Mobile Wallet

DEFINITION of 'Mobile Wallet'

A virtual wallet that stores payment card information on a mobile device. Mobile wallets provide a convenient way for a user to make in-store payments and can be used at merchants listed with the mobile wallet service provider.

BREAKING DOWN 'Mobile Wallet'

The technology savvy era has presented a world where the business-consumer relationship is swiftly becoming digital. From e-commerce platforms to robo-advisors to the advent of smartphones, businesses are transforming the way they operate to meet the ever-changing needs of their clients. Technology in the financial sector has not been left out of the digital transformation as an emergent group of companies known as Fintech keep coming up with disruptive tools and services that are easily accessible for low costs. One area of the financial industry that is rife with innovations is the payment sector. Using mobile technology, like smartphones, tablets or smartwatches, companies and users are adapting to emergent ways of conducting online and offline transactions using devices like a mobile wallet.

The mobile wallet is an app that would need to be installed or a feature that is already in-built with the smartphone. Think of a mobile wallet like a storage container that stores your credit cards, debit cards, coupons and reward cards. Once the app is installed and the user inputs his payment information, the wallet stores this information by linking a personal identification format like a number or key, QR code or an image of the owner to each card that is stored. When a user makes a payment at a merchant, the mobile 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 POS (Point-of-Service) terminal. The information transfer is usually triggered when the user waves or holds his NFC-enabled mobile device over the store’s NFC reader.

Not all smartphones or mobile devices are equipped with NFC technology though. Case in point, the iPhone device. For these users, there are alternative ways to use their mobile wallets to make in-store payments. PayPal’s mobile wallet allows users to make payments by just using their mobile phone numbers during checkout. The phone number has to be linked to the user’s PayPal account in order for the transaction to be approved. While PayPal uses phone numbers, other mobile wallets use other personal features identifiable to the user like LevelUp mobile wallet uses QR codes which can be scanned at checkout and the defunct Square Wallet used the image of the user which could be easily verified by the teller or attendant.

Fraudulent activities like identity theft are harder to initiate with mobile wallets. While a user’s credit card can easily be stolen or duplicated, smartphones are not that easy to steal. A smartphone that is stolen may be hard to access if there’s an access password or fingerprint check in place. Mobile wallets may also have encrypted keys that the thief may not be privy to. Also, for businesses like grocery stores that experience high volumes of transactions per day, mobile wallets help to reduce the wait and payment times which is a win-win for both the customers and the business.

Because mobile wallets act like a digitized version of the physical wallets that are carried around, almost every valuable card that are stored in physical wallets can also be stored in the mobile wallet. In addition to payment cards, the mobile wallet can also be used as a storage device for driver’s license, Social Security Number, health information cards, loyalty cards, hotel key cards and bus or train tickets.

Digital wallets are often used interchangeably with mobile wallets, but while they both store payment information, they are implemented differently. 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 around 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 Android Pay are examples of mobile wallets that can be installed on a hand-held or wearable device. A regular PayPal account is a form of a digital wallet, but when it is used in conjunction with mobile payment services and mobile devices, it serves a mobile wallet.

With the invention of digital and mobile wallets, physical wallets may be a thing of the past in the next decade or so.