Functioning of Online Payments with Digital Wallets

Digital wallets have become people's best buddies, considering their financial situation. The dominance of digital wallets is evident when it comes to the functioning of online payments, as the sphere of online spending is expected to escalate to 51.7% by 2024.

In this blog post, you'll learn how online payments work with digital wallets, where eWallets are becoming a prominent way to make in-store and online payments. Also, we will look at how digital wallet solution work, how online payments via digital wallets work, their significance, and how they benefit everyone.

How Digital Wallets Work?

Users should unlock mobile wallets using biometric authentication, including a PIN code, fingerprint identification, and facial recognition. Further, they can choose a preferred payment method for making online purchases.

Customers continue doing the checkout process in case of online purchases once they have engaged in choosing their preferred mobile wallet and select the payment technique stored within the system to make specific purchases.

Considering in-person purchases, e-wallets or digital wallets utilize magnetic and wireless technologies for transferring or transacting payment data from a customer's mobile device to a payment end or a licensed card leader.

Furthermore, to make transactions, users need to unlock their devices, choose their payment type, and keep their devices close to the authorized card reader. With the help of digital wallets, contactless payments merely take a few seconds to finish off transactions as they use the following leveraging technologies for their efficient processing:

NFC or Near-Field Communication

Near-field communication is the technology that contributes to the seamless working of contactless payments. Additionally, NFC helps conveniently transmit payment information with the help of devices, including smartwatches, smartphones, and a few credit cards, to respective payment terminals and card readers without any physical connection.

MST or Magnetic Secure Transmission

Magnetic secure transmission is a technology that lets smartphones release encrypted signals acting like a magnetic stripe on debit and credit cards. Further, these digital wallets use the MST technique to transmit the encrypted remittance data to the payment terminal or card reader when you keep your device close to it or tap it.

QR Codes

QR codes or quick responses are matrix barcodes that users' smartphone cameras easily scan to initiate information transmission. These codes are further used for making a payment in the case of digital wallets.

After the transfer of payment information by customers from their digital wallets with the help of one of the leveraging technologies, such as MST and NFC, the card reader or payment/POS terminal will help in routing transaction information to their respective payment processor, which will further send it to the acquirers or acquiring and issuing banks to let the purchasing process go ahead

How do online payments via digital wallet work?

Let’s explore how digital wallet online payments work and why they’ve become so widely adopted.

Users must create an account with a service provider to use a digital wallet solution. The service providers then link the payment options with debit and credit cards. Once users finish setting up their accounts, they can start making easy and quick payments using digital wallets.

Companies such as PayPal are excelling in considering digital wallet payment solutions. Depending upon different countries and different products, the working of the digital wallet system works.

The source of funds is an important factor in deciding how a digital wallet system works. Digital wallets function in two ways:

1. Digital wallets are storage systems for payment details, including debit cards, credit cards, bank details, etc. 

2. Digital wallets are a storage system for actual funds.

Make Payments Using Stored Payment Credentials

When customers buy anything using a digital wallet payment method where all their card details are stored, they can go with the standard payment method.

Suppose customers are storing details of debit or credit cards. In that case, they are making a standard card payment with the help of PCI DSS, a set of policies used to maximize the security of debit, cash, and credit card payments and safeguard cardholders against financial crimes or misuse of their personal details.

If customers store their bank details, then a standard Direct Debit mandate is established, with the condition that the mandate form is made available to customers electronically. Considering both types, a digital wallet acts as a digital information store.

Pay Using Stored Funds

When customers store funds in a digital wallet, then these funds are generally transferred into the digital wallet system only through different online payment techniques, including debit or credit card payments, bank transfers, or sending and receiving money with your digital wallet account. 

Also, your customers can transfer money from other digital wallets, they just need to link your existing bank account details with their current digital wallet account.

Additionally, when a customer wants to buy something with the help of stored funds from digital wallets, then the retailer should normally receive these funds in their digital wallet account from the same payment service provider.

When talking of the backend process, no sort of funds are transferred or moved. In this scenario, a digital wallet provider uses a virtual debit card to the customer's wallet plus the applicable credit to the digital wallet of the merchant.

If a retailer wishes to transfer funds from their digital wallets to their bank accounts, then there will be a similar process relating to a standard bank transfer. 

Digital Wallet Use Cases

Digital wallets are gaining huge popularity among brick-and-mortar businesses because of their high-security features. However, digital wallets extend their boundaries as people can also use them online. Digital wallets will be your first choice, to make in-person purchases considering their huge benefits.

Moreover, accepting digital wallet transactions enables businesses to make revenue even when customers have no debit/credit cards or cash to make payments. Customers can make payments with the help of digital wallet apps on their mobile devices, as they don't need to carry their items around. 

Conclusion

Doing online transactions with digital wallets is a trend for people who are in search of effortlessly managing their finances. It's a perfect choice for people who find it frustrating and tiring to handle their own finances, as these digital wallets offer easy and best payment options to their customers, enhancing the overall customer experience. 

Considering everything, online payments with digital wallets are a blessing in businesses and customers' lives.