Guides and reports

Digital wallets: What they are and how they work

Discover how they work, the top digital wallets worldwide, and why your business should be supporting them.

12 May, 2022
 ·  5 minutes

It wasn’t long ago that we were fumbling through our wallets and purses to get the right debit card out to pay. Either that or flipping through an array of loyalty cards to find the right one for the store we were in.

But those days are over for many consumers. Thanks to the change of habits triggered by Covid-19, digital wallets (also known as e-wallets) are booming, especially among younger shoppers.

Customer using digital wallets to pay

What’s a digital wallet?

A digital wallet stores your payment information, and with it, you can pay online and in person. Mostly it’s a mobile app, but it can also be a software program on your desktop or built into your browser.

A digital wallet can effectively replace the need for physical payment cards. Some types also let you make peer-to-peer payments, ATM withdrawals, and pre-load funds. Others store more than payment information. You can save loyalty cards, vouchers, tickets, and more in the same place.

Digital wallets vs. mobile wallets

Digital and mobile wallets are very similar but slightly different.

“Digital wallet” is a blanket term that includes mobile wallets. A digital wallet can be installed on your mobile device, laptop, or desktop computer. But a mobile wallet, like Alipay or WeChat, works only for mobile devices, such as smartphones and smartwatches.

How does a digital wallet work?

Usually, for in-person payments, the customer’s mobile device communicates with the merchant’s payment terminal or device using NFC (Near-field Communication). The customer then verifies the transaction with something like a password, a fingerprint, or facial recognition. The payment information is sent securely through the process of payment tokenization and the transaction is complete.

For online payments, it’s much the same. The only difference is that the digital wallet doesn’t need to communicate through NFC, as it’s already installed in your browser or on your desktop.

Benefits of accepting digital wallets

Stable and high conversion rates

Customers don’t need to fill in card details manually with a digital wallet. Plus, they can verify their identification seamlessly with a fingerprint or facial recognition rather than typing their password. This lets customers pay in a few clicks or taps and with much less friction at the checkout, which leads to higher conversion rates.

High level of security and low fraud rates

The customer’s payment information is never shared directly with the merchant thanks to tokenization. Instead, a unique payment token, accompanied by a cryptogram that expires after one use, makes the chance of a fraudulent payment extremely low.

Strong Customer Authentication (SCA) is built-in by design for some digital wallets. The customer needs to verify every transaction with a password, fingerprint, or facial recognition, amongst other verifications. This makes them more secure than card payments, where identity verification isn’t always required. The higher level of security can also mean lower interchange and card scheme fees for some wallets.

Wide coverage

Many digital wallets offer multiple currencies and are available in multiple regions. By accepting the top ones, you can reach many more customers.

Customer paying with digital wallets on phone

Top digital wallets


Alipay is the most widely used third-party online payments service provider in China. Users store their debit or credit card details in the app to be used online or in store via a mobile device. Users can complete their payment up to 12 hours after it was initiated.

Amazon Pay

As one of the most popular ecommerce platforms in the world, it came as a natural progression when Amazon launched its wallet – Amazon Pay – in 2007. An easy integration into an ecommerce store, customers can pay with the information, like delivery details, already stored in their Amazon account.

Apple Pay

Apple launched its wallet back in 2014, available on iPhones, Apple Watches, Macs, and iPads. With over 500 million users, it supports in-person payments and transactions made on iOS apps and Safari.


PayPal has over 300 million active users across 200 countries. It’s currently an online purchase tool only, so it can’t be used for in-person payment directly. Instead, it provides a QR code that connects physical and digital. Customers can also opt for the Pay Later options (with no additional cost to your business).

Google Pay™️

Google Pay™ came about in 2018 after the unification of Google Wallet and Android Pay. It can be used in store, via Android apps, or online in the Chrome browser using card details saved to a Google account.


Grab is the most recognizable superapp in Southeast Asia, boasting over 100 million users. The app’s digital wallet, GrabPay, is especially relevant for underbanked markets. Grab is bridging the gap for economies that are still very cash dependent yet striving for a cashless society.

WeChat Pay

WeChat Pay is a digital wallet born out of the Chinese super app WeChat. It currently boasts over 1 billion monthly users with Chinese bank accounts. Now an ecosystem built for chatting, browsing items, and paying – all in one place – WeChat Pay can be used in-person and from desktop-to-mobile by scanning a QR code.

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