Discover the pros and cons of using digital wallets as an alternative to traditional bank accounts. Learn how to use a digital wallet, and find out what you need to know to make informed decisions about your financial transactions.
Questions Answered in this Article
- What is a digital wallet? A digital wallet is an application or service that enables users to store their debit and credit card information and passwords, typically on a smartphone, and can also store electronic tickets, passes, gift cards, and personal identification cards.
- Can a digital wallet serve as a viable alternative to traditional bank accounts? While it is possible to use a digital wallet instead of a bank account, there are significant drawbacks to consider. For example, you may not earn interest, and your funds may not be protected by FDIC insurance. It is recommended to use a mix of digital wallet apps and bank accounts to meet your financial needs.
- What are some examples of digital wallets? Examples of digital wallets include PayPal, Apple Wallet, Google Wallet, and Samsung Wallet. Payment apps like Venmo may also be considered a digital wallet as they offer similar features.
- How do I use a digital wallet? To use a digital wallet, you need to download the app on your mobile device, create a profile, and add your payment information. When making a payment, you can tap your phone at the payment terminal using near-field communication to complete the transaction.
- Should I maintain a balance in my digital wallet? It is essential to consider whether you want to maintain a balance in your digital wallet as there may be better options for storing large amounts of liquid cash. However, having a small balance available to send money to friends or family quickly can be helpful, such as paying for a dinner tab. You can also link payment cards or bank account information if you prefer to use something other than your app balance.
Digital Wallets: A Viable Alternative to Traditional Bank Accounts?
Over the years, there has been a surge in the use of cashless and contactless payment methods, which the COVID-19 pandemic has further accelerated. Consequently, digital wallet apps and services have also gained popularity. According to a study by Juniper Research in 2022, it is estimated that by 2026, approximately 5.2 billion people, about 60% of the global population, will be using digital wallets. With the increasing adoption of digital wallets, there is a question of whether they can serve as a viable alternative to traditional bank accounts. Here’s what you should know.
What is a Digital Wallet?
A digital wallet is an application or service that enables users to store their debit and credit card information and passwords, typically on a smartphone. According to Francisco Alvarez-Evangelista, an advisor at Aite-Novarica Group, digital wallets can also store electronic tickets, passes, gift cards, and personal identification cards. Examples of digital wallets include PayPal, Apple Wallet, Google Wallet, and Samsung Wallet. While many people prefer using the app associated with their smartphone, it is also possible to download other digital wallet apps.
Furthermore, there is some overlap between digital wallets and payment apps like Venmo, as many of these apps now offer similar features, such as peer-to-peer money transfers and branded credit cards, as well as the option to store a cash balance within the app. In certain instances, such as when paying for a product or service, the terms “digital wallet” and “payment app” may be used interchangeably.
Using Digital Wallets vs. Bank Accounts: Pros and Cons
Instead of using a bank account, it is possible to use a digital wallet, but it is essential to consider some significant drawbacks. A digital wallet is a collection of your payment cards in one place and can also be used to keep cash, such as your Apple Cash or Venmo balances. However, it is essential to note that you may not earn interest, and the Federal Deposit Insurance Corp. Venmo may not protect your funds as an exception, as it takes funds deposited through specific methods and sweeps them into partner bank accounts to ensure FDIC insurance for customer funds. Instead of relying solely on a digital wallet, using a mix of digital wallet apps and bank accounts may be beneficial to meet your financial needs. Furthermore, it is essential to note that most consumers use digital wallets to complement their financial experiences online rather than replacing traditional bank accounts entirely. Using the companion app may lead to additional benefits like bonus cash back if you have credit cards compatible with specific digital wallet services, such as the Apple Card or Venmo credit card.
How to Use a Digital Wallet
To use a digital wallet, open or download the app on your mobile device. If your device already has a built-in wallet, such as the Apple Wallet on an iPhone, you may want to explore it before downloading another app. However, if you need to use a specific app to pay a merchant, you can download a new one.
Next, create a profile on the app and add your payment information. The app will guide you through the setup process, and you can link different debit cards, credit cards, and bank accounts to the app. You can also hold a balance in the app, similar to a bank account, where you can add to or withdraw from it.
When making a payment using a smartphone digital wallet, tap your phone at the payment terminal using near-field communication to complete the transaction.
It is important to consider whether you want to maintain a balance in your digital wallet, as there may be better options for storing large amounts of liquid cash. However, having a small balance available to send money to friends or family quickly can be helpful, such as paying for a dinner tab. You can also link payment cards or bank account information if you prefer to use something other than your app balance.
Summary
- Digital wallets are applications or services that enable users to store their debit and credit card information, passwords, and other personal identification cards.
- Examples of digital wallets include PayPal, Apple Wallet, Google Wallet, and Samsung Wallet.
- Digital wallets and payment apps like Venmo may offer similar features, such as peer-to-peer money transfers and the option to store a cash balance within the app.
- While it is possible to use a digital wallet instead of a bank account, there are significant drawbacks to consider, such as the lack of interest and limited protection of funds.
- To use a digital wallet, download the app on your mobile device, create a profile, and add your payment information.
- When making a payment, you can tap your phone at the payment terminal using near-field communication to complete the transaction.
- It is important to consider whether you want to maintain a balance in your digital wallet, as there may be better options for storing large amounts of liquid cash.
- Using a mix of digital wallet apps and bank accounts may be beneficial to meet your financial needs.
- Most consumers use digital wallets to complement their financial experiences online rather than replacing traditional bank accounts entirely.
- Using the companion app may lead to additional benefits like bonus cash back if you have credit cards compatible with specific digital wallet services, such as the Apple Card or Venmo credit card.
