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*This is the first installment of a three-part blog series focusing on digital wallets. Check back for more information.
Close your eyes and imagine a quick scenario with us: You’ve got a cart full of purchases, you’ve waited in line, and you’re now at the checkout counter fumbling with your pockets or checking your purse. Your heart drops as you realize—you’ve forgotten your wallet. You look down at your cart and up at the waiting employee.
What happens next?
In the past, you’d have no choice but to leave your haul behind, sheepishly walk out of the store and find a way to pay.
Today, with the advent of digital wallets, you can simply pull out your phone and proceed with your transaction. How is this possible—and how did we get here?
Digital Wallets Explained: Definitions, Basics and Benefits
Very simply put, digital wallets leverage applications or programs that securely store your financial information and allow you to make electronic transactions. You’ve likely heard of these applications, or at least seen them advertised heavily; options range from Apple Pay to Google Pay and Samsung Play.
In theory, you can use a digital wallet to store your payment information securely, enabling you to pay at a range of IRL vendors with a simple tap or click—eliminating the need to carry physical cards.
How Digital Wallets Work
The first time you tap your phone on a screen and see a transaction go through, you might be tempted to think that digital wallets are some strain of magic.
They’re not. Digital wallets use smart devices (e.g., smartphones and wearables) that are equipped with Near Field Communication (NFC) or QR codes to transmit payment information. To keep a user’s financial data secure, digital wallets use encryption and tokenization to protect sensitive information and require passwords or biometric authentication for access.
Benefits of Using Digital Wallets
When implemented safely and used appropriately, digital wallets come with many benefits—including:
- Convenience and ease of use: With your payment information stored digitally, you can make purchases swiftly without needing cash or cards.
- Enhanced security features: Digital wallets provide robust security through encryption and tokenization, reducing the risk of fraud and data breaches.
- Flexible payment options: Digital wallets offer versatility, allowing payments in-store, online and peer-to-peer.
The Origin of Digital Wallets (Financial History, Explained)
The concept of digital wallets can be traced further than you might expect—back to the early days of the internet.
The first recorded online purchase was made in 1994 when a CD of Sting’s "Ten Summoner’s Tales" was bought. Following that, digital wallet research skyrocketed and more and more digital wallet applications were rolled out.
Key Milestones in Digital Wallet Development
Several key milestones have shaped the development of digital wallets:
- 1999: PayPal was launched and quickly became a popular payment method for online transactions.
- 2003: Alibaba introduced Alipay in China, revolutionizing the way payments were handled in the region and setting a precedent for future digital wallets.
- 2007: M-PESA was launched in Kenya, providing mobile money transfer and financial services — especially beneficial for unbanked populations.
- 2009: Bitcoin introduced the concept of decentralized digital payments, paving the way for cryptocurrency wallets.
- 2011: Google Wallet was introduced, allowing users to store card information and make payments using their phones.
- 2012: Apple Passbook was launched, which later evolved into Apple Wallet, encompassing more than just payment information.
- 2013: WeChat Pay integrated with the WeChat messaging platform, merging social media and financial transactions.
- 2014: Apple Pay waslaunched, followed by Android Pay and Samsung Pay in 2015, bringing digital wallets to a broader global audience.
Of course, once digital wallets arrived on-scene, they didn’t stop improving and changing. The past decade has brought wild changes in digital wallets—bringing them from a fringe high-tech option to a universally-expected payment option.
What About The Last Few Years? The Impact of the COVID-19 Pandemic
The supply chain issues, logistical and financial challenges and general upheaval of the early 2020s only accelerated the adoption of digital wallets.
People sought contactless payment options en masse to minimize physical contact and boost commerce options in a time when everyone was trying to stay at home as much as possible. Digital wallets were the perfect way to accomplish that — which lead to their becoming a mainstay in today’s economy.
Digital Wallets, Leveraged for You!
Digital wallets have significantly changed — and supported upgrades to — the way we manage and spend money. When used and implemented well, digital wallets can offer unmatched convenience, security and flexibility.
If you’re interested in accessing those benefits, we’re here to help.
Explore the digital wallet services offered by 7 17 Credit Union and discover how easy and secure managing your finances can be. Visit our digital wallet page for more information.
