If you’re reading this article, chances are that some of your customers have recently asked whether you accept Apple Pay or Google Pay. Your preliminary research has yielded the terms digital wallet and mobile wallet, but while you may have heard of these forms of payment before, you don’t yet know many of the details.
What do these terms mean? Is there a difference?
The short answer is that digital wallet is a broad term covering software that electronically stores credit card numbers, debit card numbers, loyalty card numbers, etc. on your laptop, tablet, phone, or the cloud. A mobile wallet is a type of digital wallet that lives only on your phone and allows you to “tap to pay” in stores, often using NFC technology.
Below is a more detailed explanation of what these wallets are, as well as how they might affect your small business.
What Is A Digital Wallet?
A digital wallet is an electronic method for storing payment information. It is a broad term covering many types of functionalities, and not every wallet offers every type of functionality. Below is a list of major functions typically found in digital wallets.
- Store Credit & Debit Card Information: All digital wallets can store credit and debit card information. Some, like Apple Pay, Google Pay, and Samsung Pay, will allow payment directly from the card. Others, like PayPal, draw funds from a stored credit or debit card but pay out through the service itself.
- Pay At A Store: Many digital wallets will allow a user to pay for purchases made at a brick-and-mortar location. Apple Pay and Google Pay both allow this type of payment when an NFC-capable point-of-sale terminal is available.
- Peer-To-Peer (P2P) Payments: Most digital wallets allow users to transfer funds to one another. Typically, these payments are small amounts used to split a lunch bill, pay a babysitter, or even pay a share of the rent. The Cash app, Venmo, Zelle, Apple Pay, and Google Pay all allow users to transfer money this way.
- Online Payments: Digital wallets can be used to pay for online purchases. At checkout, a merchant who takes digital wallet payments will display the appropriate button for the appropriate wallet. PayPal is the most well-known wallet having this type of pay with button, but Apple Pay and Google Pay have similar buttons.
- Hold Funds: A digital wallet can store cash in the same way a gift card can hold cash. The funds are held in a cash account, and a user can link a bank account or a credit card to this cash account to cover shortages. Square’s Cash app and PayPal’s Venmo are examples of digital wallets that hold funds, and they even provide their users with physical prepaid cards (Visa for Square and Mastercard for Venmo) so the cash can be used at brick-and-mortar stores.
- Hold Coupons & Loyalty Cards: Many digital wallets can hold coupons or loyalty cards so a user can be given the appropriate credit or discount for using a particular card or for shopping at a particular store. Apple Pay, Google Pay, and Samsung pay all hold coupons and loyalty cards.
- Store ID: Some digital wallets will allow a user to store IDs. For instance, Apple Pay will allow a college student to store a student ID and use it to access various buildings or even pay from a student account.
- Store Transit Tickets: A number of digital wallets allow users to store transit tickets. Users can tap the phone (or a wearable linked to the phone) on a reader to enter subway or bus stations in an increasing number of cities in the US and abroad.
- Security: All digital wallets have security features that keep the stored information safe. The information is not only protected by password or biometrics (fingerprint scan, iris scan), but is also encrypted in many ways. Credit card information, for instance, isn’t even kept on the phone. Only a token that represents the information is kept on the phone.
Given that digital wallet is an overarching term that includes all the above features, is there a meaningful difference between a digital wallet and a mobile wallet?
How Is A Mobile Wallet Different From A Digital Wallet?
An easy way to distinguish mobile wallets from mere digital wallets is that mobile wallets let the user make a payment at a storeâs point-of-sale terminal. The payment is usually pulled directly from a credit or debit card rather than from a cash balance kept in the digital wallet.
With a mobile wallet, a user typically pays by tapping on a credit card terminal with a smartphone or a wearable device like a smartwatch or a fitness tracker. The device then transmits the payment information from the phone to the terminal via Near Field Communication (NFC) technology. Other mobile wallets (e.g. Dunkin’ Donuts, Walmart) send payment information through QR codes that a merchant can scan or the user can import through the phone’s camera. A third technology proprietary to Samsung (Magnetic Secure Transmission (MST)) mimics a magnetic swipe and transmits payment information that way.
As a side note, the popularity of NFC technology for payment processing has a lot to do with security. In the US, NFC is favored because it transmits the information only over very short distances. This way, there’s less likelihood that a snooping device can steal the payment information. In comparison, QR codes are less secure because a user can innocently scan a rogue code and be tricked into sending money to the wrong destination.
In this article, we try to draw a distinction between digital wallets and mobile wallets, but, in truth, the nature of these wallets is still in flux. When most people speak of mobile wallets, they tend to only be thinking of Apple Pay, Google Pay, or Samsung Pay. While digital wallets like PayPal and Cash can be loaded onto smartphones as apps, they cannot make NFC-based payments, so they are technically not mobile wallets. (PayPal can be linked to Google Pay and Samsung Pay, so it is still possible to pay at a store with PayPal, but the app itself is not capable of handling NFC payments.) However, Google Pay and Apple pay do let users make P2P payments and send cash, and these features tend to be major functions of pure digital wallets. Google Pay and Apple Pay, therefore, blur the line between digital wallets and mobile wallets.
If the line between digital wallets and mobile wallets is blurry, is there even a reason to draw a distinction between them? For a consumer, the answer is likely “no,” but for a merchant who wishes to take these payments, the difference can be significant.
What Mobile & Digital Wallets Mean For Merchants
For a merchant, there is a subtle but meaningful difference between a mobile wallet and a digital wallet. If you operate an online store or sell through a mobile app, then you can take digital wallet payments, but likely it will take a little work because you must add new code to your web store or your app. If you can’t handle coding yourself, you’ll need to hire a developer to implement these payment options. This is a bit different than some other online payment options that allow you to accept credit cards with minimal setup.
If, however, you operate a brick-and-mortar store where your customers pay through a point-of-sale terminal, then you can probably take mobile wallet payments without doing anything extra. If you have an NFC-enabled terminal, then you are all set to take Apple Pay, Google Pay, or Samsung Pay. If you are still using an older terminal that only takes a magnetic stripe card, then you can still take Samsung Pay because it has that the proprietary MST technology that mimics a magnetic strip card swipe.
Below are some of the additional advantages of taking digital and mobile wallet payments.
Digital and mobile wallets are secure. Digital wallets store payment information on a specialized, super-secure environment called the Secure Element (SE). Apple uses an SE chip embedded in the phone while Google and Samsung use one in the cloud.
When a customer makes a purchase, instead of the real credit card number, only a tokenized number is sent to the merchant. Hereâs a more detailed explanation of credit card tokenization, but for quick reference, a credit card token is just a random number with the same number of digits as a real credit card number. Only the credit card company has a way to match that random number to a customerâs real credit card number. So, if a token is stolen, the credit card company simply issues another token and disallows payment requests made with the stolen token. The real credit card number is kept safe and other purchases made with the real number (or other tokens) can continue.
From a merchantâs standpoint, the explanation above just means that tokenization takes you out of scope for PCI compliance (meaning less work for you) and you won’t be held responsible for fraudulent charges made with a stolen credit card. Thatâs a great reason for taking digital or mobile wallet payments.
Digital and mobile wallets make checking out faster. Whether you operate online only or have a brick-and-mortar store, faster checkout typically translates to more sales.
If you have a webstore or an app that takes in-app purchases, digital wallets often can populate all the payment fields with the push of a button. This means your customer wonât have to dig out a credit card, enter a long series of numbers, triple check to see the number is entered correctly, enter in their email twice, etc. etc. Being able to pay easily and quickly makes a better overall purchasing experience, and that means a better chance of a returning customer.
At a brick-and-mortar store, payment with an NFC enabled phone or wearable also makes checking out faster. Tapping a phone or a smartwatch over a point-of-sale terminal takes a mere second or two. Compare that to digging out a card from a wallet, dipping a card into the reader, waiting for the reader to approve payment, and making sure the customer does not forget to retrieve the card, you can see the time savings right away. Whatâs more, all the customers behind the one making the payment can see their time savings as well. The more happy customers you can move through your checkout, the more sales you can make.
In line with faster checkout, taking digital and mobile wallet payments offer additional conveniences to your customers. These days, most people pay for their purchases with a credit or debit card, and mobile wallets are increasingly being used to store these cards, especially by the young and/or tech-savvy. Millennials and Gen Z’ers transfer cash between friends using mobile wallets without a second thought and never seem to carry actual cash on them.
For these customers, it would be convenient to consolidate spending into one wallet, so they can easily keep track of their cash, credit, and debit spending. Most digital and mobile wallets also allow users to pay faster by approving a purchase using stored information. PayPal has a one-touch feature that allows a customer to instantly approve a payment with stored data. Google Pay allows a user to approve a purchase by just unlocking the phone and hovering the phone over the payment terminal without ever opening the Google Pay app.
Of course, digital and mobile wallet users won’t stop patronizing your store just because they can’t pay with their mobile or digital wallet. But, if you do allow it, they might come back to you more often because you take payments in the way they prefer to pay.
Do You Need To Accept Mobile & Digital Wallet Payments?
You probably do not absolutely need to take digital and mobile wallet payments, but allowing them might bring you more sales. If you have an online store, then you might have to invest some time or money to connect up to the wallet services. However, if you own a brick-and-mortar store, you likely already can take them. In fact, if your customers tend to be tech-savvy and/or young–or you want to attract more such customers–the ability to pay with digital or mobile wallets will offer them the convenience they want and induce them to do more business with you.
Whatever you do, if you decide to take digital and mobile wallet payments, be sure to advertise it properly. You can request signs and stickers from the wallet providers and of course download logos and the appropriate buttons for your webstore. Once this is done, you are on your way to taking digital and mobile wallet payments.
If you already take digital and mobile payments, what has been your experience so far? Have you increased your sales? Have you gotten positive comments from (hopefully pleasantly surprised) customers that you have improved your technology to allow for this new way to pay? Leave us a message in the comments!
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