What are digital wallets and how do they work (2024)

Advances in payment technology have allowed companies to Sell ​​onlineFrom the beginning Digital payments Since processing began in the early 90s, technology has evolved further, including the creation of digital wallets.

Digital wallets store your customers’ payment information and billing address in secure software. Customers can sign in to their wallet and make purchases with just one click. This is why digital wallets are so popular. payment method for More than half Of online shoppers.

If you ignore the popularity of digital wallets, you could lose customers. About 11% of people Abandoning an item in a shopping cart If your preferred payment method isn’t available, this article will explain what digital wallets are and how they work, so you can decide whether or not to accept them on your ecommerce site.

What is a digital wallet?

What is a digital wallet? Electronic Payments It is a method used by customers to purchase goods virtually. People store their credit card details in an encrypted Mobile WalletsApple Pay and Shop PayYou pay for goods using your credit or debit card, and in most cases, digital wallets tokenize your payment data so that merchants cannot see the details of these payments.

How a digital wallet works

Digital wallets work by safely storing a customer’s credit card details in a secure vault, and when a shopper wants to make a purchase from their device, they can open the app (or sign in to their provider’s online account), select the stored details and make the purchase.

If you want to receive payments from a digital wallet in person, Point of sale The process varies slightly depending on your system, and the app will proceed using one of the following technologies: Paying from a mobile device:

• Short-range wireless communication (NFC): The technology uses low-speed radio waves to send payment information between two devices, such as a customer’s mobile phone (with a digital wallet app open) and a card reader.
• Magnetic Secure Transmission (MST): Several Payment ProvidersMany credit cards, including Samsung Pay, use this technology instead of NFC. MST generates a magnetic signal that mimics the magnetic stripe on a physical card. The card reader picks up this signal and collects payment information.
• QR Code: Merchants are unique QR Code Customers can scan it with their smartphone camera to open a personalized cart, where they can get their payment details and pay for the products using their digital wallet.

Pros and Cons of Digital Wallets

If you’re considering whether to accept digital wallet payments for your business, here are some benefits you can enjoy:

• Limit cart abandonment: Digital wallets store customers’ credit card and billing details so they can make purchases with just one click. 18% of people Customers abandon their online shopping carts because the checkout process is too long or complicated.
• Increased average order value: a Report by PYMTS They found that customers spend up to 33% more when using digital wallets, with the average price of non-wallet sales being $33 compared to the digital wallet average of $44.
• Reduce cash handling: When paying with a digital wallet, customers don’t need to hand over cash or carry a physical wallet. This is a huge advantage for retailers, as they don’t need to worry about securing the cash or checking for counterfeit notes when processing payments. In-store payment.

Despite these advantages, there are some drawbacks to consider when dealing with digital wallet payments.

• Payment Security: Most digital wallets require two-factor authentication, biometric data (such as facial recognition), Payment Tokenization To protect cardholders from fraudulent use, fraudsters can hack digital wallets and spend money from connected credit cards. A digital wallet is only as secure as the mobile device it is used on.
• Lack of adoption among older shoppers: just Baby Boomers: 25.7% Eighty percent of Gen Z shoppers and two-thirds of millennials have digital wallets.
• Dependence on mobile wallet providers: Companies like Google, Apple, and PayPal can change their policies at any time: they can increase transaction fees, restrict reporting, and release new payment technologies with little to no warning, all of which can affect how you accept mobile payments.

How to Choose a Digital Wallet Provider

The benefits of accepting digital wallet payments often make it an attractive payment option for online stores. However, it doesn’t make sense to enable all available options. This can create a paradox of choice: the idea that having too many options makes it difficult to decide. This is not an emotion you want to evoke in your shoppers on your online store. check out.

Before checking all the options, evaluate the following points to prioritize which digital wallet providers you will accept:

• compatibility: Does your e-commerce platform allow you to accept digital payment methods for both online and in-person credit card transactions?
• Fee: Several Payment Gateway We offer discounts on digital wallet transactions, find out what these discounts are before you choose to lose some of your earnings. Payment Fee.
• Shopper Location: This is especially important if you are expanding your business internationally. Certain payment methods vary in popularity in different countries. For example, Alipay and WeChat Pay are Most popular payment methods Although popular in China, it is rarely used by shoppers outside of China.

Shopify Payments Accept a variety of payment methods on your online store. With competitive payment processing fees and the highest PCI compliance standards that keep your sensitive data safe, enable Shopify Payments and start accepting digital payments.

Digital Wallet Example

There are several digital wallet providers that your customers may already be using. The most popular digital wallets are:

• Digital Wallet App Shop Pay: is more than 150 million customers Shop Pay allows you to store your payment information in a secure wallet so you can check out instantly at any Shopify store.
• Mobile Wallets Apple Pay, Samsung Pay, WeChat, Google Wallet, etc.
• Peer-to-peer payment platform Venmo, PayPal, Cash App, etc.
• Marketplace Wallet Amazon Pay, Alipay, etc.
• Cryptocurrency Wallet Coinbase Wallet, MetaMask, etc.

Supporting digital wallets with Shopify Payments

You don’t need to overhaul your ecommerce infrastructure or engage a specialized developer to accept digital wallet payments on your store: Shopify Payments is integrated into Shopify, so you can choose which digital wallets you accept at checkout.

If you are wondering, “Are digital wallets safe?” Shopify Payments is certified PCI Level 1 compliant, the highest level of compliance in the payments industry. In Europe, Shopify Payments also complies with PSD2 regulations by supporting 3D Secure at checkout, which is a great way to accommodate all of your customers’ preferred payment methods, not just digital wallets.