How to use a digital wallet

Have you heard of the saying, cash is king? That might be true but the digital payment market is growing in popularity. A recent survey reports that 60% of people are comfortable leaving home relying solely on their phone, and 75% said they've used a mobile wallet in the past year. These virtual payment methods use devices like your smartphone or smartwatch to help you conveniently and securely make purchases or manage your accounts, without having to hand over your card or carry cash.

What's a digital wallet?

Digital wallets are financial applications that store your payment information, like credit and debit cards, so you can use your phone or other device to make purchases or access your accounts. With the USAA Mobile App, you add your cards to your digital wallet and use apps like Google Pay®, Apple Pay® or Samsung Pay® to have the best mobile experience.

In addition to credit card and bank account information, some digital wallets can store items like gift cards, event tickets and identification cards. Some banks also support using your digital wallet to access your account at an ATM.

How do digital wallets work?

First, decide which digital wallet app you'd like to use and then upload your information to link your debit or credit card. Once your cards are added to your digital wallet, you're ready to go. To make a payment, open your digital wallet app and select the card you'd like you use, then hold your phone close to the card reader — or, in some cases, tap the card reader with your phone — so your payment information can be transmitted wirelessly to the retailer.

Keep in mind that not all retailers and card readers support virtual transactions. Look for the contactless payment indicator, which looks like a wireless icon turned on its side.

There are several different technologies used by digital wallets to process transactions:

Near field communication, or NFC

Apple Pay and Google Pay use this technology, which allows two devices to exchange information when placed in close proximity. This is a popular option among retailers.

Magnetic secure transmission, or MST

These devices generate a magnetic signal similar to when you swipe the magnetic strip on your debit or credit card. That signal is then transmitted to the payment terminal. Samsung Pay uses NFC and MST technology.

QR codes

Some digital wallets generate QR codes — barcodes that can be read by scanners or your smartphone's camera. The PayPal app generates QR codes for users, who scan those icons in stores to pay for their items.

Are digital transactions secure?

Your digital wallet can be safer than carrying cards or cash, even if your phone is lost or stolen. No one can access your phone's digital wallet without access to your phone, which is likely protected by a password or other biometric information, such as a fingerprint.

Built-in security features add to your digital wallet safety. Using a process called "tokenization," your credit or debit card number stays private when you make a purchase. Instead of sending retailers your actual card number, the digital wallet generates a random account number for each new transaction. This unique "token" is then used to process the payment or transfer money.

A digital wallet also reduces the risk of fraud by card skimmers or hackers, since it's harder for them to access your information — they'd only get the token code, which is useless for them. Most apps also require user verification for each transaction, so your PIN or fingerprint is required — another way to avoid fraud.

Why should I use a digital wallet?

Just like any other payment method, there are digital wallet pros and cons. Here are a few benefits about switching to digital transactions:

Using a digital wallet is easy.

Once your virtual wallet is set up, making a purchase is as easy as tapping your phone or smartwatch.

They're secure.

Your card information isn't stored on your device or shared with merchants, so shopping is secure. And with USAA Bank accounts, you're still covered by fraud protection too.

Contactless payments are hygienic.

The recent global health crisis has made many people more aware of how many public surfaces we touch in our daily lives. By using a digital wallet, you don't have to touch anything except your phone or smartwatch.

Transferring money is a breeze.

Previously, if you wanted to transfer money to another person, you had to make sure you were both using the same bank. But today, digital wallets in apps like Venmo, Zelle® and others have made it convenient to send money to anyone you want quickly, often without incurring any fees.

There's one less thing to carry.

If all you need is your phone or smartwatch, you can seriously cut down the weight in your purse or pocket. Leave that wallet stuffed with cards and cash at home.

Of course, digital wallets also come with potential drawbacks:

They aren't accepted everywhere.

Not all stores accept digital wallet payments, but the number of those that do or plan to in the future is growing. In fact, a recent study reported that 53% of merchants plan to expand their mobile payment options. The takeaway is that since many businesses still haven't adopted this technology, have a backup payment method, just in case.

Many users have lingering security concerns.

Some people simply don't feel safe using digital wallets — in part because they don't fully understand how e-wallets work. Some people are hesitant to adapt new technology.

Things can always glitch.

The battery on your phone or smartwatch can die, internet can go down, app service could be disrupted. When you're using modern technology, there are guaranteed to be occasional hiccups.

Sure, you can still pay with cash, checks or credit cards the old-fashioned way. But with digital wallets, the future is now. And now that you know how they work, you can catch up to current financial technology and be ready as it continues to evolve.

The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.