What is a digital wallet — and is it safe?

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Curious about digital wallets? Learn what they are — and how to use them. (Photo: Getty)
Curious about digital wallets? Learn what they are — and how to use them. (Photo: Getty)

When people talk about having a wallet, they usually mean a place to physically stash your cash and credit cards. But these days, you can use contact-less digital wallets instead of traditional physical ones — and they've only grown in popularity during the COVID-19 pandemic.

With a quick scan or a tap, you can complete financial transactions safely and securely. That's because digital wallets allow you to pay without having to use your physical credit cards.

So what, exactly, is a digital wallet?

The term "digital wallet" refers to any device storing information related to financial transactions via an app. They include smartphones, wearables such as smart watches, tablets, and laptops.

Try LastPass Premium, part of Yahoo Plus Secure, risk-free for 30 days.

Wearables are an easy way to pay for items securely. (Photo: Getty)
Wearables are an easy way to pay for items securely. (Photo: Getty)

How do digital wallets work?

A digital wallet stores your payment information via an app so you can make purchases electronically, such as from your computer, smartphone, watch or other smart devices, whether you're in a physical store or online.

To complete the transaction, you might need to provide a passcode or passwords, use your device's facial recognition software, or authenticate with your fingerprint. Ultimately, this added security measure makes sure it's really you who is utilizing your phone to make purchases, pay someone directly or book a ticket.

If you are using a non-mobile digital wallet, such as your laptop, you may have to log in or provide a password. There is no need to locate your physical card and type in several details, which makes the checkout process go much quicker and easier.

Here's how you can use your digital wallet?

So, here's where digital wallets really shine.

Online shopping: Whenever you make an online payment, entering the same information over and over again might be a bit tedious if you're an avid online shopper. By automatically filling in your information with software like LastPass Premium, a digital wallet makes that process quicker. It's that easy to check out.

In-person shopping: Paying in-person with your mobile wallet is easy when you're using your smartphone, smartwatch, or another mobile device. The payment terminals of many retailers are now equipped to accept contactless payments, such as mobile wallets and contactless cards.

Using an ATM: Some ATMs will allow you to use your digital wallet instead of your bank card.

A digital wallet is necessary for contactless payments. (Photo: Getty)
A digital wallet is necessary for contactless payments. (Photo: Getty)

Are digital wallets safe?

When you check out with a digital wallet, a unique 16-digit number, or token, is assigned to your card. Tokens, however, are more secure because your credit card number isn't visible to the merchant. Every time a token is used, it gets stored with an encrypted code, which is unique to the transaction. Using a digital wallet allows you to be confident that your financial information will be kept private.

LastPass Premium can also serve as a simple and secure digital wallet. The password manager stores not only your passwords for multiple websites but also your payment information and shipping details. It also automatically fills in that information for you, which helps make your online shopping experience faster and easier.

LastPass Premium adds another layer of security because the vendors do not get access to your credit card information, and with the software, you no longer need to save your credit card information on various websites with questionable security. And if you ever leave home without your wallet, you can always look up your cards in LastPass Premium.

Try LastPass Premium, part of Yahoo Plus Secure, risk-free for 30 days.

How can you keep digital wallets safe?

Ultimately, the safety of the digital wallet depend son the user, Justas Vaičiulis, a telecommunications specialist at Juvare, tells Yahoo Life. "It all depends on you," says Vaičiulis. "If you use a strong passcode for your phone, or fingerprint or facial recognition to unlock your phone, it is safe because any time you want to pay for anything, the phone will ask you to approve the payment by any method mentioned." He adds: "You can always put desirable limits for contactless payments, which is also a good idea."

Using these apps and securing your devices with additional security measures, such as fingerprint or face recognition and password protection, can help make your digital wallet more secure.

Try LastPass Premium, part of Yahoo Plus Secure, risk-free for 30 days.

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