What Is a Digital Wallet & How Does it Work? | Hydrogen Blog
What is a Digital Wallet?

What is a Digital Wallet?

A digital wallet is a type of payment storage that exists on electronic devices, including phones, laptops, and tablets. These payment types eliminate the need to have a physical wallet or card present when making a purchase, allowing for a quicker, more cohesive buying experience. 

When using a digital wallet, consumers have a lot of freedom and can purchase at stores, within apps, and online. Digital wallets also have many types and functions, enabling users to find the best fit.

Types of Digital Wallets 

Digital wallets provide users with many options, depending on what they need the wallet for and what operating system they use. Each wallet has its perks, and some even offer rewards for using their software, like credit cards with cashback perks or redeemable points. 

Many digital wallets have mobile wallet forms, where users can download an app onto their smartphone for completing mobile payments in stores. Mobile wallets allow for much of the same flexibility and portability users like about digital wallets, as individuals can make quick and easy contactless payments wherever they go.

Apple Pay 

Apple Pay is a digital wallet available to Apple users and devices, and these mobile wallets on iPhones and Apple Watches are especially popular. Those who prefer Apple Pay can use it for in-app, in-store, and online purchases with an easy-to-use and secure method. It requires identification from the user to verify they are making the purchase, like a face ID, thumbprint, or passcode. 

Apple users also can send and receive payments through their messages app, allowing for secure money transfers. Additionally, the Apple Pay wallet enables users to store and use items other than just their payment cards, like airplane and concert tickets, for easy access and safe storage. 

Samsung Pay 

Like Apple Pay, Samsung Pay is another example of a digital wallet exclusive to a specific brand — it’s only available to Samsung users. Like many digital wallets, Samsung Pay is very versatile, and users can pay at stores, online, and in-app. Samsung Pay offers its users many perks for trying their services, like opportunities to earn rewards and cashback. 

Google Pay 

Google Pay is a digital wallet available on Apple and Android devices, and users can set up an account by linking their cards or bank accounts to their Google account. Like the other options, Google Pay’s mobile and digital wallet allow individuals to make payments in stores, on apps, and online. 


While the other options are popular as mobile wallets, PayPal offers a secure digital wallet for online shopping and purchasing. PayPal allows users to register their bank accounts or cards and is available on Apple and Android devices. Many companies and sites use this service, so users can save time at checkout by logging in to their account, which will fill in their payment information. 

PayPal allows users to easily track their activity through transaction and history logs. Additionally, PayPal offers many different services, like a barcode scanner and mobile card reader. PayPal One Touch provides a mobile wallet service to people who want to make purchases more quickly and at more places by allowing them to bypass the login process. 


Venmo is a unique and easy-to-use money transferring service users can link to their bank accounts or cards. It is available for both Apple and Android devices. Unlike many of the other options, users don’t have to log in for each transfer. Many people send money to friends to cover the costs of rent, dinner, groceries, or other shared expenses. Some businesses accept Venmo as a form of payment for in-store shopping. 

Many users love Venmo’s services because they are easy to use and set up. Venmo also offers individuals the option to sync their phone contacts or Facebook account to the app to better connect with friends and family. Users can track their financial history through email receipts of their transfers and payments. 

Retail-Specific Wallets 

Some companies offer their own virtual wallets that frequent customers can use to make purchases at their locations or online. For example, Walmart has a digital wallet called Walmart Pay that lets customers buy items more quickly at checkout. Further, many companies offer specific services to increase customer satisfaction, like how Walmart Pay allows consumers to store coupons and gift cards and request prescription refills. 

Many companies with their own digital wallets also offer benefits and perks to using their wallets in addition to specialized services. Starbucks has a wallet that lets users collect points for paying for drinks through the app. Individuals can then redeem the points to receive a free drink or other prizes. 

Other Types of Digital Wallets 

Different types of digital wallets have functions other than daily purchasing. Some wallets offer individuals a place to store card and account information, like Lemon Wallet and eWallet. These solutions provide a safe, encrypted space where users can upload their sensitive data and store it somewhere they can easily access on the go. 

Some apps like eWallet allow users to update more than just their bank and card information. They accommodate other essential documents as well, like driver’s licenses, passports, or insurance cards. These apps let users store all their information in one place for simple access. 

There are also digital wallets that allow people to manage and purchase cryptocurrency. While the primary function of these crypto-wallets is to continue buying cryptocurrency, some locations do accept this currency as a type of payment, so having a mobile crypto-wallet can be an option for a frequent cryptocurrency user. 

How Does a Digital Wallet Work? 

Digital wallets can work in numerous ways depending on where users want to buy goods and use their wallets. Mobile wallet owners typically use their wallets differently than those utilizing digital wallets for online shopping. 

Mobile Wallets 

Mobile wallets are growing more popular for both consumers and companies. In 2018, 56% of Americans used their smartphones to make a mobile payment. Additionally, 29% of companies accepted mobile wallet payments in 2018. Users love mobile wallets because they are convenient and accessible, bettering the shopping experience. 

To make a mobile payment, users can tap their smartphone on the transaction terminal or hover the phone over it to initiate the payment process. Most mobile wallets and software platforms will require some form of identification from the user to verify their identity, whether that is a passcode, PIN, face ID, or thumbprint. Once verified, the wallet will carry out the transaction and send card information to the payment terminal. 

Before making a mobile payment, users need to check that the transaction terminal accepts this payment type. Some places will only accept certain mobile payments, like Apple and Google Pay, while others won’t take any. Many companies have started using a contactless payment symbol to show they accept mobile wallets — it looks like the Wi-Fi symbol turned sideways with four lines moving from left to right. Some versions have a hand holding a card.

Online Shopping 

Customers can use their digital wallets to save time at checkout and create a smoother buying experience with online shopping. When users register with a digital wallet on their phone, laptop, desktop, or tablet, they need to enter their card and bank information. 

When shopping online or in apps, users can speed up their checkout process by using their digital wallet, which will fill in their personal and payment information automatically. Like mobile payments, digital wallets need to verify who is making the payment and ask for a passcode or other verification. 

Other Uses

Digital wallets are versatile and allow users to store all kinds of information on their mobile devices for easy access and safekeeping. While most consumers mainly use their digital wallets to store and use their various credit and debit cards, many wallets allow users to upload things one would keep in their physical wallet, including: 

  • Plane or concert tickets: Many virtual wallets enable users to upload various tickets, like plane, train, or concert tickets, for easy access without the hassle of printing paper copies. To use their digital tickets, users can open their wallet app and pull up the ticket. Tickets will have a barcode that vendors and employees can scan. Ticket confirmations now often offer the option to upload tickets to various mobile wallets. 
  • Public transit cards: People who often travel on public transit can upload their access cards to their digital and mobile wallets for better and quicker access as they move toward their destination. When commuters need to use their cards, they can pull them up on their mobile wallet and let machines scan them without digging through their physical wallet or worrying about losing their cards. 
  • Gift cards: Because many people use gift cards to pay for various items, including everyday goods like groceries, uploading gift cards can provide an easy method to organize them and purchase items. Many general gift cards like Visas can work across digital wallets, while others like Walmart cards might only work on their specific digital wallet. Consumers use gift cards just like their other digital cards, whether selecting that card at checkout or tapping their phone to the payment terminal. 
  • Coupons: Like gift cards, users can upload their coupons to their mobile apps to scan at checkout. Depending on the digital wallet, users will have varying compatibilities for coupons, and ways they can use their coupons will look different. However, many have a similar process to tickets with a scannable barcode that cashiers use to apply discounts. 
  • ATMs: Some ATMs offer mobile compatibility to control withdrawals. Users can tap or hover their mobile phone near the ATM contactless terminal to connect their card or account to the machine and commence the withdrawal. However, not all ATMs are compatible with digital wallets, so users need to check for the contactless payment symbol. 

Usage of mobile and digital wallets expands far beyond credit and debit cards and even general payment methods to provide more services for digital wallet users. Some wallets provide more advanced services, like the ability to save licenses, passports, and other sensitive information. 

Benefits of Digital Wallets 

Various features lead mobile and online users towards digital wallets over physical ones. With the many benefits of these wallets, it is understandable that more Americans are choosing digital and mobile wallets to complete their purchases. Some advantages include: 

  • Convenient: The nature of digital wallets allows for a more organized approach to physical wallets. Users can open an app to access all their cards and important information in one place instead of digging through their wallets to find something. With all their cards, tickets, coupons, and more in one place, users can access what they need quickly. 
  • Available: Digital wallets are available on various devices and across many operating systems, so most people can find a wallet they like and will use regularly. Further, more stores are adopting contactless payment options — including mobile wallet payments — allowing more opportunities for mobile wallet users. 
  • Versatile: Digital wallets offer many functions for users, allowing them to find one that best fits their needs. Many types can store valuable and sensitive information and provide a valid payment method. Additionally, with apps like Venmo that have specialized purposes, users can find digital wallets to do virtually anything they need. 
  • Portable: Mobile wallet options allow users to bring their digital wallets on the go to various locations, adding to the convenience and versatility. To access their wallet, users only need to bring their phones. In a digital age where people carry their phones everywhere, the portable nature of mobile solutions ensures users won’t need to worry about forgetting their wallets anymore. 

Are Digital Wallets Safe to Use? 

Developers of digital wallets create them with user safety and security in mind. Because digital wallets handle sensitive personal information, strong safety and security measures are essential. In general, digital wallets use two systems to maintain security — encryption and tokenization. 

Encryption is the process of hiding sensitive personal information using a complicated code created from an algorithm. This method will apply a code to each character in a user’s cardholder or bank information, including their name, account or card number, address, and PINs. Encryption is incredibly secure and prevents hackers and thieves from accessing personal data from devices. 

On the other hand, tokenization is when companies substitute personal cardholder information for a randomly generated string of numbers, letters, and symbols to store in their databases. Because company networks are less secure than banks or personal devices, tokenization gives cardholders more protection by keeping their personal information elsewhere. When someone uses a digital wallet with a company, the wallet applies tokens for that card and company to protect cardholder information more effectively. 

Additionally, because digital wallets require verification when making a payment, they provide more security than physical wallets, where thieves can take cards freely. Users have more time to cancel cards or delete information remotely from their devices in the case of theft or loss.

Use Hydrogen to Add Physical or Virtual Cards to Your Digital Wallet 

As a secure, convenient, and versatile tool, digital wallets can help improve a user’s experience during the purchasing stage. With many options available, you can explore them all to find the best choice for your business’s needs and goals.

At Hydrogen, we offer physical and virtual cards that consumers can add to their digital wallets for ease of access and heightened convenience. Sign up with Hydrogen today, and let us help you manage your clients’ digital cards!



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