A Guide to E-Wallets

You’re out buying groceries, and once your items are rung up, you start fishing through your bag for your wallet. Shuffling through old gift cards and receipts to find your debit card, all while a line starts building behind you. 

Or, maybe you’re shopping online for a new pair of shoes. You find the ones you want, but once you get to checkout, you have to search for your credit card, type in all the info manually, and rack your brain to remember which billing address is the right one.

The good news is there’s a better way. 

So long as you have a smartphone or internet connection, you have the potential to do away with your physical wallet altogether. The solution? E-wallets.

“With e-wallets, purchasing is as simple as clicking a button,” said Tom Tucker, head of Americas at Australian fintech company Till Payments. “You don’t need to type your billing address, your checking account number or your credit card number. E-wallets are about simplicity, convenience and safety — and now, they’re mainstream.”

But what exactly is an e-wallet, and how do they work? How did they get started, and where can you use them? Most importantly, are they safe? Below, leaders in the fintech space share their answers — and their predictions for the future.

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E-Wallets

How E-Wallet Tech Took Off

E-wallets might seem like a recent development, but the technology for moving money virtually has actually been around for a while. In Tucker’s eyes, its genesis can be traced as far back as 1998, with the founding of PayPal.

“PayPal was probably the first example of an e-wallet alternative payment type here in the U.S.,” he said. “Then they bought Venmo, and the banks responded by creating Zelle.”

Broadly defined, an e-wallet is a type of app that allows you to store or spend money digitally. Under that umbrella, there are a variety of apps with different functionalities that are all still considered e-wallets. For instance, Apple Pay can be accepted as a payment method in many physical stores, while Venmo and Cash App can be used to quickly send money to friends and family. However, since it allows you to store and transfer money to some degree, it is considered a type of e-wallets. Although the technology isn’t new to the United States, Tucker said that much of the country is still card-centric, and thus behind the rest of the world when it comes to e-wallet adoption. 

“Globally, you have Paytm, Alipay, and WeChat Pay, but the US has been behind in the market,” Tucker said. “It’s taken a long time for most consumers to feel safe about the security of an e-wallet.”

But things are changing, and quickly. Today, around 60 percent of U.S. adults use some form of e-wallet or digital payment technology, according to research from CivicScience. Tucker compared the rise in e-wallet adoption to the jump in QR code adoption — both technologies seeing a rise in popularity partly because of the pandemic..

“E-wallet and contactless technology transformed because of Covid — nobody wanted to touch things,” he said. “The entire pandemic changed how consumers looked at things and made them try things that they hadn’t tried before.”

How Do E-Wallets Work?

Simply stated, an e-wallet is a digital means for transferring funds or making transactions for goods and services. It looks and feels different than a traditional wallet, but in reality, e-wallet technology isn’t really all that different from what we’re used to. Just like the one you’d carry in your purse, an e-wallet is a place to store cards, tickets and coupons for future use. 

Jeanniey Walden, chief innovation and marketing officer at New York-based payments technology company DailyPay, compared e-wallets to tupperware containers: A place to store food before reheating or transferring to the good china. 

“Nobody really leaves money sitting in their e-wallet,” she said. “You don’t really put 500 dollars in your Venmo and leave it there.”

E-wallets can be used to pay for products and services online, but their use isn’t restricted to the internet. While not universally adopted yet, many vendors like McDonald’s, Best Buy and Texaco have kiosks that can accept Apple Pay payments at physical locations. E-wallets aren’t exactly like a bank account, but the companies do have to obey many of the same regulations and restrictions that banks do. 

“Some advice I have for people is to start by loading one card into your e-wallet at a time ... [Then] you can test it out in order to verify and build trust.”

“Building an e-wallet requires certain regulatory and bank approvals,” said Tucker. “You’re holding funds, so you need to follow money transmission laws and get FDIC and SEC.”

E-wallets are also susceptible to security risks. Just like any form of storing or spending money, fraud can be a concern, although it’s not as big of an issue as one may assume. Many people are wary of storing their card data in a digital format, but e-wallets often use two-factor authentication, password protecting and end-to-end encryption, which makes them safer and more secure than keeping your cards in your pocket.

E-wallets also assign each card a DPAN, or a device primary account number, which differs from your physical card number or bank account number. When customers make payments with their e-wallet, their receipt and payment data only shows a tokenized account number. A DPAN can’t be stolen as easily as the card number issued by a bank, and thus is more secure, according to the fintech company Adyen. 

“Merchants still get purchase authorization directly from the issuing bank, but by using an e-wallet DPAN, the issuing bank assumes liability, rather than the merchant,” said Tucker. “From a consumer perspective, you know your data is stored in a secure, tokenized format.” 

Despite these security measures, some people are still hesitant to adopt e-wallets. Around 77 percent of people who don’t use e-wallets explained that security was the top cause of their hesitation, according to a survey from fintech company Square.

“Some advice I have for people is to start by loading one card into your e-wallet at a time,” Walden said. “[Then] you can test it out in order to verify and build trust.”

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What’s Next for E-Wallets

E-wallets have become a lot more efficient since the early days of PayPal. But there’s still a room left for improvement. Walden hopes that in the future e-wallet technology will become more task-oriented and adapt to cut out unnecessary steps between adding funds and using them. 

“If you don’t adapt, and if you’re not ready to supply consumers with the means to use new payment tech, they’re going to find someone else to buy from.” 

“I think e-wallets are going to be integrated into the internet of things in the next couple of years,” she said. “You won’t just have a smart refrigerator that tells you when you’re out of milk or when you need a filter replacement. Your smart wallet will be connected to your refrigerator, so it can order those things for you.” 

Though the future evolution of e-wallet technology is still to be seen, one thing’s for sure: it’s only going to become more common. As our lives become increasingly tech-enabled, people will want faster and more efficient ways to buy goods and services. E-wallets are poised to become the new norm, Tucker said — and merchants need to be ready.

“I think it’s a call to action for merchants,” he said. “If you don’t adapt, and if you’re not ready to supply consumers with the means to use new payment tech, they’re going to find someone else to buy from.”