What is a digital wallet and how do they work?

Key takeaways

• A digital wallet stores your payment details on your phone or device, so you can pay with a tap, scan, or click instead of carrying physical cards or cash.

• Australians made $160 billion worth of payments with their mobile wallets in 2024–25, with the Australian Banking Association describing it as “the norm” for millions.¹

• Airwallex Corporate Cards can be added to Apple Pay and Google Pay, so businesses can spend from multi-currency balances with 0% foreign transaction fees.

Digital wallets have quickly become one of the world's most popular ways to pay. In Australia, the value of mobile wallet payments grew twenty-three-fold between 2019 and 2025¹ – and that figure is expected to keep climbing as more people get used to tapping their phones instead of reaching for their cards.

The digital wallet landscape looks different depending on the region. In the West, Apple Pay and Google Pay lead the way. In parts of Asia, Alipay and WeChat Pay do much more than just payments, acting as super-apps for booking travel, paying bills, and even securing loans. In this article, we'll walk through what a digital wallet is, how it works, how to set one up, and how to choose the right one for your needs.

What is a digital wallet?

A digital wallet is an app on your phone, tablet, or computer that stores your payment details and lets you pay without carrying physical cards or cash. You can think of it as a digital version of your physical wallet, except it lives on your phone and can't fall out of your pocket. The big practical benefit is simple: you can pay with a tap, scan, or click, whether you're buying coffee or checking out online.

When you pay, the wallet pulls up your stored card details and sends them securely to the merchant using encryption and tokenisation. Your actual card number never gets shared, which makes the whole process safer than handing over a physical card.

Examples include Apple Pay, Google Pay, and Samsung Pay for mobile payments, and PayPal for peer-to-peer transfers and online purchases. They work with credit, debit, and prepaid cards, so you've got a few ways to pay.

For businesses, digital wallets add extra functionality too. Corporate Cards can be added to a wallet, which gives employees access to company funds without needing physical cards. That makes expense management easier by cutting down on reimbursements and giving finance teams real-time visibility over spending.

What can you store in a digital wallet?

Beyond payment cards, digital wallets can hold a surprising range of items:

• Loyalty cards and membership cards

• Gift cards and coupons

• Event tickets and boarding passes

• Public transport passes (like Opal or Go Card)

• Driving licences and ID cards (in supported regions)

• Digital keys for cars and hotel rooms

Where can you use a digital wallet?

Digital wallets work almost anywhere contactless card payments are accepted, which these days means most places. In Australia, where digital wallet adoption keeps rising, major retailers, cafés, and public transport systems all accept tap-and-go payments through Apple Pay, Google Pay, and Samsung Pay. These payments use Near Field Communication (NFC) technology, which is the same tech behind contactless cards.

You can also use digital wallets 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 linked cards or transit passes)

• Loyalty and rewards programmes

Wearables like smartwatches and fitness bands take this even further, because you can pay without pulling out your phone at all. So you can tap your phone at the café, pay for your Uber in-app, and tap on at the train station, all from the same wallet.

How do digital wallets work?

Digital wallets store your payment details and send them securely when you pay, using encryption and tokenisation to protect your data. That makes both in-store and online payments faster and safer than typing in card details by hand or using cash.

They work with credit, debit, and prepaid cards, so you've got flexibility in how you pay. Here's how the process works:

Storing payment information

• Your card or bank account details are added to the wallet and encrypted.

• Credentials are tokenised. Your actual card number is replaced with a unique, secure identifier.

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

Making payments

• In-person: Tap or hold your device near a payment terminal. The wallet sends your payment data securely using NFC technology.

• Online: Choose your digital wallet at checkout and approve the transaction, with no need to type in card details manually.

Technology behind digital wallets

• Near Field Communication (NFC): This transfers payment information securely between devices when they're close together. It's what Apple Pay and Google Pay use for tap-and-go payments.

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

Samsung Pay previously supported magnetic secure transmission (MST), which copied a card swipe, but this technology is being phased out in favour of NFC.

For all of this to work, payment terminals need to support contactless payments or QR codes. The wallet connects to payment processors, gateways, and banks to finalise the purchase in seconds.

Now that you know how they work, let's look at how to set one up.

How to set up a digital wallet

Setting up a digital wallet takes about as long as ordering a coffee. You'll usually be done in a couple of minutes, and then you're ready to pay with a tap.

Adding a card to your digital wallet

The process is similar across Apple Pay, Google Pay, and Samsung Pay:

1. Open your wallet app. On iPhone, that's the Wallet app. On Android, it's Google Pay or Samsung Pay.

2. Tap to add a card. You can scan your card with your camera or enter the details manually.

3. Verify with your bank. Your bank may send a verification code by SMS or through their app.

4. Set up authentication. Turn on fingerprint, Face ID, or a PIN to secure your wallet.

5. You're ready to pay. Your card is now stored and ready for tap-and-go payments.

You can add multiple cards and switch between them as needed. If your card doesn't show up as an option, check with your bank that they support the wallet you're using, because most major banks do. Corporate Cards, like Airwallex Corporate Cards, can also be added, which gives employees instant access to company funds without waiting for a physical card to arrive.

Pros and cons of digital wallets

Like any payment method, digital wallets come with benefits and limitations that are worth weighing up before you commit.

Advantages of digital wallets

• Simpler business spending. Digital wallets can link to virtual Corporate Cards, so employees can spend straight from company funds. There are no physical cards to manage, no out-of-pocket expenses, and no chasing reimbursements.

• Better security. With features like tokenisation and encryption, digital wallets protect your payment data during transactions. Biometric authentication means only you can access your wallet, which cuts the risk of fraud on company cards.

• Everything in one place. You can store debit cards, credit cards, loyalty cards, transit passes, and event tickets in a single app. One device can handle payments, commuting, and checking into events.

• Faster checkout. Tap-and-go payments and online checkout cut friction at the point of sale. Transactions take seconds, not minutes.

• Instant card access. You can apply for a card and add it to your wallet straight away, with no waiting for a physical card in the post. If you lose a card, you can block it remotely whilst digital spending continues uninterrupted.

• Financial access without a traditional bank. Digital wallets don't require a bank account. Funds can be stored with online-only platforms, helping unbanked and underbanked users access financial services.

Disadvantages of digital wallets

• Limited acceptance. Not all businesses or regions have adopted the setup needed to support digital wallets. Smaller vendors, or those in less technologically advanced markets, may not have contactless payment terminals.

• Device dependence. Digital wallets depend on your device having battery and, in some cases, internet connectivity. A flat phone or network outage can leave you unable to pay.

• Provider risks. Established providers usually offer strong security, but you still need to choose reputable platforms. A poorly vetted provider could expose sensitive financial data to cyber risks.

Are digital wallets safer than physical cards?

Generally, yes. Digital wallets are often seen as safer than physical cards for a few reasons.

First, your actual card number is never shared with merchants. When you pay, the wallet sends a tokenised version of your details, a unique code that's useless to anyone who intercepts it. Second, biometric authentication adds a layer of protection that physical cards simply don't have. If someone steals your physical card, they can tap it at a terminal. If someone steals your phone, they still need your fingerprint or face to unlock the wallet.

That said, no system is 100% secure. The key is to choose a reputable wallet provider and keep your device's security features turned on.

So with that in mind, how do you pick the right wallet for your needs?

How to choose the right digital wallet

Digital wallets aren't one-size-fits-all. The right choice depends on how you spend, where you spend, and which features matter most to you.

Security features

Look for wallets that offer tokenisation, biometric login (fingerprint or face recognition), and fraud alerts. These features help protect your payment data and give you peace of mind when you're paying in-store or online.

Device and region compatibility

Some wallets only work on certain devices. Apple Pay is limited to Apple devices (iPhone, iPad, Apple Watch, and Mac), whilst Google Pay works across Android and iOS. If you travel internationally, check that your wallet is accepted in the countries you visit, because not all wallets have the same global reach.

Fees and payment limits

Some wallets charge transaction fees or set transfer limits. If you're paying internationally, check the foreign exchange rates, because they can vary a lot between providers. Some Corporate Card providers, like Airwallex, charge 0% foreign transaction fees, which can make a real difference for cross-border spending.

With so many options out there, here are some of the most popular wallets available.

Popular digital wallets

Popular wallets in Australia

• Apple Pay: Built into Apple devices, using tokenisation and Face ID or Touch ID for secure, convenient payments.

• Google Pay: Works across Android and iOS, linking credit or debit cards for online and in-store transactions.

• Samsung Pay: Available on Samsung devices, enabling contactless payments through NFC. It also integrates loyalty cards and gift cards.

• PayPal: Widely accepted by online retailers, making it easy to shop without entering card details again and again.

• Australian banks: CommBank, NAB, and Westpac have built tap-to-pay features directly into their mobile apps, so you can make contactless payments without a separate wallet app.

Popular international wallets

• Alipay: Dominant in China, and used for purchases, travel booking, city services, and more.

• WeChat Pay: Built into the WeChat messaging app, and widely used across China and other parts of Asia for payments, transfers, and in-app services.

• Venmo: Popular in the United States for peer-to-peer payments, with two-factor authentication and account freeze options.

• Cash App: A US mobile payment app for sending money, making purchases, investing, and accessing banking features like direct deposit.

If your business operates across borders, here's how Airwallex can help.

Benefits of managing global spending with Airwallex Corporate Cards

Managing expenses across countries can eat up a lot of time, especially if you're relying on manual reimbursements or personal cards. There's a simpler way to do it: issue digital Corporate Cards that employees can add to their mobile wallets for tap-and-go spending anywhere in the world.

Airwallex offers a Business Account that can gives you local banking details in 20+ countries and lets you accept payments from 70+ countries. Airwallex Corporate Cards can be issued to employees in 60+ countries and linked to Apple Pay or Google Pay. Here's what that means for your business:

• Cut international spending costs. When employees spend with an Airwallex card it uses the balance you hold in your multi-currency wallet, eliminating conversion fees. If you have insufficient funds in a currency, you can nominate to have the payment drawn from your home currency balance for a 1% fee conversion fee.

• Control spending in real time. Set individual card limits and restrict purchases by merchant category. Track expenses as they happen, not weeks later.

• Give employees instant access. Issue virtual cards that employees can add to their wallets right away in 60+ markets, with no waiting for physical cards. If a card is lost, block it remotely whilst digital spending continues.

• Simplify expense management. No more out-of-pocket expenses or chasing reimbursements. You can create virtual cards tied to shared team purchases like software subscriptions and ad spend, with custom spend limits and controls.

Whether you're paying suppliers abroad or covering travel expenses, Airwallex Corporate Cards make the process efficient, secure, and easy to monitor. Employees can use their business debit card linked to digital wallets for online and in-person payments worldwide.

Frequently asked questions

Are digital wallets safe to use?

Yes. Digital wallets use tokenisation, encryption, and biometric authentication to protect your payment details. They're often safer than physical cards because your actual card number isn't shared with merchants during transactions.

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.

How do I set up a digital wallet?

Open your wallet app (Apple Pay, Google Pay, or Samsung Pay), tap to add a card, verify with your bank, and set up fingerprint or face recognition. The whole process takes a couple of minutes.

What are the disadvantages of a digital wallet?

The main downsides are that not all merchants accept them yet, they depend on your device having battery, and you need to choose a reputable provider to keep your data safe.

Do I need internet access to use a digital wallet?

For in-store tap payments through Apple Pay or Google Pay, you don't need internet access. But you may need an internet connection to set up the wallet or complete online purchases.

Source:

1. https://www.ausbanking.org.au/mobile-wallet-payments-soar-amid-digital-banking-boom/

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.