If you were born before the 2000s, you’d probably be use to wallets where you save fiat money like dollars, naira, pounds, euro…

Now, with the advent of digital currencies came the need for digital wallet.

It has the features of the normal wallet but designed for the digital world.

So instead of a zip or lash lock, you’d see a password.

In simple terms, a digital wallet is an online financial account that allows you to store funds (digital money), carry out transactions, and track your payment histories by computer.

The most popular are in the form of apps that can be installed in a smartphone.

How Does It Work?

First, with this instrument, you don’t need a bank account from any bank. Although, many traditional banks are creating their so that customers can have their fiat money represented as a digital money Ind their wallet.

To use the wallet, you’ll need to download the app. Then, sync it via a third party or bank to have money in it. Then, when you go to make transactions, it works with proximity to a POS system.

You can make payment for goods bought or even transfer funds from your wallet to another person online.

The third party involved makes the transaction possible and delivered with your history recorded.

Types Of Digital Wallet

  • Closed Wallet

Amazon Pay uses this type of wallet where their customers cannot use it else where apart from Amazon based transactions. So it’s closed.

  • Semi-closed Wallet

Here, as a user, you’re only permitted to make transactions at listed merchants and locations. So, imagine Amazon designing a wallet that allows seven global banks in the world to become part of it.

  • Open Wallet

There’s almost no limit here. You can use this wallet for any kind of transaction even with ATMs and transferring of funds.

With the digital wallet, life is easier but one downside of digital wallet is the loss of privacy on the side of users. Businesses can use your data for marketing purposes by monitoring your buying behaviour.

You can also read about the advantages and disadvantages of digital wallet.