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What is a wallet?
Going by the increase in digital payments and the usage of the internet, it was only a matter of time before someone came up with the idea of combining both of these elements. A result of the amalgamation of digital payments and the internet was the digital wallet. So, what is a digital wallet, how is it different from cash, and what are the advantages that such a tool provides? This is exactly what we’re going to be looking at in this chapter of Smart Money. Let’s begin.
What is a digital wallet?
Also known as an e-wallet, a digital wallet is basically a term used to refer to either a software, a service, or a device, that allows individuals to store cash electronically. Just like how a regular, physical wallet helps you keep cash and cards safe, a digital wallet does the same, albeit through the digital medium.
Generally, a digital wallet is offered in the form of an application that you can install on your smartphone. However, there are digital wallets that also exist in the form of a desktop application as well.
Are there different types of digital wallets?
Currently, there are three different types of digital wallets that are available - closed wallets, semi-closed wallets, and open wallets. Let’s take a brief look at each of these three types.
A closed wallet is a kind of a digital wallet that’s provided by a company that sells products or services. These wallets can be used to store funds, which can then be used later to buy the said company’s products or services.
Any returns or refunds are directly and instantly credited to these wallets. One of the most note-worthy features of such a wallet is that the money stored in it can usually only be used to purchase goods and services from the company issuing the said wallet.
As with a closed wallet, a semi-closed wallet is also provided by a company that sells products and services. However, a semi-closed wallet can be used to also purchase goods and services from other listed merchants and locations in addition from the company issuing the said wallet. That said, merchants would have to first ink deals and agreements with the wallet provider before being able to receive payments from such wallets.
An open wallet is a kind of a digital wallet that can be used to purchase products and services from any merchant or service provider. In addition to being able to purchase stuff, you can also withdraw funds from banks and ATMs as well. For instance, the MobiKwik wallet and the PayTM wallet are a couple of examples of open wallets.
What can digital wallets be used for?
One of the primary purposes of a digital wallet is to enable an individual to carry virtually unlimited amounts of cash with them at all times. Imagine having to pay Rs. 80,000 for a home appliance in cash.
Holding that much cash on your person is extremely risky since it can either get lost or stolen. That’s not all. Paying for things in cash can increase the time taken to complete your purchase since it involves counting of notes from both parties to verify the amount.
However, with a digital wallet, you can eliminate all of the hassles associated with cash. You can purchase any product or service that you wish and pay for it electronically through the mobile wallet.
It has its uses even in online transactions as well. When you set out to purchase a product online, it involves having to enter your card details or logging into your netbanking platform. This can take a few minutes to complete and in the case of any mistake, the transaction would fail and you would be forced to start all over again.
But with an e-wallet, you don’t have to deal with entering any of your financial details. You can simply make a payment and complete the transaction within just a few seconds as opposed to minutes. And in the case of a failed transaction, the amount will be instantly returned to your wallet too.
What are the advantages offered by digital wallets?
The above mentioned benefits aren’t the only advantages offered by e-wallets. There are several others as well. Let’s take a quick look at a few of them.
This is by far the biggest advantage that a mobile wallet offers. Since the wallet can effectively be accessed on your phone, all that you would need to carry is just that - your smartphone. You don’t have to carry either cash or multiple different cards along with you every time you head out to make a purchase.
Digital wallets are one of the most secure ways to store your money. With cash, there’s always the threat of either losing it or having it stolen. As is the same with credit or debit cards.
However, with an e-wallet, even if you lose your phone, the wallet cannot be accessed since it is securely protected by a PIN or a password. That’s not all. Each and every transaction is also authorized using the PIN and password, which eliminates unauthorized use or access.
Rewards and bonuses
Another major advantage that you get by using mobile wallets for payments is the ability to earn rewards and bonuses. Almost all such wallets offer rewards for using them in the form of cashbacks, discount vouchers, and more.
With this, you must now be aware of what an e-wallet is, its potential, and the advantages that it offers. In the next chapter of Smart Money, we’ll take a detailed look at the different players that come together to make the payments ecosystem.
A quick recap
- A digital wallet is basically a term used to refer to either a software, a service, or a device, that allows individuals to store cash electronically.
- A digital wallet is usually offered in the form of an application that you can install on your smartphone.
- There are three different types of digital wallets that are available - closed wallets, semi-closed wallets, and open wallets.
- The money stored in a closed wallet can usually only be used to purchase goods and services from the company issuing the said wallet.
- A semi-closed wallet can be used to also purchase goods and services from other listed merchants and locations in addition from the company issuing the said wallet.
- An open wallet is a kind of a digital wallet that can be used to purchase products and services from any merchant or service provider.
- With an e-wallet, you don’t have to carry cash or multiple different cards along with you every time you head out to make a purchase.
- Digital wallets are one of the most secure ways to store your money since they’re secured by a PIN or a password.
- Wallets offer rewards for using them in the form of cashbacks, discount vouchers, and more.
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