A digital wallet, sometimes called an e-wallet, is a platform that holds your credit and debit card information. It doesn’t contain any physical cards, but it gives you access to those cards via an iPhone or Android smartphone, as well as computers or tablets.

This digital database lets you make purchases from online merchants while maintaining your privacy. In addition, some digital wallets let you make mobile payments via dedicated apps, such as PayPal, Venmo, or CashApp. These digital wallet apps are free to download on your mobile device, and they let you make payments with the tap of a button.

How do digital wallets differ from debit and credit?

Below is a chart of the differences between debit cards credit cards, and digital wallets:

Debit Card Credit Card Digital Wallet Appearance Physical (plastic card) Physical (plastic card) Digital (not plastic) Credit Not available Credit available Credit sometimes available Utilization Can be used for both online and offline purchases Can be used for both online and offline purchases Usable online and at specialized in-person payment terminals Number of Transactions Usually unlimited* (*can depend on type of account) Unlimited Unlimited Transaction Amount The amount is debited from the balance in your checking or savings bank account The amount is debited from the credit limit available on your credit card account The amount is debited from the credit limit on your credit card account or your debit card balance Validity Usually valid for a few years Usually valid for a few years Usually unlimited Security The card is safe to use and can be blocked or canceled by the owner upon request The card is safe to use and can be blocked or canceled by the owner upon request Usually equipped with security options like fingerprint unlockability (touch ID) and facial recognition Associated fees and charges Fees and charges usually involved Fees and charges usually involved Usually, no fee or charge is involved How Does a Digital Wallet Work? Digital wallets are usually designed to work best on a smartphone or a tablet like an iPad. However, Desktop versions of many digital wallet apps are available as well.

To set up your digital wallet, you’ll first need to create an account. Registration for a digital wallet platform is usually free, but it sometimes requires entry of personal information. Once you have a username and password created for your digital wallet, enter any actual card number that you already have into the app’s database. Once entered, this card becomes available to use via an iOS or Android device.

Digital wallets vs. virtual credit cards: What’s the difference?

While digital wallets and virtual credit cards (VCCs) share some similarities, they’re ultimately very different. Below are some key distinctions between a digital wallet and a virtual credit card.

  • Virtual credit cards often only function for one transaction. These virtual cards are often used for security reasons.

  • However, there are also recurring-use VCCs, where the number can be stored and used multiple times. Since you’re still not using your actual credit card data, recurring-use VCCs are just as secure as single-use VCCs. They are useful for transactions like monthly subscriptions or autopayments.

Both digital wallets and VCCs let you make transactions online, adding convenience and security to your everyday life. However, the key difference between these two platforms is the amount of times you can use them. While a digital wallet offers virtually unlimited uses of your preexisting credit and debit cards, a VCC is a card that only exists digitally and has limited uses.

Benefits of using a digital wallet

Using a digital wallet offers numerous benefits, including:

  • Extra security
  • Easier automatic payments
  • Easier management of accounts

Virtual cards offer extra security

With data breaches and credit card fraud increasing exponentially, digital wallets and their security policies offer you peace of mind that a physical wallet can’t.

A digital wallet protects your card information by keeping it in your devices rather than in your pocket. In addition, while a physical card has relatively low theft protection, a digital wallet usually requires fingerprint authentication or facial recognition for use.

Managing AutoPay is easier with digital wallets

Dealing with physical credit cards sometimes makes it harder to manage your payments. When all of your credit cards are stored on your digital devices, it’s easier than ever to schedule automatic payments and avoid late fees or interest on your cards.

If you’ve ever had trouble remembering to make credit card payments on time, a digital wallet might be just what you need. Use it to schedule automatic payments, check account balances easily, and even close accounts at will.

It’s easy to deactivate a card or account

Speaking of closing accounts, it’s never been easier to freeze or deactivate a card for security or convenience reasons. If you suspect that your account info has been compromised, most digital wallets let you freeze and account or deactivate a card instantly.

In addition to making it easy to close your accounts, digital wallets also sometimes let you order physical replacements for compromised cards. If you fear that one of the cards stored in your digital wallet was stolen, you may be able to request a physical replacement from within your digital wallet app.

It’s easier to manage accounts

If you ever feel like you’re constantly losing track of where your money goes, a digital wallet can help. Most digital wallet apps include a detailed transaction history for each of your cards. Having access to purchase records helps you stay on budget, manage your accounts, and check for unauthorized transactions.

Are digital wallets better than virtual cards?

While a virtual credit card (VCC) exists only in the digital world and has limited uses, a digital wallet stores actual credit card numbers that coincide with your physical cards. Does that distinction make digital wallets better than VCCs? Let’s find out.

Returning items can be more complicated with a VCC

It’s easy to request a return when you make a purchase using one of the cards in your digital wallet. However, when the disposable number on a VCC is no longer valid, a vendor cannot refund you. You might have to settle for store credit instead when you ask for a return on a VCC purchase.

VCCs can’t always verify your payment source

If you used your VCC to book a room or table and a vendor requires you to make payments with the same card, the virtual number would differ from your real card number. That’s just one example of a time when using your digital wallet might be easier than using a VCC.

You cannot use VCCs for all transactions

VCCs were explicitly made for online purchases; they are not tangible or swipeable. Digital wallets, on the other hand, can sometimes be used in brick-and-mortar businesses thanks to NFC technology and specialized payment terminals.

Protect your identity online with a digital wallet

If you value online security, using a digital wallet can help you protect yourself.

Using a digital wallet to make purchases online or in-person keeps your information as safe as possible and helps you protect your identity. In addition, as more businesses begin implementing contactless pay methods into their transaction processes, it’s becoming easier than ever to make all of your daily purchases with your digital wallet.

When you pay for day-to-day items, try using your digital wallet instead of physical cards when possible. Opting for a digital payment method over a physical card makes it easier to manage your payments, check on your accounts, and stick to your budget.

Digital wallets are changing life as we know it

With most aspects of our lives now being digitalized, digital wallets are essential in offering you protection when you need it the most.

Even if a card number stored in your digital wallet is compromised, you can quickly delete or block it without having to worry about the physical card being used without your permission.

However, digital wallets don’t entirely replace basic safety measures. It’s still necessary to regularly check your transaction statements to account for all payments made using your cars. That way, you’ll keep your information safe and secure and eliminate unnecessary worries.

Sources

New Data…FTA Fraud Reports…,” Federal Trade Commission

The Benefits and Risks of a Digital Wallet and Mobile Payment App,” Identity Theft Resource Center

Vital Card blog posts are intended for informational purposes only and should not be considered financial or any other type of advice.