What Is a Digital Wallet?

A digital wallet is a way to pay for items electronically without using a physical debit or credit card. People often have digital wallets on their phones that use apps to help them manage their money. You can add multiple cards or payment accounts to your digital wallet. Many electronic wallets also store other information, such as membership cards, gift cards, coupons and tickets. Examples of digital wallets are:

• Apple Pay
• Google Pay
• Samsung Pay
• Zelle
• Venmo
• PayPal
• Cash App
• Walmart Pay

How Do Digital Wallets Work?

There are three main ways digital wallets transmit your payment data to the vendor or store you're paying:

• Magnetic secure transmission. MST is similar to swiping a card with a magnetic strip in that it uses magnetic waves to send your payment information to the payment terminal.
• Near field communication. NFC requires your device to be close to the compatible card reader. Then, the two devices connect to share the payment data.
• QR codes. To use your digital wallet in this way, you scan a QR code with your device's camera to complete the payment process.

Benefits of Using a Digital Wallet

Learning how to use a new payment method can be intimidating. However, there are several benefits to using a digital wallet, including:

• Card-free payments. You don't have to carry every individual card with you because you have the information stored in the digital wallet. It's possible to leave your physical wallet at home if you know all the places you're going accept electronic wallet payments.
• Centralized storage spot. Because many digital wallets store a variety of items, they allow you to keep everything centralized in one location. You can switch between payment methods and pull up tickets or loyalty cards quickly without digging through a physical wallet to find what you need.
• Security features. Losing a physical credit or debit card is a hassle and could result in fraudulent charges. Digital wallets use advanced security methods to protect your data and prevent it from being stolen. They also require you to use biometric authentication, such as a fingerprint or facial recognition, before you're able to use the payment method.
• Transaction history. You can see all your transactions with all your payment methods in the wallet app. You'll save time if you want to look for a specific transaction because you won't have to pull up each account individually.
• Option for cash withdrawal. Many ATMs allow you to use your electronic wallet to withdraw cash.

Disadvantages of Using a Digital Wallet

Digital wallets aren't always ideal and could have some issues. Being aware of those problems helps you prepare for them. Some disadvantages include:

• Need for internet access. Digital wallets rely on internet access to function properly. If there's an outage or your phone loses connectivity for any reason, you won't be able to use the digital payment method.
• Stores that don't accept electronic wallets. Not all businesses have the technology to accept these types of electronic payments. You may still need to carry your physical wallet to have a payment option in those situations.
• Device issues. You need your device to use your digital wallet. If you lose your phone or the battery dies, you won't have access to your payments.

Do Retirees Need Digital Wallets?

You don't need a digital wallet in most cases. Businesses typically accept a variety of payment methods, including cash and debit or credit cards. However, you might choose to add an electronic wallet to your payment options. It gives you a little extra flexibility. It might be a good option for you if you use your phone often and carry it with you regularly.

How to Use a Digital Wallet Safely

First, you need to download the app associated with the digital wallet you want to use. Choosing the best option often depends on the devices and accounts you have. For example, if you already have a Venmo or PayPal account, you might use those apps. People with Samsung phones might use Samsung Pay, while iPhone users might choose to use Apple Pay.

Once you choose and download your app, you'll add your payment account information into it. You can add as many accounts as you want. During the setup process, choose optional security features like requiring a PIN or biometric data to use the payment method. It's also a good idea to protect your phone with a PIN, password or biometric authentication to make it more difficult for thieves to access any apps on your phone.

Keeping your phone updated helps protect you from having the device hacked. Never click links in random emails or texts, especially if they seem suspicious. The link could add malware to your phone, which could allow access to your digital wallet. Monitor your accounts regularly to watch for fraudulent charges.

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