What Is a Mobile Wallet and How Does It Work?
A mobile wallet, also known as a digital wallet, is a mobile application that stores the details of one or more credit cards, can be linked to one or more bank accounts, and may also store reward points and coupons.
With a mobile wallet, you can make payments online and in physical stores, as well as transfer money from your digital wallet to a bank account and vice versa. Most applications also keep your account details private, since your bank account or credit card information is not provided directly to merchants.
For example, PayPal helps keep your information secure by acting as the final purchaser during payments. It serves as an intermediary, protecting your financial data without causing you to lose discount coupons or reward points associated with your purchases.
In addition, mobile wallets can also be used for payments in physical stores through NFC (Near-Field Communication) technology. NFC uses radio frequencies to allow smartphones and other devices to exchange the information required to complete a transaction.
Mobile wallets represent the evolution of mobile banking. Through mobile banking applications, users can transfer money between accounts, deposit funds, and monitor account balances and liquidity.
Mobile wallets introduced something that traditional mobile banking applications could not offer: the ability to use your smartphone as a “digital” credit card in physical stores by simply holding the device near the appropriate POS terminal to complete a purchase.
There are many companies offering mobile wallet applications. Some of the most popular include Apple Pay, Android Pay, and Samsung Pay.
It is estimated that mobile wallets may eventually replace the traditional use of credit cards, mainly because they offer the following advantages:
There are generally no additional financial charges equivalent to those associated with using a credit card, unless the payment itself is completed using stored credit card details, in which case the charges depend on the agreement with the issuing bank.
They increase transaction security because, with a mobile wallet, you do not need to hand your smartphone to a cashier or enter your account PIN into a merchant's system.
Transactions become faster, more convenient, and more automated.
The use of mobile wallets is not yet extremely widespread, but it represents an important trend that is expected to become increasingly significant in the coming years.
The success of mobile wallet applications is based on the freedom, flexibility, security, and privacy they provide to customers, factors that can significantly change the way consumers make purchases.
Mobile wallets are also an important tool for online shopping because they provide one of the most secure payment methods available.
In 2016, millions of Starbucks customers used mobile wallet applications. During peak hours, Starbucks customers could place their orders and pay through the application without having to wait in line.
Amazon and Walmart also followed this trend.
Through its Amazon Go stores, Amazon aimed to make shopping faster and more automated. By entering the store and using Amazon's mobile wallet application, customers could scan their smartphones at a special device and automatically connect to the store's database.
When customers finished shopping and exited the store, a special system detected and scanned the products they had purchased. At the same time, product information was transferred to the user's smartphone, where payment was automatically completed through the application.
The technology used in Amazon Go stores is a variation of the NFC technology mentioned earlier.
Walmart also offers its own mobile wallet application, Walmart Pay, but has aimed to expand its payment network by cooperating with other companies that provide mobile wallet solutions, giving customers more payment options.
At the time, Walmart had already announced a partnership with Chase Pay and was also negotiating with other companies regarding further integrations.
Large retail companies, as well as businesses from other sectors, have already shown strong interest in mobile wallets. Many have added them to their available payment methods and have developed business strategies based on this type of transaction.
Some of the best-known mobile wallet providers worldwide include:
PayPal
Amazon
Samsung
Apple
eWallet
Gyft
Chase Pay
Capital One Wallet
More information about the subject is available here