A digital wallet is an app that allows you to store payment information, such as your credit card or bank details, to make transactions online or in person. Some digital wallets can hold other types of information, such as loyalty cards, tickets or gift cards.
If you have a smartphone, you likely already have access to a digital wallet. Peer-to-peer payment apps are also digital wallets, allowing users to transfer funds easily.
Here’s what you need to know about digital wallets.
How digital wallets work
Digital wallets store your payment information and allow you to use it for transactions. To get started, you’ll add your credit card, debit card or bank account information. You can usually do this by manually entering the details or scanning your card with your phone’s camera.
Digital transactions can happen in a few ways, including tapping to pay and scanning a QR code. Here are some ways your digital wallet can communicate with payment terminals:
- Near field communication (NFC): NFC allows your phone to wirelessly communicate with a payment terminal via tapping or close contact.
- Magnetic secure transmission (MST): MST creates a magnetic signal, like when you swipe your physical card’s magnetic strip. MST allows your phone to send payment information to older card terminals that don’t have chip technology.
- QR codes: Some digital wallets generate QR codes that merchants can scan for payment. A merchant may also create a QR code that you scan to complete the transaction via your digital wallet.
What else can you do with a digital wallet?
Some digital wallets can be convenient places to store more than just payment information. You can add boarding passes for flights, train tickets and event tickets. You may also be able to upload gift cards, membership cards, loyalty cards and even some forms of identification, depending on where you live and what your wallet app supports.
Pros and Cons of digital wallets
Like any tool, digital wallets have their advantages and limitations. Here’s a quick breakdown:
Pros:
- Easy to use: Once set up, digital wallets allow for quick, seamless transactions – no need to dig through your wallet for the right card.
- Convenient: Boarding passes, tickets and membership cards are all stored in one place, making travel and check-in more efficient.
- Everything in one place: Digitally stored cards, tickets and passes are harder to misplace than physical copies.
Cons:
- Not accepted everywhere: While digital wallets are gaining popularity, not all merchants have the technology to accept them. You may still need to carry a physical card in some situations.
- Requires a smartphone: If you don’t have a smartphone, you won’t be able to use a digital wallet.
- Phone battery: If your phone dies, you may lose access to your wallet. It’s always a good idea to carry a credit card, just in case.
- Wi-Fi or Bluetooth may be required: Some digital wallets need an internet connection or Bluetooth to work properly. You may encounter issues if you’re in an area with poor service.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
