Digital wallets have grown in popularity in recent years, and the Covid-19 outbreak has expedited their use in South Africa. Individuals now choose to conduct transactions with digital wallets rather than coins or banknotes.
During the epidemic, banks promoted the usage of digital wallets and advocated for the adoption of contactless payment methods. Banks’ support for digital wallets can be demonstrated in their zero fees on digital wallet payments and transfers, whereas ATM withdrawals cost a fee.
Credit cards and debit cards are two of the most common digital wallets. Digital wallets can incorporate gift cards, store cards, membership and loyalty cards, coupons, digital tickets, cryptocurrency wallets, and other items.
Before we go any further, let us define digital wallets and describe how they work.
What is a Digital Wallet?
A digital wallet refers to a piece of software, an electronic gadget, or an internet service that allows people to transact electronically. The wallet saves the user’s payment information for various modes on numerous websites.
A digital Wallet enables consumers to make contactless payments in-store, online, or within applications. Mobile applications are the most widely used type of digital wallet because they provide flexibility and convenience.
Characteristics of a digital wallet
- It is a term that refers to software, electronic devices, or online services that enable people to conduct electronic transactions.
- Payment information is kept safe and secure in an encrypted file.
- To gain access to the digital Wallet, users must first download the digital Wallet app on their phone or simply visit the digital Wallet website.
- The digital Wallet software components can be integrated into a bank’s mobile app or used as a payment platform.
How a digital Wallet works
To comprehend digital wallets, you must first comprehend the various payment processing systems. In this section, we will learn about three different payment processing systems that will help us understand how digital wallets function.
Near Field Communication (NFC)
Near Field Communication (NFC) is a wireless technology that allows smartphones, tablets, wearables, payment cards, and other smart devices to exchange data with a single touch. The technology can be used to transfer any type of soft data and digital wallets and it is commonly used to share data with pay point devices.
This type of technology is used in apps such as Samsung Pay, and banks have also permitted the use of this technology to make payments at tills. Only devices that are compatible with this technology can utilize this way to transfer and can receive data; consequently, your smart device, as well as card readers at checkout, must be NFC compatible.
Magnetic Secure Transmission (MST)
Magnetic Secure Transmission (MST) is a technology that allows devices such as smartphones to produce a signal that resembles the magnetic stripe of a traditional payment card. When the function is enabled, a cellphone or smart device will work as a credit or debit card.
To use this function, the user must first install a suitable app. MST is used by applications such as Samsung Pay to allow customers to make payments using their digital wallets. To make a contactless payment, the MST sends a signal to the payment terminal’s card reader, much like an NFC.
Quick Response Code (QR Code)
A QR code is a two-dimensional machine-readable barcode that carries information about the item to which it is attached. To pay at a card reader checkout point, a QR Code can be scanned using a smartphone’s camera while using a digital wallet.
Users of the Pick ‘n Pay smart shopper app can access their smart shopper points at the till by scanning a QR code on a card reading machine at the till point. In the cryptocurrency world, QR Codes are also used to transfer money from one wallet to another.
A QR code can be used to transfer cryptocurrency from one wallet to another. QR codes are commonly used to make payments in developed countries.
Are digital wallets safe?
Since digital wallets are still a new form of technology that is primarily used by South Africans under the age of 45, they are safer than many other methods of transferring money. To conduct a transaction, digital wallets will require two-factor authentication or a one-time pin, making them more reliable than carrying cash.
Concerns have been raised about what happens if a smart device or smart computer containing your digital wallet is stolen. The ideal way to handle such a situation is to record your device’s International Mobile Equipment Identifier (IMEI) number and keep it safe so that if your device is lost or stolen, your provider can disable or shut it off.
The use of figure prints and face recognition ensures that financial information is displayed to the rightful user, which raises the security level of digital wallets. However, digital wallets are not completely secure, and criminals can obtain data from digital wallet users in order to gain access to devices.
Being aware of phishing tactics used by cybercriminals and constantly reading the wallet provider’s updates on new methods used by criminals to gain access to your wallet will greatly reduce the danger of being hacked. Sharing OTP, password, or authentication data with “consultants” is prohibited because consultants are not permitted to request such information.
Advantages of a Digital Wallet
- Through current authorizing procedures, digital wallets ensure a high level of security features for the user.
- Unbanked individuals can utilize digital wallets and conduct transactions at their convenience.
- They provide convenience by allowing consumers to pay using their phones.
- The cost of keeping a digital wallet is low.
Disadvantages of a Digital Wallet
- It requires new technology, which the impoverished in communities are unable to access. The usage of NFC, for example, requires the use of compatible smartphones or relevant devices.
- The retailers who accept payments from an electronic digital wallet determine the type of wallet they accept.
Digital wallets are amongst the most prominent current means of transacting and storing currency. Wallet providers provide a higher level of protection than we are used to, and the fact that they can be accessed from anywhere in the world makes them more appealing.