What is a digital wallet, and how does it work?

As technology continues to evolve, devices like smartphones, smartwatches, laptops and tablets have become helpful for completing a range of everyday tasks with just a few clicks. And that includes making purchases without needing your physical credit card. One way to do this is by using a digital wallet.

Learn more about what digital wallets are, how they work and how they can simplify your money management.

What you’ll learn:

• Digital wallets are electronic versions of your physical wallet, and they allow you to pay for things without using physical cards or cash.

• You can use your digital wallet to pay in stores, online and within apps for convenience wherever you shop. 

• Capital One users can link their credit card or debit card to their digital wallets to make on-the-go purchases faster and more secure.

• Popular digital wallets include Paze℠, Google Pay™, Apple Pay® and PayPal®, among others.

Digital wallets are apps or online services that allow you to make transactions electronically. You may access a digital wallet on your phone, laptop or other compatible electronic devices. 

Your digital wallet can often store your debit cards, credit cards, loyalty cards or even concert and airline tickets. This makes it easier for you to access funds and information when you need them. Plus, it can eliminate the clutter of several plastic cards and speed up transactions with a simple tap, click or swipe of your finger. 

The terms “digital wallet” and “mobile wallet” are often used interchangeably, but they are slightly different. Digital wallet is an umbrella term that includes mobile wallets. A mobile wallet is a type of digital wallet that is linked to a mobile device, like your smartphone or smartwatch. You can use mobile wallets to make contactless in-store purchases at a store’s checkout.

Once you’ve added a payment method to a digital wallet, you can use it to make purchases. When you’re out shopping, you can pay with most mobile wallets by holding your device near a terminal that has the contactless transaction symbol. The symbol looks like a sideways Wi-Fi symbol.

Contactless digital wallet payments use technologies that are built into your mobile device. For instance, you might start a payment in one of the following ways:

• Using near-field communication (NFC): NFC payments work using electromagnetic waves that transmit data when two devices, such as your mobile device and a store’s point of sale (POS) at checkout, are close together. 

• Scanning a QR code: A QR code is a type of barcode that you can scan using your device’s camera. The code stores data that, when scanned, will launch the payment process.

Many retailers now have updated payment terminals that support contactless payments, and digital wallets can also be used when shopping online.

Here are just a few ways you can use your digital wallet: 

• Online: Digital wallets can make online shopping easier by automatically filling in your information for you. This way, you don’t have to enter your info each time, and you can check out in just a few clicks. Just look for the option to pay with your digital wallet at checkout.

• On the go: Simply tap and pay with your mobile wallet on your smartphone, smartwatch or other mobile device when you’re checking out in a store. 

• In apps: Use your digital wallet for easier and more secure in-app purchases. 

• At ATMs: You might also be able to use your mobile wallet to get cash without a card at some ATMs.

To complete the transaction, you might be required to provide a passcode or authenticate the transaction through fingerprint or facial recognition. From there, you can use the app to make purchases, pay someone directly or even access tickets for things like concerts or travel. For nonmobile digital wallets (shopping from a laptop), you might be prompted to sign in or provide a password.

There are many different digital wallets available, with varying features and transaction capabilities. A few examples of digital wallets include:

• Paze

• Google Pay 

• Apple Pay

• PayPal

• Venmo

• Samsung Pay®

Be sure to check compatibility with your devices when figuring out which wallet makes the most sense for your digital money management journey. 

Digital wallets use some of the latest security technologies to help keep your information safe and prevent both identity theft and credit card fraud. These features include the following:

• Tokenization: Tokenization can help protect your card information by creating unique “tokens” associated with your credit card number. Because you’re only sharing tokenized card details, retailers don’t have access to your actual card number, making it more difficult for fraudsters to view or use your financial information. 

• Mobile device security features: You can combine the safety features of the wallet with those of your phone or other devices. This includes two-factor authentication (2FA), PINs, screen locks and biometric authentication such as Face ID or fingerprint ID. 

Setting up additional security, like fingerprint ID and password protection, can help make your device more secure.

As with other forms of payment, digital wallets could be susceptible to hackers and scams. It’s important to use strong passwords and change them regularly, monitor your accounts, avoid making transactions on unsecured Wi-Fi networks and enable all the safety options mentioned previously.

There are several potential pros and cons of using a digital wallet. 

Some potential advantages to consider include: 

• Security: Card information stored in digital wallets is encrypted and protected, and card numbers are tokenized for extra protection. Plus, with a digital wallet, you can add extra layers of security like 2FA, facial recognition and fingerprint scanning to access your wallet and authorize transactions.

• Convenient access to credit cards, gift cards and more: Once they’re added to your digital wallet, you can access credit cards, gift cards, tickets and more from the app, even when you don’t have your physical wallet. 

• Contactless payment options: With a mobile wallet, you can use your smartphone, smartwatch or tablet to make payments without a physical card at stores that support contactless payments. 

• Quicker transactions: Making purchases with your digital wallet can save time since you won’t have to dig through your wallet for a physical card.

Some potential disadvantages to consider include: 

• Not always compatible or accepted: Mobile wallet payments may not be an accepted form of payment at every vendor or store you visit.

• Must know how to set up and use: If you’re not comfortable setting up your digital wallet and adding cards to the app, it can be difficult to get your digital wallet up and running. But Capital One cardholders can, with a few quick steps, add their eligible cards to certain digital wallets through the Capital One Mobile app or follow the steps laid out for your digital wallet on the Capital One Digital Payments page.

• Increased security risk if you lose your phone: If your phone gets stolen or you lose it, your digital wallet may not be as secure if your phone isn’t password protected and you don’t have 2FA enabled for your digital and mobile wallet apps.

Keep in mind that there are other contactless and digital payment methods to consider alongside digital wallets, such as virtual cards and contactless credit cards and debit cards. 

Many of Capital One’s U.S.-issued credit cards and debit cards feature contactless technology. These include popular credit cards like Savor, Quicksilver, QuicksilverOne and Platinum, as well as 360 Checking debit cards.

Still have lingering questions? Here are answers to a few commonly asked questions.

Digital wallets can be quicker and more secure than using physical cards or cash at checkout. Plus, you can set up your digital wallet and link your Capital One debit or credit cards in a few easy steps—making payments safer, faster and more convenient.

Ready to take advantage of the convenience that digital wallets provide? Explore more about Capital One’s digital wallets and payment apps.