Written by: Elizabeth Melton
With so much in the news about cryptocurrency, blockchain, online banking, and more, it’s hard not to have heard the phrase “digital wallet.” Even if you’re not sure what a digital wallet is, you’ve probably already used one. Google Pay, Apple Pay, PayPal, and Venmo are all examples of digital wallets. When you take that into account, it makes sense that 150 million adults in the US say they’ve swapped cash and credit for digital wallets at least once.
Most people find digital wallets to be a much more convenient way to pay for things and like the idea of not having to carry cash or credit cards with them.
But digital wallets have many more use cases than making payments quick and easy. They can serve as a way to digitally identify someone, verify credentials, and store virtually any documentation or information. The EU is already experimenting with digital wallets to give more people access to the healthcare and social services they need. Even some states in the US are embracing the technology using them for Digital IDs and digital COVID-19 vaccination cards for more effective screening. Read on to learn more about a digital wallet, its benefits, and more potential use cases.
What is a digital wallet?
A digital wallet is a software-based system that stores personal information to complete transactions via varying protocols, such as https, Bluetooth, near-field communication, or DIDComm. Most people assume digital wallets are used to pay for goods or services via cryptocurrency, credit, or debit cards. But digital wallets can also store and safely share health records, membership or loyalty numbers, social security numbers, driver’s licenses, birth certificates, and more. You can think of a digital wallet as an electronic form of your physical wallet plus your safety deposit box.
Because all their personal information is in one place, users only have to memorize one password instead of many. But of course, keeping the most confidential personal documents in one place under one password requires extreme security. As such, digital wallets typically use two-factor authentication, one-time PINs, and other biometric private keys like Face IDs or fingerprints. Some even use more sophisticated encryption techniques or host information on the blockchain to ensure no leaks in either payment or personally identifiable information.
Is a digital wallet the same as a mobile wallet?
Although often used interchangeably, digital wallets are a broader category than mobile wallets. A mobile wallet is a type of digital wallet that’s only accessible on a smartwatch or smartphone. Not all digital wallets are mobile wallets, meaning users can access them on computers, laptops, tablets, essentially anywhere there is a WiFi connection. Mobile wallets are most commonly used to make touchless in-store purchases. You may have heard the term “mobile wallet” more often lately since they skyrocketed in popularity during the COVID-19 pandemic.
What are the benefits of digital wallets for consumers?
Now that you’re familiar with digital wallets, let’s take a look at a few of their perks:
Password-less ID — If you’ve used at least one application on your phone or the web, you’re well-acquainted with the password problem. These days, people have to memorize tens or even hundreds of passwords to complete their day-to-day personal and professional tasks. You can buy a password manager or ask browsers to remember your password, but keeping everything up to date is still challenging. And forgetting your password means you need to create yet another new one to remember. With digital wallets, this password problem goes away. Consumers only need to remember one password to authenticate into their digital wallet and share credentials with other institutions or applications. For non-native speakers or people with low digital literacy, this can be a lifesaver.
Customer experience — It’s hard to argue that digital wallets don’t save time. Whether you’re sharing personal documents as part of a job application or checking out at the grocery store, digital wallets streamline your process and get you what you need faster. Plus, you don’t have to waste time scanning or printing documents or worry about carrying your credit card or cash with you. Even if you need cash, you can simply scan your digital wallet at an ATM. Besides saving time and effort, digital wallets also allow companies to send users wallet-based promotions and enroll them in rewards programs tailored to their needs and behaviors.
Security — Digital wallets are far more secure than physical ones. Anybody can steal your wallet and immediately start using your credit cards or identity. The same goes for important papers一as soon as you lose a copy, it’s gone forever. By contrast, digital wallets have extremely secure access to online transaction facilities, give users control over who has access to their information, and enable organizations to verify certain credentials like passed exams, trade certifications, or previous work history.
Visibility — Just like online banking, digital wallets provide instant visibility into where your money and your information are at all times. Consumers can double-check their transaction history, credential sharing history, and challenge any discrepancies they see. This enables people to act quickly if something is wrong and eliminates the need for extensive paperwork.
How do you use a digital wallet?
While there are many kinds of digital wallets, the way they work is fairly consistent no matter what type you choose. Typically, the process starts by downloading an app on your phone, watch, or computer. Then, you link this app to the information you want to store. Oftentimes, these apps come with a robust onboarding flow to make the linking process as straightforward as possible. You’ll also be asked to set up some form of authentication, such as a fingerprint, passcode, or facial recognition. Once you’re all set up, you’ll be able to share your information using a QR code or other scanner.
It’s important to note that some wallets are “closed,” meaning they only work for a particular store, such as Amazon Pay or Walmart Pay. Others are “semi-closed,” meaning that you can shop anywhere your digital wallet is accepted. The rest are “open,” indicating that you can use them with virtually every merchant and use your wallet to perform banking tasks like withdrawing from an ATM or transferring money to another digital wallet holder.
Why should I care about digital wallets?
The way we work and interact with others is increasingly digital, so it makes sense that our banking, social services, and more are following suit. Outside of this global trend, digital wallets make interacting with consumers, NGOs, banks, and businesses effortless and efficient. Increased digital wallet adoption can reduce checkout lines at stores, banks, and even the DMV. Beyond that, digital wallets can be used for social innovation purposes, providing access to resources for traditionally underserved populations.
How digital wallets are improving the lives of farm workers
Entidad, a digital transformation agency for nonprofits, teamed up with UFW Foundation for a unique application of a digital wallet. Rather than simply using a digital wallet for payment, they introduced the concept of a digital wallet to farm workers, encouraged them to download the app, and asked them to store credentials related to H2A visas, insurance, work history, and more.
Now, farm workers only have to remember one password to start a series of applications for social services or even new jobs. Farm workers can also use this digital wallet to sign in to emergency relief events, enabling them to get a grocery credit or meal. In the future, they might use their digital wallet to show proof of UFW Foundation membership to receive specific benefits or to collect their paychecks faster. Digital wallets could also anonymously collect survey data to bolster advocacy for expanding farm worker rights..
Can digital wallets lead to a better future?
Beyond making the average person’s life a little easier, digital wallets have the power to dramatically change the lives of people who need the most help. Digital wallets allow the homeless, people with disabilities, farm workers, refugees, or even people in rural areas to be identified and get the resources they need. But getting to that point is easier said than done.
The key to digital wallet adoption is digital transformation. Entidad specializes in understanding the needs of underserved populations and partnering with nonprofits to ease the transition into the digital world. They’ve already begun working with the UFW Foundation and are piloting a digital wallet to support the organization’s larger plans. Projects like these can lead to big improvements for farm workers, and, eventually, other underserved populations. Check out the Entidad website to learn more about their work or discuss a digital transformation engagement.
