finding the products and services of their interest online. This happens by the collection of data regarding consumer preferences by the companies.
- Companies get a better view of their customers’ demands. So, they can offer them better services that completely align with their interests. For companies, the use of digital wallets help in framing improved and effective marketing strategies.
- The use of digital wallets allows the users to make cross-border transactions instantly. While the traditional payment methods like IMPS, NEFT, RTGS, and others may take a few hours to 2-3 working days to complete the cross-border transactions, digital wallets overcome this challenge by offering instant solutions.
- Digital wallets help users to create and manage bank accounts easily while sitting at their homes. Traditional banks have their branches set up only in the main cities. This creates a big challenge for people residing in rural areas to deposit their money and manage their accounts.
- Digital wallets allow you to store many different types of assets. One such example of assets is digital gold and silver that you can use to make payments through it. OroPocket is one such method of payment where you can use digital and gold to make payments.
The use of digital wallets is creating a significant positive impact on the financial industry of the nations. However, they are creating some negative impacts on society. The number of frauds has increased considerably. As the wallets use pin code or face IDs to approve transactions, there is a strong likelihood that people with negative self-interests may manipulate the code to do fraud. Also, the fact that companies gather data about the preferences of the users through digital wallets, creates a privacy concern for users. So, it is very important for the digital wallet providers to enforce very well-encrypted technology that doesn’t only protect the privacy of personal data but also protects the users from financial fraud.