What Is a Mobile Wallet?

What Is a Mobile Wallet?

A mobile wallet stores credit or debit card information on a mobile device, such as a smartphone, tablet, or smartwatch. Mobile wallets are a convenient way for you to buy things online or in stores that are set up to take payments through the wallet. They may also be more secure than physical payment cards because of the technology they use to protect your account information.

Understanding Mobile Wallets

A mobile wallet is either a built-in feature or an app that can be installed onto smartphones. A mobile wallet stores credit card, debit card, coupon, or reward card information and can connect directly to bank accounts. 

Three of the main mobile built-in wallets are Apple Wallet, Google Wallet, and Samsung Wallet. These apps store your payment card information but can also hold other documents such as event tickets, vaccination records, or airline boarding passes. They are integrated with their respective payment services (Apple Pay, Google Pay, and Samsung Wallet), which are used to make payments. You as a user may not even notice the difference between, say, Apple Wallet and Apple Pay.

Take note that P2P payments via Google Pay are no longer available for U.S. users, although they may be available in certain other countries.

When you use it to make a purchase or payment, the payment app uses a technology called near-field communication (NFC), which uses radio frequencies to communicate between devices. NFC uses the personal identification format created for the user to communicate the payment information to the merchant’s point-of-service (POS) terminal. The information transfer is usually triggered when the user waves or holds an NFC-enabled mobile device over the store’s NFC reader.

Let's say you add your debit card to Apple Pay and want to use it at McDonald's. You would hold your phone next to the card reader, which uses NFC technology to communicate with your phone. Apple Pay opens using a verification method such as face recognition or a passcode and asks you to click a button to confirm payment through the default payment method stored with the app. (You could also tap the app to use a different card you've stored in the app.) The payment information is sent through NFC technology.

Special Considerations

Some of the most common concerns about mobile wallets include how card information is handled and whether they are secure. Your debit card information is never stored on the device. Instead, when you sign up for the service, the card information is encrypted and stored on a secure chip. When you make a purchase, Apple uses a token—a unique, randomly generated number that can be mapped to your original data. If a thief should get hold of the token, it would be useless to them.

Types of Mobile Wallet Apps

Most smartphones and mobile devices are equipped with NFC technology. iPhones have Apple Wallet and Apple Pay, Android phones are often equipped with Google Wallet, and Samsung Galaxy phones are preloaded with their proprietary Samsung Wallet, which includes Samsung Pay. Besides what comes preloaded on smartphones, mobile wallets from other companies have also become very popular.

Some apps developed by third parties include:

• PayPal: The online payment platform is available for download on both iOS and Android devices. Fees vary for PayPal—check to see if your payment method has fees attached.
• Google Pay: Google Pay comes loaded on many Android phones, but it's also available for download on Apple (iOS) phones. Google Pay no longer supports P2P payments for U.S. users, however.
• Venmo: Venmo started as a peer-to-peer app but is slowly making a foothold with retailers as well. Venmo does charge a 3% fee for any purchases made with a credit card linked to the platform. Transactions that draw from a bank account are free.

Benefits of Mobile Wallets

Fraudulent activities, such as identity theft, are harder to initiate with mobile wallets. Though a user’s credit card can easily be stolen or duplicated, smartphones are not so easy to steal. A smartphone that is stolen may be hard to access if there is an access password, fingerprint check, or facial recognition installed.

As discussed above, mobile wallets don't store your card information on the phone, and use encryption and tokenization for secure transactions.

Using a mobile wallet can be faster than using a chip card for a payment. And because mobile wallets are a digitized version of physical wallets, almost every valuable card stored in a physical wallet can also be stored in a mobile wallet, such as a driver’s license, Social Security card, health insurance cards, loyalty cards, hotel key cards, and bus or train tickets.

Digital Wallets vs. Mobile Wallets and Payments

Digital wallet is another term used interchangeably with mobile wallet or mobile payments. However, they are implemented differently even though they both store payment information. Digital wallets are mostly used for online transactions and may not necessarily be used on mobile devices.

Mobile wallets are used by people who would rather not carry a physical wallet when making in-store purchases. For this reason, these wallets have to be used on mobile and easy-to-carry platforms.

Apple Pay, Samsung Pay, and Google Pay are examples of mobile payments that can be installed on a handheld or wearable device. A regular PayPal account is a form of a digital wallet, but when used in conjunction with mobile payment services and mobile devices, it functions as a mobile wallet.

The Bottom Line

Mobile wallets allow people to use their phones to pay for everyday services. With complex encryption and security features, using a mobile wallet can actually be safer than using a physical card. Most phones now come preloaded with the company's mobile wallet app, but there are options, such as Venmo, that work with all phone brands.