A digital wallet is software that enables users to pay for goods on the Web. It holds credit-card numbers and other personal information such as a shipping address. Once entered, the data automatically populates order fields at merchant sites.
When using a digital wallet, consumers don't need to fill out order forms on each site when they purchase an item because the information has already been stored and is automatically updated and entered into the order fields across merchant sites. Consumers also benefit when using digital wallets because their information is encrypted or protected by a private software code. And merchants benefit by receiving protection against fraud.
Digital wallets are available to consumers free of charge, and they're fairly easy to obtain. For example, when a consumer makes a purchase at a merchant site that's set up to handle server-side digital wallets, he types his name and payment and shipping information into the merchant's own form. At the end of the purchase, one consumer is asked to sign up for a wallet of his choice by entering a user name and password for future purchases. Users can also acquire wallets at a wallet vendor's site.
Although a wallet is free for consumers, vendors charge merchants for wallets.
Digital wallets come in two main types: client-side and server- side. Within those divisions are wallets that work only on specific merchant sites and those that are merchant agnostic.
Client-based digital wallets, the older of the two types, are falling by the wayside, according to analysts, because they require users to download and install software. A user downloads the wallet application and inputs payment and mailing information. At that point, the information is secured and encrypted on the user's hard drive. The user retains control of his credit card and personal information locally.