What is a digital wallet and how do they work?

Key takeaways:

• Digital wallets help businesses reduce admin and speed up payments by securely storing all payment methods in one place.

• By 2026, more than half of the world’s population will regularly use digital wallets.

• Apple Pay, Google Pay and Samsung Pay are examples of popular digital wallets.

Since their introduction, digital wallets have rapidly become one of the world’s preferred payment methods. Driven by their convenience, they are now responsible for 50% of global eCommerce transactions, a figure that is expected to reach 61% by 2027¹.

The digital wallet ecosystem is diverse, with each region represented by providers that cater to their customers' cultural preferences. In the West, Apple Pay and Google Pay dominate. In parts of Asia, digital wallets like Alipay and WeChat Pay are integral to daily life, functioning as super-apps that go beyond payments to include services like booking travel and securing loans.

With over half the world’s population predicted to use them by 2026¹, it’s worth understanding how digital wallets can be a tool for businesses to streamline business spend management.

What is a digital wallet?

A digital wallet is a software-based system that securely stores payment details and enables transactions through a connected device such as a smartphone, tablet, or desktop. It replaces the need to carry physical cards or cash, allowing users to pay with a tap, scan, or click.

Digital wallets encrypt and store card or bank account information and retrieve it during checkout to complete a transaction quickly and securely. Many also support storage of additional non-payment credentials, including:

• Loyalty cards

• Gift cards

• Membership cards

• Coupons

• Event tickets

• Plane and transit tickets

• Hotel reservations

• Driver’s licences (in supported states)

• Identification cards

• Cryptocurrency

• Car keys

Examples include Apple Pay, Google Pay, and Samsung Pay, which are widely used for mobile payments. Others, like PayPal, also enable peer-to-peer transfers and online purchases.

For businesses, digital wallets offer added functionality. Corporate cards can be added to a wallet, giving employees access to company funds without the need for physical cards. This makes spend management easier by reducing reimbursements and increasing visibility and control over expenses in real time.

How are digital wallets used?

Digital wallets are accepted across a growing number of in-store and online locations. 

In Australia, many major retailers, cafes, and public transport systems accept contactless payments via platforms like Apple Pay, Google Pay, and Samsung Pay. These payments use the same Near Field Communication (NFC) technology as standard contactless card transactions, which means that anywhere contactless card payments are accepted, digital wallets will be too. Users simply tap their phone, smart watch, or wearable device over the terminal to complete the payment.

Digital wallets are also commonly used for:

• Online shopping at eCommerce stores that support wallet checkout

• Peer-to-peer transfers through platforms like PayPal 

• In-app purchases and subscriptions

• Public transport (via contactless cards or linked wallets)

• Loyalty and rewards programs

Wearables, such as smartwatches and fitness bands, further expand digital wallet usability, allowing payments without even needing to pull out a phone. For businesses, accepting digital wallets is no longer optional. It has become a core part of meeting customer expectations in a mobile-first world.

How do digital wallets work?

Digital wallets allow businesses and their customers to store and transmit payment credentials securely, using a combination of encryption, tokenisation, and integrated technologies. This improves the speed, convenience, and security of both in-store and online payments compared to manual card entry or cash.

They are compatible with a wide range of card types, including credit, debit, and prepaid card options, giving businesses flexibility to support different spending needs and customer preferences. Here’s how they work:

Storing payment information:

• Card or bank account details are added to the digital wallet and encrypted.

• Credentials are often tokenised, replacing sensitive card data with a secure, unique identifier.

• Access is protected by device-level authentication such as a PIN, fingerprint, or facial recognition.

Facilitating transactions

• For in-person payments, users tap or hold their device close to a payment terminal. The wallet transmits payment data using one of several technologies (see below).

• For online purchases, users select their digital wallet at checkout and authorise the transaction, eliminating the need to input card details manually.

Technology behind digital wallets:

• Near field communication (NFC): Transfers payment information securely between devices when they are within close proximity. This technology is used by platforms like Apple Pay and Google Pay.

• Magnetic secure transmission (MST): Generates a magnetic signal, replicating the swipe of a card. Samsung Pay has supported MST, though it is phasing out in favour of NFC.

• QR codes: Some wallets, like PayPal, use scannable barcodes to initiate payments, especially for peer-to-peer or point-of-sale transactions.

Integration with systems:

• Payment terminals must support contactless payments or QR codes to accept digital wallet transactions.

• The wallet connects to payment processors, gateways, and banks to finalise the purchase in seconds.

Pros and cons of digital wallets

Like any payment method, digital wallets have benefits and limitations that businesses need to consider:

Pros of digital wallets

1. Streamlined company spend management

Digital wallets can link to virtual corporate cards, allowing businesses to issue cards to employees to cover business expenses. This eliminates the need for physical cards, simplifies employee spending, and removes the hassle of processing reimbursements. And finance teams gain control over spend limits as well as complete visibility over company spend.

2. Simplified employee payments

Digital wallets give employees quick access to company funds without needing to carry physical cards or spend their own money. They support international payments and reduce reliance on cash, while cutting out the admin of waiting for reimbursements.

3. Improved security

With features like tokenisation and encryption, digital wallets protect sensitive payment data from being intercepted during transactions. Biometric authentication ensures that only authorised users can access the wallet. For businesses, this helps to mitigate the risk of fraud with company issued cards. 

4. Enhanced convenience

Digital wallets store various card types (debit, credit, loyalty, gift), public transport passes like Opal or Go Card, and even digital keys or memberships, all in one device. This means users can pay, commute, and check into events or gyms from their phone.

5. Faster transactions and checkout

Tap-and-go functionality and seamless integration with online checkouts makes transactions quicker, reducing friction at the point of sale and improving the customer or employee experience.

6. Immediate card access

Users can often add a digital card to their wallet instantly after applying – no need to wait for a physical card to arrive. Lost cards can be blocked remotely, while digital spending continues uninterrupted.

7. Versatile uses beyond payments

In addition to storing payment methods, digital wallets can hold boarding passes, concert tickets, gym memberships, hotel reservations, and more.

8. Financial inclusion without a bank

Digital wallets don’t require a traditional bank account. Funds can be stored with online-only platforms, helping unbanked and underbanked users access financial services and tools.

Cons of a digital wallet

1. Limited acceptance

Not all businesses or regions have adopted the infrastructure required to support digital wallets. Smaller vendors or those in less technologically advanced markets may lack the necessary point-of-sale systems to accept contactless payments.

2. Dependence on technology

Digital wallets rely entirely on devices and connectivity. For some wallets (like Apple Pay), an internet connection is needed to connect cards to the wallet but not for making in-person payments. However, businesses accepting digital wallet payments need working internet-connected POS systems. A network outage can lead to failed transactions or checkout delays.

3. Potential risks with providers

While established digital wallet providers offer robust security, businesses must ensure they, as well as their employees who link corporate cards, choose reputable platforms. A poorly vetted or less secure provider could expose sensitive financial data to cyber risks, leading to costly breaches or loss of trust from customers.

Popular digital wallets

Australia’s digital wallet ecosystem includes options from local banks, fintech startups, and global tech giants, each offering different features for both consumers and businesses.

Here are five of the most popular digital wallets in Australia:

• Google Pay: A global wallet that simplifies online and in-store transactions by linking credit or debit cards, providing businesses with a secure and convenient option.

• Apple Pay: Integrated into Apple devices, this wallet is popular for its convenience and security, using tokenisation, Touch ID, Face ID, and passcode for authentication.

• Samsung Pay: Available on Samsung devices, this wallet enables contactless payments through NFC and MST technologies. It is widely accepted at Australian retailers and integrates loyalty cards and gift cards for added convenience.

• Beem: A widely used Australian wallet app supported by eftpos and Australia's major banks. Beem allows users to pay friends, split bills, and make in-store purchases. It's one of the few locally developed platforms with real-time transfer capabilities.

• PayPal: PayPal is widely accepted by online retailers, making it easy to shop without entering credit card details repeatedly.

• Banks: Some Aussie banks, like CommBank, NAB and Westpac, have built tap-to-pay features directly into their mobile apps, letting users make contactless payments without needing a separate wallet app.

Popular international digital wallets:

• Venmo: Particularly popular in the United States for peer-to-peer payments and uses two-factor authentication, and the ability to freeze accounts if needed.

• Alipay: Dominant in China, it's used for a wide range of transactions, from general purchases, travel booking, city services such as parking and more.

• WeChat Pay: Widely used across China and other parts of Asia and integrated into the WeChat messaging app, WeChat Pay offers payments, transfers, bill payments, and access to a variety of in-app services.

• Cash App: A mobile payment app primarily used in the United States that allows users to send and receive money, make purchases, invest in stocks or Bitcoin, and access banking features like direct deposit.

How to choose the right digital wallet

Digital wallets aren't one-size-fits-all. Choosing the right platform depends on how your business spends, receives, and manages funds. The list below outlines five key factors to help evaluate your options.

1. Enterprise-grade security

Look for wallets that offer advanced encryption, tokenisation, biometric login, and fraud detection. For businesses handling large transaction volumes or sensitive data, these features reduce risk and increase trust.

2. Device, OS, and region compatibility

Some wallets only work on specific operating systems or devices. Apple Pay is iOS-exclusive, while Google Pay works across Android and iOS. Consider where your team is based and how employees will access funds, especially if travelling internationally.

3. Fees, FX rates, and payment limits

Wallet providers charge different transaction fees, monthly service fees, and foreign exchange rates. Look beyond the base rate to understand settlement delays, minimums, and transfer limits, especially if you're handling international payments.

4. Localised support and response times

When things go wrong, fast support matters. Prioritise wallets that offer live chat, local business hours, and clear escalation paths. Bank-issued wallets often offer reliable assistance, but some fintech platforms now provide 24/7 global support.

5. Business functionality and integrations

If you manage team budgets or process reimbursements, choose a wallet that supports virtual cards, card freezing, spend controls, real-time alerts, and role-based permissions. The best digital wallets also sync with accounting platforms and give admins the ability to set transaction rules by team, location, or payment type.

For distributed or cross-border teams, look for multi-currency support, local settlement options, and compliance with regional payment infrastructure.

Streamline global spend management with Airwallex Cards

Managing global expenses can be time-consuming and fragmented, especially when relying on manual reimbursements or personal cards. Digital wallets offer a smarter alternative. By issuing digital corporate cards that can be added to mobile wallets, businesses can centralise company spending, empower teams to make purchases directly from company funds, and eliminate the need for out-of-pocket expenses. Businesses can set individual card limits and restrict merchant categories to control spending. They also gain real-time visibility into transactions as they happen.

Airwallex offers Business Account which can hold 20+ currencies in a company Wallet. Airwallex Corporate Cards can be issued to employees and linked to digital wallets for seamless, tap-and-go spending. Compatible digital wallets include:

• Apple Pay

• Google Pay

• Samsung Pay

Employees can then spend directly from the multi-currency balances held in the Business Account, avoiding foreign exchange (FX) fees.

How Airwallex Corporate Cards support your business

1. Cut international spending costs

Airwallex Corporate Cards allow businesses to avoid hefty FX and international transaction fees. Spend internationally from multi-currency balances held in your business account, with 0% foreign transaction fees. With access to interbank FX rates if you do need to convert currencies, you can save up to 80% on conversion costs.

2. Enhanced visibility and control

Issue cards to employees, set spending limits, and control purchases through merchant category code restrictions, all while tracking expenses in real time.

3. Link to digital wallets for greater flexibility

Once linked to a digital wallet, employees can use Airwallex Corporate Cards for online and in-person payments worldwide. Whether paying suppliers abroad or covering travel expenses, the process is efficient, secure, and easy to monitor.

By choosing Airwallex to manage business finances, businesses can receive and hold funds in multiple currencies, spend from these balances to reduce FX fees, and empower their teams, including remote workers and international travellers, with a business debit card that can be linked to digital wallets. 

Explore our Airwallex Corporate Cards to streamline expenses and spend globally with 0% foreign transaction fees

Digital wallets: frequently asked questions

Are digital wallets safe to use in Australia?

 Yes, digital wallets use advanced security features like tokenisation, encryption, and biometric authentication to protect your payment information. They’re often more secure than physical cards because your card number isn’t shared with merchants during transactions.

Which digital wallets can I use in Australia?

 Popular digital wallets in Australia include Apple Pay, Google Pay, Samsung Pay, PayPal, and Beem. Most major Australian banks also offer digital wallet compatibility, and many let you add cards directly from their banking apps.

Can I use a digital wallet without a traditional bank account?

 Yes. Some digital wallets work with prepaid cards or online-only accounts, offering broader access to financial services for users without a traditional bank account.

What can I store in a digital wallet besides payment cards?

 Digital wallets can also store loyalty cards, gift cards, coupons, boarding passes, event tickets, digital keys, and public transport cards like Opal and Go Card.

Do I need internet access to use a digital wallet?

 For in-store tap payments via platforms like Apple Pay or Google Pay, you don’t need internet access. However, an internet connection may be required to set up the wallet or complete online purchases.

Can businesses accept digital wallets without upgrading hardware?

Most digital wallets rely on contactless NFC technology. If your business already accepts contactless card payments (like Visa payWave or Mastercard PayPass), you likely already have the infrastructure to accept digital wallets.

How do digital wallets help businesses manage spending?

 Digital wallets let companies issue virtual cards to employees for business expenses. These can be instantly added to a wallet, improving control, cutting admin, and allowing real-time tracking of spend.

Source:

1. https://business.bofa.com/en-us/content/digital-wallets-adoption-digital-payments-strategy.html

Disclaimer: This information doesn’t take into account your objectives, financial situation, or needs. If you are a customer of Airwallex Pty Ltd (AFSL No. 487221) read the Product Disclosure Statement (PDS) for the Direct Services available here.