Since businesses began accepting digital payments in the 1990s, payment technology has continued evolving to make online shopping easier and safer. Digital wallets are part of that evolution. They securely store customer payment details and billing addresses so shoppers can use saved information at checkout.
Convenience often matters when customers choose where to shop. In Visa’s Global Digital Shopping Index, 56% of shoppers said they specifically choose merchants that offer a faster checkout process—and digital wallets facilitate checkout speed.
Here’s how digital wallets work and what to consider before accepting them on your ecommerce site or in your brick-and-mortar store.
What is a digital wallet?
A digital wallet is an app or online service that allows users to securely store payment methods like credit cards and debit cards, as well as billing and shipping addresses.
For online shopping, digital wallets automatically fill in payment and shipping details to speed up checkout. Some digital wallets can also be used to make payments at contactless payment point-of-sale systems in retail stores.
Digital wallets can speed up checkout in different ways depending on where a customer shops. In a store, a customer can tap to pay by tapping an eligible phone, watch, or other device at a contactless payment system terminal. Online, a digital wallet can eliminate the need to manually enter card, billing, and shipping details.
Reducing this customer friction may help businesses limit cart abandonment and improve conversion rates, particularly for shoppers completing purchases online. Shopify store owners who use Shop Pay, for example, see up to 50% better conversion compared to guest checkout.
How does a digital wallet work?
Digital wallets work by storing digital versions of a customer’s credit and debit cards and allowing them to make secure payments online and in stores. When the customer makes a payment online, they sign in to the digital wallet, verify their identity, and choose the card they want to use.
The process for digital wallet transactions differs slightly when the customer makes the payment in-person through a point-of-sale terminal. The customer pulls up the digital wallet either on their mobile device or on a wearable, such as a smartwatch, and unlocks the app using facial recognition, fingerprint identification, or a PIN. Then, the digital wallet app uses one of the following technologies to process the payment:
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Near-field communication (NFC). This technology transmits payment information between two devices, like your customer’s phone (with their digital wallet app open) and your card reader, using low-speed radio. Apple Pay uses this type of electronic payment processing.
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Magnetic secure transmission (MST). Some payment providers, including Samsung Pay, use this technology instead of NFC. MST generates a magnetic signal that mimics the magnetic stripe you’d find on a physical card. Your card reader picks up the signal to gather payment information.
Types of digital wallets
A digital wallet is a service or app that securely stores payment information customers can use to make purchases. Under this broad umbrella, wallets take different forms and can serve different purposes.
Some digital wallets, like Shop Pay, store payment and shipping information, then automatically fill in those details when a customer checks out online. Other types of wallets separate the storage and payment functions.
For example, Apple Wallet stores the customer’s payment information, and Apple Pay uses that information to complete a purchase. Google Wallet and Google Pay have a similar relationship.
Some digital wallets, such as Apple Wallet and Google Wallet, provide a mobile wallet feature that allows shoppers to make in-store purchases at a POS with a smartphone, tablet, or wearable. Shop Pay does not provide a tap-to-pay mobile wallet feature that works at a standard physical checkout counter, but rather is an accelerated checkout tool for online and app-based shopping.
Payment platforms, such as PayPal, Venmo, and Cash App, provide a broader service that combines a digital wallet with other features, such as sending and receiving money. A platform user can link different payment methods to their account and pay through a mobile payment app or online. US ecommerce store owners using Shopify Payments can accept payments via PayPal and Venmo.
Businesses can also enable region-specific mobile wallets, such as MobilePay, Swish, and TWINT.
Open-loop vs. closed-loop digital wallets
Open-loop digital wallets provide the widest reach of any type of digital wallet. They allow customers to store credit and debit cards from any supported card network and participating banks and issuers. Some also allow customers to store transit passes, tickets, loyalty cards, and more. Apple Wallet, Google Wallet, and Shop Pay are some examples of open-loop digital wallets.
Closed-loop digital wallets work only within a specific business or a limited network of affiliated brands, participating retailers, or properties. For example, the Starbucks app can be used only at Starbucks, while a shopping mall wallet might work at participating stores within that mall.
Cryptocurrency wallets vs. digital wallets
Conventional digital wallets and crypto wallets can be used to pay online or in stores. The key difference is the information they use to make payments.
Conventional digital wallets save payment details, such as card and billing information, so customers can make purchases without entering those details manually each time.
Crypto wallets store the private keys users need to access and manage cryptocurrencies and other blockchain-based assets. Customers can use them to pay businesses that accept cryptocurrency, but they don’t necessarily store the card details used at a conventional checkout. Coinbase Wallet and MetaMask are examples.
In JD Power’s 2026 US Merchant Services Satisfaction Study, 92% of US merchants accepted digital wallets; 19% of small businesses have started accepting cryptocurrency.
How to accept digital wallet payments
Shopify store owners can accept digital wallet payments in an ecommerce setting as well as in person. Here’s how to accept digital wallet payments on your Shopify store:
1. Activate Shopify Payments. Log in to your Shopify admin portal, navigate to Settings, and choose the Payments option. Follow the prompts to set up Shopify Payments.
2. Review your accelerated checkout options. Your available accelerated checkout options should appear automatically. Depending on your store’s country and eligibility, these may include Apple Pay, Google Pay, Shop Pay, and more.
3. Choose where accelerated checkout buttons appear. In addition to appearing during checkout, accelerated checkout buttons can appear on product pages, allowing customers to skip the cart and buy an item directly. You can manage these buttons through your theme settings.
Digital wallet FAQ
What is a digital wallet app?
A digital wallet app is a service that securely stores payment details, such as credit and debit card information. A customer using a digital wallet can pay online without manually entering their card details, or in person by tapping their phone, tablet, or smartwatch.
What is an example of a digital wallet?
Apple Wallet is an example of a digital wallet. It stores eligible cards on an Apple device, while Apple Pay uses those cards to complete purchases. Other examples include Google Wallet, Shop Pay, and PayPal.
What are the different types of digital wallets?
Digital wallets take several forms. Some store customer payment and shipping details to facilitate accelerated checkout in ecommerce stores. Mobile wallets are accessed from a smartphone, tablet, or wearable device for payments at POS terminals in brick-and-mortar stores. Payment platforms such as PayPal can also include wallet features.
