Technology has impacted the e-commerce sector for the better.
One of the major ways we see this is in how people electronically transact financially.
In this article, we will take a deeper look at e-wallets and gain a better understanding of how they operate.
By the end of the article, you should know whether adopting an e-wallet will be beneficial to you.
What is an e-wallet?
An e-wallet also referred to as a digital wallet, is an online service or software that allows individuals and businesses to financially transact electronically.
E-wallets operate using any electronic device like a computer, tablet, or mobile phone.
So, how does an e-wallet work? E-wallets connect your financial payment accounts like a debit or credit card, or a bank account to a device, typically a mobile phone.
The e-wallet ensures security and confidentiality.
Your card details are not stored on the e-wallet, meaning your debit and credit card number, bank account number, or CVV code cannot be seen when you pay.
E-wallets use three main technologies to facilitate cashless payments.
- Magnetic Secure Transmission or MST uses magnetic signals to connect a smartphone to a payment terminal. In other words, you would need to hold your phone next to the terminal and pay. Samsung Pay is a great example of this technology.
- Near Field Communication or NFC uses radiofrequency identification to connect your phone to a terminal. You use NFC when you pay using Google Pay or Apple Pay.
- QR Codes. This technology works by scanning a code that will take you to a payment page where you can enter the details needed.
- PayPal, Apple Pay, Google Pay, and Samsung Pay are the most well-known e-wallets as they are recognized all over the world. However, there are many more options you can choose from including:
- Amazon Pay
- Vodaphone M-Pesa
Types of e-wallets
- There are three main ways e-wallets are categorized.
- Open wallets. These are e-wallets usually offered by banks or similar establishments.
- Semi-closed wallets. Such e-wallets can only be used at specific stores or for specific services. They also only allow deposits and you cannot withdraw funds using them.
- Closed wallets. A closed e-wallet is one is issued by a specific store and can only be used to buy goods or services there. You cannot transfer or withdraw any funds in a closed e-wallet.
Benefits of e-wallets
E-wallets have made it easy for you to send money, make purchases (both physical and virtual), and pay various bills without the hassle of carrying around cash, debit, or credit cards.
Since all your info is in one place, you do not have to remember to carry any cash, look for ATMs or stand in endless queues to withdraw money.
This can come in handy when there is an emergency, and you need to purchase something.
An e-wallet is quite a secure payment method.
All your personal and card or bank information is heavily protected by a technology called tokenization that exchanges your personal information for a token.
The token is what you use every time you make a payment.
In addition, the majority of e-wallets allow you to set up two-factor authentication that enables you to enter a passcode or use your fingerprint to confirm the payment.
This way no payment will be authorized without your approval, especially if your phone is stolen.
E-wallets are a very flexible payment method. Unless yours is a closed digital wallet, you can use one e-wallet to make payments at retail stores, pay house and restaurant bills, and transfer money.
They are not limited to only one use.
You can buy different items and pay bills as long as it allows you to.
Disadvantages of e-wallets
Can be prone to scams
As secure as e-wallets are, users can easily be manipulated to give away their passwords or other personal details.
Unlike cards or cash where someone has to physically steal, scammers call, text, or email you to convince you to share that information.
This means you should verify any call, text, or email before sending any information to anyone.
Though e-wallets are becoming more popular as time goes by, not every store or service provider recognizes them and allows their use.
Some still prefer to stick to the traditional payment methods they’ve always used.
Rely on an internet connection
No matter how convenient e-wallets are, they cannot work without an internet connection.
Some places have open networks you can connect to.
However, take precautions as such networks are not safe and should therefore not be trusted.
How do I set up an e-wallet?
Most smartphones come with an E-wallet already downloaded making it very easy to set up.
If it is unavailable, download the digital wallet of your choice and follow the instructions on how to set it app.
As more people go cashless and embrace transacting with digital wallets, it has become very clear that e-wallets should implement cyber security measures to ensure people’s information is kept confidential.