How Do Electronic Wallets Work?


Quick Answer

An electronic wallet works by storing the user's financial information in a database and referencing it to initiate the transaction at the point of sale. An electronic wallet, also known as digital wallet, may refer to a variety of devices and systems that allow users to pay for transactions through either a computer client on a website or with a smartphone at a physical retailers.

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Full Answer

One form of an electronic wallet allows a user to create an account with the service and add in all of the pertinent financial information, such as the numbers or login credentials for bank accounts and online money management tools. The electronic wallet software then stores this information and connects it with a system that is able to initiate fund withdrawals or deposits according to user commands. When the user is shopping on a website that supports that brand of electronic wallet, she only needs to sign into that account to pay for the goods or services.

Another form relies on smartphones to access the payment information at a variety of retailers. Some phones feature electronic wallet functionality natively, while others require separate apps to access the services. In both cases, the user completes the same process of linking her financial accounts to the phone's electronic wallet account. When she wants to make a purchase at a participating retail location, she launches the electronic wallet app and either taps it to a physical terminal or allows the cashier to scan the phone's screen to make the payment.

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