More customers are using digital wallets for both online and in-person purchases. According to a Juniper Research report, digital wallets were expected to account for more than 50% of ecommerce transaction value globally by 2025, up from just over 40% in 2021.

In this guide, we’ll share what businesses should know about digital wallet payments: how they work, the top digital wallet apps, and how to incorporate them into a payment processing strategy.

Key takeaways

• Digital wallets store multiple payment methods and loyalty cards on a mobile device. Customers pay by unlocking with a personal identification number (PIN) or biometrics instead of typing in card details.

• Wallets use tokenization to swap real card numbers for one-time codes. This makes them more secure than magstripe or chip transactions and lowers fraud risk for businesses.

• Many modern point-of-sale (POS) terminals and payment gateways already support wallet payments at standard card rates.

What’s in this article?

• What are digital wallets?
  
• How do digital wallets work?
  
• Types of digital wallets
  
• How to set up and pay with a digital wallet
  
• Are digital wallets safe?
  
• How to accept digital wallet payments
  
• Pros and cons of digital wallet payments for businesses
  
• What types of hardware do businesses need to accept digital wallet payments?
  
• Costs associated with digital wallet payments
  
• How Stripe Payments can help
  
• FAQs about digital wallets
  

What are digital wallets?

A digital wallet is an application that operates on mobile devices like smartphones and tablets. It stores payment information, allowing users to pay for purchases directly from their devices instead of using their physical cards. Similar to a physical wallet, a digital wallet holds various payment methods—credit cards, debit cards, and bank account numbers—that customers can use at the point of sale.

With digital wallets, customers no longer need to manually enter their card and billing information. Most digital wallets allow mobile devices to make payments at any point of sale that is enabled for contactless transactions. Some also allow customers to use rewards, spend loyalty points, or store concert and movie tickets, personal identification, boarding passes, or cryptocurrencies.

How do digital wallets work?

To use a digital wallet, users must first unlock the wallet app using facial recognition, fingerprint identification, or a PIN. Then they will select the stored payment method they want to use.

For online purchases, customers will continue through the business’s checkout process once they’ve chosen a digital wallet and selected the payment method stored within that they want to use for that purchase.

For in-person purchases, digital wallets use wireless, Bluetooth, and magnetic capabilities to transmit payment data from a customer’s mobile device to an enabled card reader or payment terminal. To conduct a transaction, users unlock their device, select their payment method, and then hold their device close to the card reader. Contactless payments using digital wallets typically just take a couple of seconds to complete and use the following technologies:

Near-field communication (NFC)

Near-field communication (NFC) most commonly powers contactless payments. NFC securely enables devices like smartphones, smart watches, and some credit cards to transmit payment information to card readers and payment terminals without physically making contact.

Magnetic secure transmission (MST)

Magnetic secure transmission allows smartphones to emit an encrypted signal that acts like the magnetic stripe on credit and debit cards. Digital wallets that use MST transmit the encrypted payment data to the card reader when the customer holds their device at close range (usually a few inches or centimeters) or taps it.

QR codes

Quick response (QR) codes are matrix barcodes that mobile device cameras can scan to initiate a transmission of information. These codes can be used to make digital wallet payments.

After the customer transmits their payment information from their digital wallet, the POS terminal or card reader will route the transaction information to the payment processor. Then the payment processor communicates with the issuing and acquiring banks to process the purchase.

Types of digital wallets

A digital wallet is a software-based tool—typically a mobile app—that stores payment information such as debit and credit card details, bank account numbers, or loyalty and gift card credentials, so users can pay for goods and services without pulling out a physical card or cash.

Transactions typically happen through NFC for in-person tap-to-pay, QR codes, or stored credentials used for online checkout. Beyond payments, many digital wallets also hold boarding passes, tickets, and identification documents, making them a broader tool for storing and using everyday credentials. Digital wallets generally fall into a few categories, based on where and how they can be used:

• Open-loop wallets: These wallets link directly to an underlying bank card and can be used anywhere that card network is accepted, giving them the widest reach of any wallet type. Apple Pay, Google Pay, Samsung Pay, and Click to Pay all fall into this category.

• Closed-loop wallets: These are built by a single retailer for use exclusively within that retailer's ecosystem. They can't be used elsewhere, but often come with added perks like loyalty rewards or order-ahead features. The Starbucks app, Walmart Pay, and Target's Circle Pay are some examples.

• Semi-closed wallets: Semi-closed wallets sit in between—they work across a specific, limited network of participating merchants rather than everywhere or just one store. This model is not as typical in the US but widely used in other markets, such as Paytm in India.

• P2P (peer-to-peer) payment wallets: These wallets are designed mainly for sending and receiving money between individuals, though many have expanded to support in-store and online purchases as well. PayPal, Venmo, Cash App, and Zelle are some examples.

Popular digital wallets

Here are some popular digital wallets to be aware of:

Digital wallets have become all-in-one financial hubs. In addition to storing credit and debit cards, they can also hold cryptocurrencies, bank account details, digital IDs, and health records. Peer-to-peer apps and cash apps like Venmo, Cash App, and Zelle have added wallet-like features, allowing users to store balances, invest, or pay directly from the app.

As wallet functionality expands, users are increasingly relying solely on their mobile wallets. In 2024, 48% of US consumers surveyed used digital wallets in the last 90 days, up 12 percentage points from 2023. Digital wallet providers are trying to become central hubs for managing, moving, and accessing money.

How to set up and pay with a digital wallet

Using a digital wallet is relatively straightforward. Here’s how to do it:

Setting up a digital wallet

1. Download the app. Smartphones typically come with a default wallet app (such as Apple Wallet or Google Wallet) installed, or users can download one from the app store.

2. Verify identity. Users usually sign in with an existing account (Apple ID, Google account, PayPal, etc.) or create a new one.

3. Add a payment method. Users enter card details manually or use their phone's camera to scan a credit or debit card. The card issuer then verifies the card, often through a one-time code sent via text or email.

4. Set up authentication. Users enable a PIN, fingerprint, or facial recognition to authorize future payments securely.

5. Add extras (optional). Users can load boarding passes, loyalty cards, tickets, or IDs into the same wallet for easy access.

Paying with a digital wallet

Methods for paying with a digital wallet vary based on where and you’re making a purchase:

• In-store: Users unlock the wallet app, select a payment method, and hold the device near an NFC-enabled card reader until the payment is confirmed.

• Online: At checkout, select the digital wallet option and confirm the purchase with a fingerprint, face scan, or passcode instead of typing in card details.

• In-app: Many mobile apps let users check out with a saved digital wallet in a single tap, skipping manual entry entirely.

• ATM: Some banks let users withdraw cash by holding their phone near a contactless-enabled ATM and authenticating with their wallet app, no physical card needed.

Are digital wallets safe?

Digital wallets are very safe, and they use tokenization to transmit data at the point of sale. Instead of sending a customer’s actual credit or debit card number, the digital wallet generates a one-time code—a token—made of random numbers and sends that to the card reader instead. If a data breach occurs with the business or payment processor, any payments that were processed with digital wallets will be safer than other card payments, since no card numbers were used.

Digital wallet apps usually require extra security measures, like face recognition or a PIN, before they’ll even initiate a payment. Compared to card transactions that use magstripes or Europay, Mastercard and Visa (EMV) chips, digital wallets are currently the most secure way to pay.

Tips for staying safe with digital wallets

While digital wallets are built with strong security features, users can take a few extra steps to keep their accounts even safer:

• Use biometric authentication: Fingerprint or facial recognition adds a layer of protection beyond a PIN, making it harder for anyone but the account owner to authorize a payment.

• Set a strong device passcode: Since digital wallets are tied to the device itself, a weak or easily guessed passcode can undermine even the best wallet security. A strong, unique passcode helps keep the whole device—and everything stored on it—protected.

• Keep the wallet app and operating system updated: Updates often include security patches that fix vulnerabilities. Running the latest versions helps ensure users benefit from the newest protections.

• Enable transaction alerts: Turning on notifications for purchases lets users spot unauthorized activity right away so they can act quickly.

How to accept digital wallet payments

Businesses need to set up their online and in-person payments system to be able to accept digital wallet payments. Most payment processing providers, including Stripe, already have hardware and software for businesses that are enabled to accept digital wallet payments.

If you're just getting started with accepting customer payments, you might still need to select a merchant services provider and open a merchant account. These providers can help you accept and process payments from customers via payment methods like credit and debit cards, checks and Automated Clearing House (ACH) transfers, and digital wallets. They also usually provide the POS software and hardware needed to accept payments at brick-and-mortar retail locations and online. Depending on which you choose, your merchant services provider may also offer ecommerce, marketing, or analytics support.

Here’s an overview of accepting wallet payments online, in person, and on mobile apps:

• Accepting wallet payments in person: Businesses need POS terminals or card readers that are equipped with NFC technology in order to accept contactless digital wallet payments for in-person transactions. Most newer payment terminals have built-in digital wallet capabilities.

• Accepting wallet payments on your website: If your business is already accepting payments on your website, you’re already using a payment gateway from a processor like Stripe, and it likely supports digital wallet payments. Stripe offers businesses a single integration for all wallets that works across Stripe products. With Stripe Checkout, Apple Pay and Google Pay are automatically enabled. Customers can also scan a QR code with their mobile phone to complete transactions.

• Accepting wallet payments on mobile: Stripe Checkout supports digital wallets as a payment method on mobile as well. Customers can confirm the transaction by authenticating their wallet credentials at checkout using fingerprint or face recognition, their mobile passcode, or by logging into their wallet app.

Pros and cons of digital wallet payments for businesses

Many businesses prefer to be paid with digital wallets, but there are a few trade-offs to weigh too. Here's a list of the pros and cons:

Pros

• Convenient and easy: Digital wallets make payments easy for both businesses and customers. In-person, they speed up checkout and reduce wait times. No matter how you accept payments, a fast, simple experience keeps customers happy.

• Increased sales: Digital wallets simplify checkout, encouraging potential customers to convert and existing customers to make repeat purchases.

• Better conversion on mobile: Many customers don’t want to manually input their credit card information into a mobile device to complete a purchase, resulting in more abandoned carts and lower conversion rates. Digital wallets can make the mobile purchasing experience easier.

• Highly secure: Tokenization makes digital wallet payments secure and reduces the risk of credit card fraud. This layer of security helps businesses lower operating costs and reduce fraud claims and chargebacks, which cost businesses money.

• Quick consumer adoption: With more than 4.5 billion users worldwide, digital wallets are quickly replacing traditional wallets. In the US, digital wallets accounted for more than 30% of point-of-sale transactions and more than 60% of online purchases globally in 2025—a higher share than any other payment method.

Cons

• Hardware and integration costs: Businesses that don't already have NFC-enabled card readers or updated payment gateways might need to invest in new hardware or software to accept digital wallet payments.

• Not universally used by customers: Some customers still prefer traditional cards or cash, so businesses generally need to support multiple payment methods rather than relying on digital wallets alone.

• Dependence on third-party providers: Businesses accepting digital wallets rely on the wallet provider's systems staying up and running. Outages or technical issues on the provider's end can temporarily disrupt a business's ability to process payments.

• Learning curve for staff and customers: Employees might need training to troubleshoot wallet payments at checkout, and some customers might need guidance on how to use their wallet app, which can slow things down during the transition period.

What types of hardware do businesses need to accept digital wallet payments?

In order to accept digital wallet payments for customer purchases in person, businesses must have an NFC-enabled card reader and POS software that supports digital wallets.

If you do business through an online platform or marketplace, most of them accept a range of digital wallet types, and you probably don’t need to take further steps to enable them for your business. For your website checkout flow, you need to ensure your payment provider supports wallet payments and that the payment type is built into its checkout experience.

Costs associated with digital wallet payments

Stripe customers don’t pay any additional fees to process wallet payments, and the pricing per transaction is the same as other card transactions. For most businesses, the cost to accept digital wallet payments is the same as other credit card transactions. At most, you might have to upgrade your hardware to be able to accept wallet payments.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business accept digital wallet payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 100+ payment methods, including more than a dozen digital wallet payment methods, and Link, a wallet built by Stripe.

• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.

• Unify payments in person and online: Easily track and reconcile digital wallet payments across online and in-person channels.

• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.