Digital wallets are rapidly growing in usage, for both online and in-person purchases. According to a Juniper Research report, digital wallets were expected to account for more than 50% of e-commerce 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.

What's in this article?

• What are digital wallets?
  
• Types of digital wallets
  
• What do digital wallets hold?
  
• How do digital wallets work?
  
• Are digital wallets safe?
  
• How to accept digital wallet payments
  
• Benefits 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
  

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.

Types of digital wallets

The digital wallet sector is crowded and growing. Companies such as PayPal, Venmo and Cash App offer digital wallet products that allow users to pay for purchases online and in person using their respective apps. Many banks and credit card companies have their own digital wallet functionality within their mobile apps.

Here are some of the most popular digital wallets:

• Apple Pay
  Apple Pay is a leader in digital wallets, processing an estimated $10 trillion annually, with more than 60 million users in the United States in 2025. Their wallet app is available on Apple devices such as iPhones, iPads and Apple Watches. Integration with the Apple ecosystem makes Apple Pay convenient for millions of users.

• Google Pay
  With more than 100 million users, Google Pay supports both online and in-store payments and integrates with Android devices and Google services, making it widely accessible.

• Amazon Pay
  E-commerce giant Amazon also has a very popular digital wallet. Amazon Pay allows users to check out quickly on third-party websites using the payment methods stored in their Amazon accounts.

• PayPal
  PayPal offers one of the most trusted and widely accepted digital wallets, supporting everything from e-commerce purchases to peer-to-peer transfers.

• Click to Pay
  Visa, American Express, Mastercard and Discover jointly launched Click to Pay, a unified online payment system that works with most major credit cards. It offers a consistent, password-free checkout experience across participating merchants and devices.

• Alipay
  Alipay is a leading China-based digital payments platform with 1.43 billion users by mid-2024. It is popular in the Chinese market and plays a key role in mobile commerce, bill payments, and international transactions.

• WeChat Pay
  China's other top digital wallet, WeChat Pay, has more than 900 million users. Integrated into the WeChat messaging app, it enables payments, transfers, and in-app purchases for users across a wide range of services.

What do digital wallets hold?

Digital wallets can also hold a wide range of digital items, including:

• Credit and debit card information
  
• Gift cards and store credits
  
• Driving licences and digital IDs
  
• Cryptocurrencies (in specialised crypto wallets)
  
• Boarding passes and travel documents
  
• Transit passes and event tickets
  
• Membership cards
  
• Insurance cards
  
• Loyalty and rewards cards
  
• Hotel and restaurant reservations
  Billing and shipping information
  
• Bank account details for ACH or direct transfers
  

Digital wallets have evolved from simple payment tools into 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 do digital wallets work?

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

For online purchases, customers will continue through the business' 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, smartwatches, 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 (MST) 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 centimetres) 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.

Are digital wallets safe?

Digital wallets are very safe, and they use tokenisation 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 magnetic stripes or EMV chips, digital wallets are currently the most secure way to pay.

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 such as credit and debit cards, checks and ACH transfers and digital wallets. They also usually provide the point of sale (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 e-commerce, 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 web
  If your business is already accepting payments on your website, you're already using a payment gateway from a processor such as Stripe, and it is likely to support 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.

Benefits of digital wallet payments for businesses

Many businesses prefer to be paid with digital wallets. Here are a few of the reasons why:

• 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 baskets and lower conversion rates. Digital wallets can make the mobile purchasing experience easier.

• Highly secure
  Tokenisation 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 3.4 billion users worldwide, digital wallets are quickly replacing traditional wallets. In the US, digital wallets accounted for 30% of point-of-sale transactions and 50% of online purchases globally in 2023 – a higher share than any other payment method.

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:

• Optimise 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 customisable, easy-to-configure payment tools, including no code fraud protection and advanced capabilities to improve authorisation rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% uptime and industry-leading reliability.
  

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