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Digital Wallets
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Digital Wallets

Redefining the way we pay

Overview

Digital wallets (also known as mobile wallets or virtual wallets) are online payment tools that enable users to carry out various payments and transactions via an app. They are commonly used along with mobile payment systems, enabling customers to make payments with their smartphones. Digital wallets aim to address the hassle of carrying physical wallets, allowing people to store digitized versions of credit cards, debit cards, as well as as loyalty cards, coupons, and transit tickets, in one centralized location.

While some digital wallets offer the full suite of features, others focus on specific areas such as in-store payments, online payments, or P2P transactions. Although digital wallets don't typically allow users to store funds directly within the app, a few also allow users to store funds in a cash account that can be linked to a bank account or credit card.

*Note: Additional sections (such as market sizing and incumbents) can be provided on request.

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Overview

Smartphones are undoubtedly an integral part of our lives and we use them for far more than just communication. Having already made cameras, calculators, and diaries somewhat obsolete, smartphones are now letting people leave their physical wallets at home. Digital wallets are more or less substitutes for physical ones, allowing users to store all their debit/credit cards, loyalty cards, gift cards, and much more.
In this insight, we will explore how digital wallets work, their benefits and use cases as well as the key companies operating in the space. We will exclude other types of wallets such as crypto or IoT wallets.

What are digital wallets?

Digital wallets (also known as mobile wallets or virtual wallets) are online payment tools that allow people to carry out various payments and transactions via an app. They are commonly used along with mobile payment systems, allowing customers to make payments with their smartphones. Digital wallets aim to address the hassle of carrying physical wallets, allowing people to store digitized versions of credit cards, debit cards, and items such as loyalty cards, coupons, and transit tickets, in one centralized location.
While some digital wallets offer the full suite of features, others focus on specific areas such as in-store payments, online payments, or P2P transactions. Although digital wallets don’t typically allow users to store funds directly within the app, a few, such as Venmo, also allow users to store funds in a cash account that can be linked to a bank account or credit card.

What can a digital wallet do?

What can a digital wallet do?
Source: Created by Uzabase based on various sources
There are three main types of digital wallets, largely depending on the type of transactions they facilitate and where they can be used. In addition, providers of white-label solutions allow businesses to setup their own fintech offerings.
  • Open wallets: These enable users to utilize their wallets for various transactions at virtually any merchant that accepts digital wallet payments. It imposes no restrictions on where digital wallets can be used. Some digital wallets also permit ATM withdrawals. These wallets are typically developed by banks or in partnership with them.
  • Semi-closed wallets: These are among the most common digital wallets, enabling users to carry out transactions at a selected list of merchants and locations. Merchants may need to set up predefined agreements with digital wallet issuers to accept payments from the wallet.
  • Closed wallets: These are typically developed by merchants themselves, and allow customers to use their wallets to make payments at their own stores. Users are unable to use these wallets for transactions outside the issuing merchant.
  • White-label platforms: Companies that offer white-label solutions for businesses and fintechs to set up their own digital wallet offering.
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