One day, we’ll look back on how we used to carry a phone and a wallet and wonder why we possibly did that. A full transition to digital wallets feels inevitable — and it’s already well underway.

Digital wallets, also sometimes called e-wallets, allow you to make purchases without reaching for a credit card or (the horror!) cash — instead, you pay with your smartphone.

When you’re making a purchase on a mobile website (hopefully using the SimplyCodes iOS browser extension to get an amazing coupon code right there in Safari, but I digress with my shameless plug) but want to skip the cumbersome step of plunking in all of your credit card details, a digital wallet is there.

When you’re shopping in person and want a quick checkout at a store, a digital wallet is there.

Digital wallets are easy to download and use, and there are several benefits of having one (or more) on your phone. In this ultimate guide to digital wallets we’ll cover why you should have them, how to use them, and the top e-wallets on the market today.

What is a Digital Wallet?

Digital wallets are really a lot like traditional wallets but in digital form. It enables online payments, usually through the form of a mobile app, and many also the conventional items a physical wallet does, such as a driver’s license, digital tickets, coupons, and gift cards. 

Not only do digital wallets allow you to store everything in one convenient app, but in many cases, it is more secure than a traditional wallet — after all, it’s a lot harder to lose your digital wallet (or have it plucked out of your pocket).

Digital wallets were steadily growing in popularity over the past several years, however the pandemic caused an explosion in digital wallet use. Digital payments hit $6.6 trillion by the end of 2021, a 40% increase in just two years [1]. And in one survey, more than four in 10 smartphone users in the U.S. used a contactless payment at least once [2]. 

(Note: In this article, we’re covering digital wallets that hold credit cards, banking info, and other traditional “wallet” items; we won’t be diving into crypto wallets like Metamask, which are a different type of product. However, soon enough your digital wallet will most likely house both your “traditional” payments as well as some or all of your cryptocurrency, allowing you to pay with both.)

How do Digital Wallets Work?

Digital wallets work by linking your banking account or credit card to the vendor you are paying. There are several different technologies that digital wallets use to make purchases, depending on which one you choose:

• Magnetic Secure Transmission, also called MST, uses a magnetic signal similar to the strip used to make purchases on a credit card. This signal transmits to the card reader to make a payment. This technology is used by Samsung Pay, along with NFC.

• Near Field Communication (NFC) is used by apps such as Google Pay and Apple Pay to process payments. It enables devices in close proximity to exchange information. NFC does require the vendor or merchant to have a compatible card reader to process this type of payment.

• QR codes are puzzle-like codes that you can use the camera on your smartphone to scan. Apps such as PayPal generate these QR codes to use your account to make a purchase in a store.

Some more robust digital wallets hold other information, like your driver’s license or COVID vaccination records, by syncing with state or national databases. Adoption for digital wallets is growing across several states [3]; it shouldn’t be too long before digital IDs are active everywhere.

Are digital wallets safe?

Although digital wallets are far from new, their recent rise in prevalence can make consumers question whether or not they are safe to use. Technology that uses sensitive information, like credit card and banking information, is not something to use haphazardly.

However, digital wallets utilize a feature referred to as “tokenization” in addition to encryption to keep your information secure. Instead of giving sensitive information to a vendor, your digital wallet will provide a “token” or random stream of letters and numbers. If a hacker tries to steal your data from the merchant, or your phone, they will find the token worthless.

Compared to carrying around cash or a credit card, then, digital wallets have more security features in place to keep bad actors from being able to steal your information and money.

How do I get a digital wallet?

Getting a digital wallet is typically a straightforward process. It usually involves downloading the app, inputting your banking information, and you’re set to make purchases!

Once the digital wallet has your personal information, it converts it into an encrypted code that only authorized entities can access. This encrypted data is then used for making purchases. You can use your digital wallet wherever there is a contactless symbol at a brick-and-mortar checkout or at any eCommerce stores that accept that particular wallet.

Benefits of a Digital Wallet

E-wallets offer a number of benefits over traditional payment methods.

Digital wallets are more convenient

Instead of digging out cash or a card at the register or trying to memorize your card number to make online checkout faster, a digital wallet allows you to swipe your phone on the go. You also don’t have to keep track of multiple cards, worry about losing tickets, or forget about a gift card. Plus, you have one less thing to grab as you head out of the house.

Digital wallets have security advantages over physical wallets

Losing your wallet can be a stressful experience. Having to cancel all of your cards and any fraudulent purchases is time-consuming, plus you run the risk of losing all the cash you carry. A digital wallet doesn’t contain cash, so no one can steal that from you. Plus, a thief would need to break the passwords of both your phone plus the digital wallet itself in order to use it. (And as we discussed earlier, digital wallets have multiple ways of keeping your transactions secure.)

Digital wallets usually offer bonuses and rewards

Like many credit cards, digital wallet apps often offer bonuses and rewards to their users. This is especially true for closed wallets that are exclusive to specific stores or types of payments. Plus, lots of digital wallets have buy now, pay later functionality built in.

Digital wallets help you stay organized

Always feel like you’re losing your ID, plane ticket, or credit card right when you need them? Digital wallets can be a simple way to keep everything in one spot. It also organizes and streamlines your transaction processes, so you also have your receipt right there in case you need to return a purchase or check your budget.

Other things that you can conveniently store in your digital wallet include:

• Credit or debit cards

• Coupons

• Gift cards

• Rewards cards

• Concert tickets

• Hotel reservations

• Plane boarding passes

What to Consider When Getting a Digital Wallet

With all of the options out there, how can you decide which one is right for you? There are some factors you need to consider when you get a digital wallet: 

Why do you need a digital wallet?

If you have a specific purpose for your digital wallet, it might impact which one you get. There are two types of wallets available:

• Open wallets are accessible by most retailers for contactless in-store purchases, online payments, cashback, and even withdrawals from certain ATMs.

• Closed wallets only work with a specific retailer, or a set type of transaction within a group of retailers. For example, Starbucks offers a closed wallet for its customers and can only be used at their stores.

Consider what you want to accomplish with your digital wallet. Will you primarily be using it at one store? You might find that they offer special deals and bonuses. For example, using the Starbucks app allows customers to earn rewards for free drinks and various prizes.  However, if you’re looking to make purchases at a wider variety of stores, then you’ll want to look into an open wallet.

Where do you want to use your digital wallet?

Digital wallets are only good at places that accept them. Like choosing a credit card, you need to consider where you plan to spend your money and what apps are compatible with them. This is also where using a larger name app, like Apple Pay, is better than a lesser-known one. The more prominent the digital wallet, the more places you will be able to use it.

What are the rewards and bonuses from each digital wallet?

There are numerous rewards and bonuses that you can get depending on what app you choose. For example, Chase Freedom offers cashback rewards for eligible mobile wallet purchases. If you have a credit card, you might want to check which digital wallets are eligible for discounts or bonuses.

5 Top Digital Wallets to Add to Your Phone

There are several digital wallets available today, and they continue to improve in their features, security, and convenience. Here are the top e-wallets on the market today.

Apple Pay - best digital wallet for Apple users

The Apple Pay app comes pre-installed on the iPhone, so it has major points on the convenience front. With Apple Pay, you can make payments using either Touch or Face ID. It is also offered as a payment method at 85% of U.S. retailers online and in-person, from Disney to Starbucks to Albertsons. And for paying back a friend for a bar tab (or anything else), there’s Apple Cash, where you can send and receive money through the Messages app.

You aren’t limited to your phone with Apple Pay; it is also available on Apple Watch and iPad,  as well as in the Safari browser on Mac. If you decide to apply for their Apple Card, you can also get 2% on purchases with your iPhone or Apple Watch.

Apple Pay is absolutely free (beyond the cost of all those Apple products).

Paypal - best digital wallet for buying things online

Is PayPal a digital wallet? In short, yes. In fact, it was one of the first digital wallets on the market. It is currently accessible worldwide and is available in 25 currencies — plus, it’s available at checkout at most places you’ll ever shop online. (At Knoji, we’ve tallied more than 21,000 stores that accept PayPal; that’s several times more stores than any other digital wallet on this list. You can use our Store Features search engines to find up-to-date lists on which stores accept which digital wallets.) 

With encryption and 24/7 monitoring, PayPal is an exceptionally secure digital wallet and can be used on pretty much every type of device, including Android, iOS, tablets, laptops, and computers. 

PayPal is also a convenient option for professionals. You can send invoices and get payments through the app. Plus, the tracking feature can help you keep track of all your purchases and the money you’ve received.

PayPal is free for purchases with your debit card or bank account unless you need currency conversion. It’s also free to send money to others and receive payments. (The app does charge 2.9% + 30 cents if you are using your credit card. That fee also applies if you use PayPal to sell goods or services online.)

And with PayPal, you can also use its buy now, pay later feature to split purchases into four interest-free installments.

Google Pay - best digital wallet for international payments

Google Pay is an international payment option and is available in more than 40 countries. It keeps information safe with a Device Primary Account Number (DPAN) feature that replaces your account number to protect it from unauthorized use by retailers.

You can set up your account with a debit card, credit card, bank account, or even your PayPal account. Depending on where you live, you might have other payment options.

In addition to making it easy to pay for things, Google Pay can also track your payments so you can manage your financial health. If you sync all of your accounts, you’ll be able to see the trends in your spending to help you find easy ways to save money.

Making purchases and sending or receiving money is free with Google Pay. However, transferring money out of Google Pay to your bank account is either 31 cents or a 1.5% fee, whichever is higher.

Shop Pay - best digital wallet for Shopify stores

Shop Pay is Shopify’s digital wallet, which you can use through their all-in-one Shop app or on checkout at most (if not close to all) Shopify-based stores. It has buy now, pay later features built in to divide up your purchases into four payments, and makes shopping at eCommerce stores a very fast, one-tap process.

Shop Pay doesn’t have as large of a feature set as many of the other digital wallets on this list; however, if you like buying from small businesses and shop from a wide variety of eCommerce stores, it’s a good option to speed things up.

Venmo - best digital wallet for social payments

Venmo has become so popular that it serves as both a noun and verb — “Venmo me” has become a common phrase in modern culture. 

The social aspect of Venmo is ideal for both retail and relationships. You can pay a friend back, use a few emojis — and have your other friends see that transaction which is an odd but popular form of passive social communication.

Venmo uses bank-grade encryption and security and only requires an email address and mobile phone number to get started. Plus, QR codes can help you make sure that you are paying the right person. More stores, both in-person and online, have also begun accepting Venmo as it has become more popular. 

Venmo is free to use with a debit card or bank account and charges a 3% fee for using a credit card on the app.