A digital wallet is software that is used to make electronic payments through digital currencies. The term is often associated with the use of cryptocurrencies, but digital wallets also include regular bank-based services as well.
Before 2020, Digital wallets and digital cash were only being used by a certain type of people. They were the technology enthusiasts who always had a zest to test out new technologies and become early adopters. But 2020 changed everything. The pandemic gave a boost to all forms of digital services, from work-from-home to contactless payments.
As there were lockdown measures implemented throughout the countries, and healthcare concerns were rising with each passing day, people wanted to have a safer alternative to make their day-to-day payments. That is the time when a larger proportion of people recognized the importance and usefulness of using digital wallets instead of physical ones.
PayPal, Apple Pay, and Google Pay were some of the most used services for such payments. Bitcoin and other cryptocurrencies also popped up into the digital map, and people started to use them for their daily transactions. Even in some cases, governments were encouraging the use of digital wallets in order to limit the use of physical cash.
Apart from their above-mentioned benefits, digital wallets have great growth potential for entrepreneurs. As an entrepreneur, you must know what’s trending in the market in order to be able to penetrate it. If you’re into the business of creating your own digital wallet, you must check out our guide on the cost of website development – as it is the most important factor for any SaaS-based business.
In this guide, we will see how these digital wallets (including both the bank-based and the crypto-based ones) are the future. We will see how these work, why they are booming, and will also shed some light on the reasons and benefits of their usage.
How to Use a Digital Wallet?
Even though there is no rocket science behind using digital wallets, many people who are not aware of the latest technologies don’t know how to use one. The first type of digital wallets – the bank-based ones are easier to use. You just log in to the sites, sign up/log in with your details, and you can use it for most of your transactions.
The digital crypto wallet, on the other hand, is different. You have to first get a virtual wallet address, which is a unique number given to you to log in to a certain blockchain. You can find tons of tutorials over the internet on setting up your first crypto wallet through services like Binance or MetaMask. Once set up, all you would need is your unique address, but remember, you have to keep your secret address private otherwise all of your digital cash (crypto investments) can be stolen with that. Therefore, it is recommended that you first understand how these wallets work in the first place to stay on the safer side.
How Do Digital Wallets Work?
Understanding how digital wallets work is crucial for you to stay safe in this digital ecosystem. As the digital ecosystem provides ease, so does it provide a threat of theft. As stated earlier, the typical digital wallets that are bank-based are easy to understand and operate. They are the same as the current banking system. The only exception that these wallets make is that you can make transactions without visiting the bank physically. And, in certain cases, there is no physical presence of the bank.
But, the crypto-based digital wallets are a bit trickier than this. They are based on the fundamental concept of blockchain – that is an interconnected and decentralized network that operates on the basis of transparency and consensus. In this form of a digital wallet, the transactions are not facilitated by any bank or third party, but by the processor of your device and the network. It is a trustless system of banking and is more commonly known as decentralized finance. You can look it up over the internet to learn more about it.
Irrespective of the type of digital wallet, physical cash/currency is needed to create the account and be able to start making transactions. In the typical digital wallet, you need to transfer funds from your bank account to your wallet, and for the crypto-based wallet, you can transfer funds from your previous digital wallet, or your bank account. Once your digital wallet is loaded with funds, you’re good to go. You can use these wallets as your physical wallets at any store/service without any hassle.
Comparing Digital Wallets to Cash
Be it the typical digital wallets or the crypto-based ones, they are far better than cash. They not only provide the ease of use, but also have public health benefits that go unnoticed. These digital wallets help us minimize human interaction with the currency notes that can, in turn, be the biggest reason for the spread of any viral infection. Also, in developing economies, they make taxation easier which ultimately fosters the growth in the economy.
Governments all around the globe are now supporting these digital banks – except for a few exceptions, obviously. And this support from the governments and restrictions on the transfer of physical cash are leading to a boom in the usage of digital wallets. Let’s explore why they are witnessing a boom.
Why Are Digital Wallets Booming?
The biggest reason for the boom in the usage of digital wallets is, obviously, the pandemic and the pandemic-related restrictions. Most governments including China emphasized to its people that they should be using digital wallets instead of physical cash. They made this announcement in order to counter the spread of COVID-19 in 2020. And, after this, the adoption rate of digital wallets ramped up quite fast.
As physical stores were closed in all parts of the globe, the only option to shop for consumers was through online stores. And, these online stores prefer digital wallets. That happened to be the second biggest reason behind the boom in digital wallets.
Apart from the reasons above, speculation in the crypto market and the advent of work-from-home restrictions also lead to a greater knowledge of these digital avenues among the masses, leading them to prefer the digital forms of transactions over the typical ones.
What Are the Prerequisites for the Future of Digital Wallets?
To make the future of banks/money digital, there are certain prerequisites for us to meet. It is now time to shift our economies to these digital wallets in a mannerly way. And, this shift has many implications for all businesses, globally. The following factors will be playing a very crucial role in the transformation of the economy from physical to digital:
1. COVID-19 has changed the way your customers pay for services.
2. Digital wallets emerging as a strong disruptor to consumer payments – leading the big giants to focus on catering and incentivizing them.
3. The evolving competitive landscape for digital wallets will lead to faster adoption.
4. Expanding usage options encourage greater use of Digital Wallets in the future.
The factors mentioned above, if implemented well, will make the transformation to digital even smoother and faster.
The 5 Best Benefits of Digital Wallets
This transformation and the adoption of digital wallets will make our lives much easier. Here’s our list of the top 5 benefits of digital wallets:
1. Enhanced Security
Security has been the biggest concern for the use of physical cash. It can be stolen, it can be mugged, and it can be lost. But, in the digital form of cash, the only threat you have is of the loss of your account details. That too can be reinstated. It makes the digital wallets provide its users with the level of security that physical cash can never provide.
2. Easier to Manage
Physical cash, along with being prone to robberies and thefts, is difficult to manage. From counting stacks of cash to keeping them on a physical wallet/purse, it is all a separate job. But, managing digital wallets requires zero effort. All you need is a mobile app!
3. A Better Shopping Experience
The use of digital wallets have been boosted because, during the pandemic, online shopping was the only option left. And, the ease of use and ease of transactions that these online tools provide has made us all addicted to using them over physical cash. Just click buy and enter your card details, that’s it!
4. Better Expenses Tracking
When you use physical cash, a big problem that you witness is your inability to track your expenses. You cannot keep a record of the transactions you make, and that makes it harder for you to manage your finances. But, most digital wallet providers enable you to see your financial reports on a weekly, monthly, and yearly basis. It makes your personal finance management easier.
Last but not least! The 5th benefit of using digital wallets over physical cash is that you get to save a ton of your time before, during, and after the transactions.
Top 3 Reasons You Should Invest in a Digital Wallet
If you’re a consumer, you must already have a digital wallet in the form of Apple Pay, Google Pay, or PayPal. (There are other alternatives as well based on your country). So, as a consumer, you’ll have to invest your money into digital wallets, now or later.
But, if you are an entrepreneur or an investor, investing in digital wallets startups will be the best choice you’ll make this year. Here are the three reasons why!
1. Expand Customer Database
As a business, if you invest in digital wallets and incorporate digital payments from both crypto-based and bank-based digital wallets into your website, you’ll have access to a lot more customers globally. After the introduction of digital wallets in your business, you’ll see a ton of new customers from all around the globe buying your product – that is the power of digital wallets!
The customers who could not previously visit your store can now purchase your products online and pay directly through digital wallets. Setting up a virtual call center to connect with your customers and helping them by providing resources and support can do wonders for businesses.
Having a digital wallet will help your business send and receive money in a matter of seconds. Ultimately, the ease of transactions helps every sort of business!
2. You Can Use Your Digital Wallet Just About Anywhere
Not only for your business or investments, but you can also use your digital wallet just about anywhere. In a physical form of business, you have to withdraw cash from your bank account or transfer it to a different account to use it for your personal expenses. But, having a digital wallet can enable you to make those transactions right away from your address and don’t get your business finances disturbed because of the reports’ feature mentioned above.
Apart from this, as a business, you have to transact with a lot of people. From suppliers to customers that want a return – you need to pay all of them. Digital wallets, along with boosting the speed at which you receive payments also boost the speed at which you send payments.
3. Provide Frictionless Transactions
In the business world, it takes around 3 business days to complete a transaction internationally. If you transfer your money to another country through a bank, keeping aside all the restrictions and interrogations you’ll face, you’ll also have to wait for the transactions to clear.
It is a disaster for businesses that deal with normal consumers. Consumers demand ease of use and frictionless transactions – and digital wallets provide them with that!
Be it businesses or individuals, with the use of digital wallets, all are provided with numerous benefits. The ease of doing frictionless transactions, and the level of features that these services provide are matchless. To sum it up, these digital wallets will do the same to physical cash what physical cash did to coins and gold