What Are the Types of Digital Wallets?
Running a business requires understanding and anticipating customers’ needs while balancing budgets. Implementing every new technology in the business environment is a risk, as the costs of it may prevail over advantages in the future. In recent years, there have been both technologies forgotten forever and ones so convenient that now are an integral part of our lives. With debit and credit cards, people felt the relief of not bringing cash around. Digital wallets instead allow us to switch cards for the all-in-one apps where there are not only contactless payment options but much more.
Digital wallets bring something to the table both for users and business owners. In our guide, you can find out what are the types of digital wallets and which would suit your business needs the best, what technologies digital wallets use to operate and protect sensitive information, and how small businesses win from implementing e-wallets in their model.
Digital Wallets Diversity
Digital wallets cover specific business needs. Three types of digital wallets operate with fiat money, and there are types of digital wallet that deals with cryptocurrency or both crypto and fiat.
As fiat and crypto have some distinctive features, they will influence digital wallets’ specifics. For example, fiat digital wallets operate with intermediaries, as they are based on a traditional centralized banking system. Cryptocurrency, on the other hand, uses blockchain technology that allows the excluding of intermediaries in peer-to-peer transactions.
Volatility also makes difference. Although more and more merchants are starting to accept cryptocurrency as a payment method, it is still mainly used for investments, and fiat money is responsible for most everyday transactions.
Fiat digital wallets types
Open wallets. They are online applications where user can manage their payments with little or no limitations. They can purchase goods or services both online and in offline stores. This type of digital wallet allows users to exchange money with users of the same wallet worldwide.
Closed wallets. Unlike open wallets, closed ones can be used only for purchases within a particular business. It is convenient for customers if they buy from this business often. If the customer wants to cancel any transaction, the money will be returned to the wallet and could be used for more successful purchases in the future.
Semi-closed wallets. This type of wallet works as an open wallet, except the payment area is restricted to certain places and sites that have a mutual agreement with the wallet provider. All other functions are the same.
Crypto and mixed wallets specifics
As cryptocurrency paved the way for success in the modern digital world, different kinds of crypto wallets are now at the top of popularity. Leaving aside hardware crypto wallets, let’s concentrate on the digital ones.
Digital crypto wallets can have a form of a desktop application or browser extension, but the most famous are mobile crypto wallets. As the usual e-wallets, they are used for exchange, lending, payments, and more. The difference is that the currency is crypto assets. In this mobile wallet, the crypto keys are stored. For secure operations, crypto wallets use smart contracts.
Crypto wallets have many unique features linked with blockchain technology specifics. For example, they often have in-build browsers to connect with decentralized applications (dApps).
There are also digital wallets that store fiat and crypto in the same app which is very convenient for crypto owners. Besides typical storage, transfers, and payment options with both types of currency in one space, they usually allow exchange between fiat and crypto and purchasing crypto with fiat.
What Technologies Does Digital Wallet Use?
Using a digital wallet for a customer is easy and intuitive. It requires only a smartphone with an installed payment app and a stable internet connection. However, If you want to implement a digital wallet in your business, there are a few things you need to ensure. First and foremost, you should guarantee the security of its usage. Second, a digital wallet requires solid back-end infrastructure, payment gateway integration that would allow the users to add funds and make payments, and APIs and SDKs availability for third-party developers to integrate their applications with the digital wallet.
Digital wallet security
Getting personal information from a lost or stolen physical card is relatively easy. Digital wallets instead require additional security layers. Usually, they use Face ID or Touch ID in addition to a traditional PIN.
Customers also may worry about hackers who might get access to their personal information during the transaction. Digital wallet developers considered such probability, so e-wallet does not use actual personal information. Instead, a digital wallet provider creates a one-time original token of random numbers for every new purchase. In such a way, the card information is safe, and the risk of stealing customers’ data is much lower. Usually, businesses choose to use machine learning algorithms to detect suspicious activity and prevent fraudulent transactions from happening.
Beyond these safety measures, a digital wallet should operate due to finance-related regulatory compliance which depends on the state.
Technological aspects of digital wallet development
You can host your digital wallet on-premises or use a cloud-based infrastructure. In the first case, you would need to invest in hardware and software, which is costly. Moreover, it may constrain the digital wallet’s growth by your limited material resources. Another option is a cloud-based infrastructure that allows you to concentrate on growing and developing your digital wallets instead of time-consuming dealing with the underlying infrastructure. It also ensures greater scalability, flexibility, and availability. Each cloud-based infrastructure provider offers different features, pricing plans, and levels of support, so the final decision is up to you.
To fulfill its main function, a digital wallet has to have an integrated payment gateway. Every business may choose the best suitable provider, considering their specifics. Some established payment providers offer POS systems for offline transactions, while others concentrate on online payments. When choosing a payment gateway provider, evaluate the features you need, setup fees, and transaction rates, as they all are relatively easy to use. For example, some providers include fraud detection or invoicing instruments in their suite tools.
Owning a digital wallet app, you can provide APIs to third-party developers or businesses to allow them to implement your digital wallet into their systems or applications, so you expand the digital wallet reach and usage significantly. This, in turn, would lead to increased adoption and revenue. For instance, merchants can accept payments using your digital wallet; on e-commerce platforms, users can purchase goods with it; and if a bank integrates the digital wallet into their system, it will allow the users to transfer their funds between the bank account and digital wallet easily. There are even more use cases further in reading.
Digital Wallets Main Use Cases
As consumers welcomed and liked e-wallets, businesses became creative in using them, too. There are a few use cases in various industries. By providing your digital wallet to them, you will make a beneficial partnership. Your digital wallet will reach a wider audience that will use it more and more frequently. It will also generate revenue through transaction fees, commissions, deposit and withdrawal fees, and currency conversion fees. This cooperation will drive innovations and future development.
Merchants and e-commerce
Using e-wallets on POS are fast and secure payment option that leaves customers satisfied and, in turn, increases conversion rates. In e-commerce, the overcomplicated checkout process is the reason for leaving the cart. With digital wallet integration, businesses can enable one-click payments to ensure that purchases will be completed. In any case, a wide range of payment options attracts more customers, especially tech-savvy ones. E-wallets can also be used to facilitate international transactions, providing businesses with a convenient and cost-effective way to accept payments from customers around the world. This can help businesses to expand their customer base and reach new markets.
Personalized offers
One of the essential business tasks is retaining the customer. One of the ways to do this successfully is by offering a loyalty program. People like the rewards for their behavior. Therefore, they are more likely to buy again if they receive some points for every transaction. Digital wallets are perfectly suitable for collecting points. They encourage future spending, improve engagement, and make the customers stick to the business.
All kinds of coupons, discounts, and rewards also can be in digital wallet functionality. People tend to spend more if they have a little encouragement. Every business has its ways of celebrating the most loyal consumers, and special discounts in a digital wallet for those who spend the most is a way to show gratitude and form a special bond for a long time. It is a win-win situation as customers like special attention.
Banks and traditional banking service alternative
An established bank already took all the necessary security and compliance measures and has a client base. However, to stay competitive, it can implement digital wallets and retain old customers by offering them the convenience of digital payments and asset management from anywhere at any time. The banks can also make an additional revenue stream by offering premium features like advanced security measures or additional financial management tools for a fee.
E-wallets can strive among users who do not want or cannot get a traditional bank account. By integrating digital wallets into mobile services, businesses can open a new revenue stream, as customers get the chance to operate with money directly from their digital wallet account, without having a traditional bank account. By offering this service, they can attract customers who prefer to use mobile wallets instead of traditional banking services, potentially increasing the customer base and market share.
How Small Businesses Can Benefit from Implementing Digital Wallet?
Earlier, digital wallets were more or less a pleasant surprise, but now customers most likely expect to use them everywhere. That is why implementing them as the payment method brings many advantages that prevail over expenses. Check out some of the most common reasons to consider a digital wallet enabling.
Higher conversion rates
The long and complicated payment processes can push the customer away. There are higher chances of finishing the transaction if it is fast and easy. In the case of in-store purchases, it is almost impossible to sell goods if the point of sale isn’t equipped with NFC technology nowadays. People tend to forget about cards or cash. As a small business owner, you can lose a customer very easily. Another point is the buying experience. If it is pleasant, people are most likely to associate your product with satisfaction and will come back in the future. Moreover, digital wallets protect from frauds both customers and businesses.
Easy management
Digital wallets are easy to integrate into the website or the app. Like they are comfortable for users to manage their assets, they are efficient for the business finances. It is easier to organize business transactions and plan the budget with an e-wallet. Spending analysis allows the business to cut unnecessary expenses and save for other purposes. All in all, digital wallets ensure better control over the company’s finances.
History of transactions analysis
The digital wallet gives access to customers’ preferences and purchase history. With this information, marketing is on another level. You can send suggestions with more chances to hit the target. You can also form more personalized recommendations for related products and discounts based on customers’ previous shopping experiences. It helps with raising brand awareness and building a reputation.
Like every other business decision, digital wallet integration should be well-thought. As there are many types of digital wallets, research is necessary. The region and the customers’ devices play a huge role when adding this payment method. If your business is in high technology niche, you may even consider allowing crypto payments. To each their own, still, the pros of digital wallets prevail over all possible hesitations.
Final Thoughts
With digital payments being a rapidly growing technology, digital wallets may become a start for a successful business partnership giving revenue to providers and business owners. According to business needs, there are a wide variety of digital wallet types to choose from. Some operate with fiat, some with crypto, and others manage to combine both.
Digital wallets are technologically advanced and require a solid back-end infrastructure to operate properly and seamlessly. They also proved their safety by using tokenization, encryption, and 2FA.
Besides increased revenue, digital wallets allow the business to get better engagement and ease the asset management process.
If you want to develop a digital wallet, Idealogic is here to consult and provide a development team for your product.
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