What is a digital wallet and how can I pay with one?

Customer making mobile payment with phoneImage: Customer making mobile payment with phone

In a Nutshell

If you’re looking for an easy way to send money to friends or a contactless way to shop at your favorite store, digital wallets let you link payment methods to your device so you can transfer cash and make purchases electronically.
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Forgetting your wallet at home isn’t a problem if you’ve set up a digital wallet — and have your mobile device with you.

Digital wallets store payment methods such as credit or debit card information, so you can check out or send money without counting cash, swiping your card or inputting card details on a website. 

Let’s take a look at what digital wallets are, how they work and where you can use them.

What is a digital wallet?

Digital wallet capabilities can vary — but in general, a digital wallet is a virtual place to store cards and cash that you’d typically keep in a physical wallet. When making purchases, you can choose your digital wallet as a payment method to process mobile payments. 

Apple Pay, Google Pay and Samsung Pay are digital wallets you’ve probably heard of and may already be using. When you get a new device, such as a smartphone or watch, it may already have one of these digital wallets installed on it.

After adding your credit card, debit card or bank account to Apple Pay, Google Pay or Samsung Pay, checking out at a store can be as easy as scanning your phone at the payment terminal. Some wallets even let you upload movie tickets, concert tickets, boarding passes and some types of ID, which can help cut down the bulk in your pocket. 

Digital wallets like Cash App and Venmo (a PayPal company) don’t come preinstalled on hardware, but you can download the apps to send money, receive money and pay for products at certain retailers. 

How do digital wallets work?

How the digital wallet works will depend on the digital wallet you sign up for. Apple Pay lets you add credit cards, debit cards, rewards cards, some student cards, coupons and movie tickets to your digital wallet.

To check out online, you hit Apple Pay as the payment option and authorize payment. At stores, you open the app, then hold your iPhone close to the contactless reader.

Sending money to friends or family from Apple Pay is also easy. Just go to iMessage, hit the Apple Pay button in the message window and type in how much you want to send.

Google Pay and Samsung Pay work a lot like Apple Pay, except they’re geared toward Android and Samsung users. You can add cards and other payment methods to the wallet and then use them to check out online or in the store. Plus, you can use both payment systems to send and request money from family and friends.

PayPal, a veteran in the digital wallets game, is known for being a money transfer and online payment system. But you can also use PayPal to check out in-person with merchants that have a PayPal QR code. At checkout, you pull up the PayPal app (available on iOS and Android), select “Scan/Pay” and scan the merchant’s QR code. Then enter the amount and tap “Send.” You can also connect PayPal to Samsung Pay to make payments.

Venmo and Cash App are peer-to-peer money transfer apps that make it easy to split restaurant tabs, but they have other digital wallet capabilities as well. You can buy items at physical stores with Venmo if the store has a Venmo QR code to scan. Cash App also now lets you buy and sell stock and bitcoin.

What are the pros and cons of digital wallets?

If you’re considering using the digital wallet on your device or signing up for an app like Venmo or Cash App, here are some pros and cons to consider.


  • Convenience — A digital wallet makes it easy to pay merchants and send money to friends without having to reach for a card or cash. Using a digital wallet is also contactless, which can be useful while social distancing.
  • Easy sign-up process — Setting up payment methods in your digital wallet can be as easy as scanning cards with your phone or manually typing in the payment information.
  • Security — Digital wallets use security protocols to protect you and your money. For example, Apple Pay doesn’t store your card details, payment information is encrypted, and you must authorize your payments using Face ID or Touch ID. Samsung also encrypts data and requires that you authenticate each payment with a fingerprint or PIN.


  • Limited acceptance — Certain digital wallets have acceptance limitations. For example, PayPal and Venmo may only be available as a payment method at select physical stores. That said, acceptance of Apple Pay, Samsung Pay and Google Pay is fairly widespread.
  • The cost — Digital wallets might charge fees for certain services, such as credit card transfers to peers or for instant money transfers.
  • Risk of theft — Cybercriminals can target mobile devices with malware that could give them access to information stored on your device. Digital wallet issuers try to help you combat fraud by requiring payment authorization. But it’s also important to password protect your phone, password protect your apps and monitor your accounts for fraud. And, if you sell or trade in your phone, be sure to sign out of your digital wallet and wipe personal information from the device before you give it up.

Where can I use a digital wallet?

Digital wallets can be used for online and in-person purchases, and many retailers accept digital wallet payments. If you want to use your digital wallet for online shopping, look to see if the payment method is an option when you’re checking out. For in-store buying, look for the contactless payment symbol, which can generally be found on the payment terminal at checkout.

And some banks may allow you to make ATM withdrawals using your digital wallet if you’ve linked your debit card to the payment method.

What are some digital wallets to consider?

There are numerous digital wallets to consider, and they’re generally free to use. Here’s a breakdown of the fees and requirements for some popular ones. Typically, fees apply only if you want to instantly move cash from your wallet balance or if you want to use a credit card to send money to someone.

Digital WalletTransfer feesAccounts you can link
Apple Pay1% instant transfer fee (25-cent minimum to $10 maximum) to instantly transfer cash from your Apple Cash balance to a bank accountCredit cards, debit cards and some prepaid cards
Cash App1.5% instant transfer fee (minimum of 25 cents) if you want to instantly transfer money from Cash App to your debit card
3% fee for sending money with your credit card
Credit cards, debit cards, prepaid cards and bank accounts 
Google PayInstant transfer fee of 1.5% (minimum of 31 cents) when you instantly transfer money from your Google Pay balance to a debit card Debit cards, credit cards, bank accounts and PayPal (but the types of accounts you can add may vary depending on different factors)
PayPalFee of 2.9% + 30 cents for sending domestic personal transactions with a card
Additional fees may apply for international transfers
Credit cards, debit cards and bank accounts
Samsung PayN/ACredit cards, debit cards, bank accounts and PayPal
Venmo1% instant transfer fee (25-cent minimum to $10 maximum) to instantly transfer money from your Venmo balance 
3% fee to send money using a linked credit card 
Credit cards, debit cards and bank accounts

Next steps: Choosing a digital wallet

When choosing a digital wallet, first consider your device, lifestyle and money goals. 

If you’re an iPhone user looking for a full-service wallet that you can use to pay for groceries and your share of the rent, Apple Pay is worth considering since it’s a comprehensive system made for your device. The same goes for Google Pay and Samsung Pay if you’re an Android or Samsung user. 

Cash App or Venmo could be enough to do the job if you’re looking for a digital wallet primarily for peer-to-peer money transfers. If you want to invest in stock or cryptocurrency, Cash App could be the better choice between the two since you can buy bitcoin and stock right in the app.  

Instead of choosing one digital wallet, you could even choose to use multiple. Compare features and costs to determine which ones are right for you.

About the author: Taylor Medine is a freelance writer who’s covered all things personal finance for the past seven years. She enjoys writing financial product reviews and guides on budgeting, saving, repaying debt and building credit. … Read more.