What is a digital wallet and how does it work?

October 2, 2015 | Doug LaFave

Illustration of a person using their digital wallet to make a payment with their phone.

In an age where technology is used everywhere, it makes sense that companies would be interested in how to utilize it even further—like making it easier for their customers to complete purchase transactions. This thought process eventually led to the digital wallet.

What is a digital wallet?

PC Magazine defines a digital wallet as “1) a smartphone app for making financial transactions in a retail store or 2) a desktop app for making credit card purchases online. It eliminates entering shipping, billing and credit card data when a purchase is made at a website.” I’d like to delve a little more into the smartphone digital wallet.

How does a smartphone digital wallet work?

Two smartphone digital wallet apps that you’ve likely heard of are Apple’s Passbook app with Apple Pay, which launched in October 2014 (and was renamed Apple Wallet in October 2015), and Google Wallet, that has been around since May 2011. In many commercials, the user simply waves or taps their phone against the merchant’s card device to complete a transaction. This is made possible by a near field communication (NFC) system, which utilizes electromagnetic radio fields to allow the user to send information to an NFC-capable device. NFC is just one method that is used to allow digital wallet purchases, and not all smartphones have NFC capabilities. That’s why Apple Pay only works on the iPhone 6/6s, iPhone 6/6s Plus and Apple Watch, and why some digital wallets are still developed as smartphone apps (like the Starbucks app, which is a digital wallet that uses barcodes).

Is it secure and reliable to use?

Some smartphone digital wallets, like Apple Pay, create a unique Device Account Number that is stored on one’s Apple device. This is the number that is given to the merchant when making a purchase. Apple Pay also requires a fingerprint to authorize the transaction, so your digital wallet is available at the touch of your fingertips. This doesn’t mean, however, that one’s physical wallet and cards should be left behind—not all stores have NFC-capable devices or accept every type of digital wallet. Plus, there is the possibility that your smartphone may lose battery power or signal within the store, so it’s a good idea to have cash or cards on-hand just in case.

If you’re ready to explore the benefits of a digital wallet combined with debit and/or credit card benefits, Mission Fed offers Apple Pay, and customers will enjoy the same Debit or Credit Card benefits using Apple Pay as they would using their physical cards! We’re excited to provide it to our members, and hope that you enjoy the benefits of having your wallet at your fingertips, whether it’s mobile or not.

This article contains a link for a website that Mission Fed does not control. Mission Fed is not responsible and does not assume liability for the operations, content, links, privacy or security policies of third party websites.

Doug LaFave

Doug LaFave

Doug LaFave is 1st VP of IT Strategy at Mission Federal Credit Union where he oversees many strategic technology initiatives. Doug has nearly 30 years’ experience in the credit union industry, with over 25 years in Information Technology. Doug believes technology greatly improves our lives—so long as we don’t actually let it run them.

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