Digital Wallet Technology - Using Digital Wallets, The Punctuated Evolution Of Digital Wallets, Challenges For The Future

Digital wallets are small electronic packages that automatically supply information such as credit card numbers and shipping addresses for use in conducting Internet transactions. Also known more broadly as Internet payment services, they provide a means by which customers may order products and services online without ever entering sensitive information and submitting it via e-mail or the World Wide Web, where it is vulnerable to theft by hackers and other cyber-criminals. Digital wallets thus allow consumers to make online purchases easily and securely, safeguarding the privacy of purchasing habits and financial information alike.

Traditionally, digital wallets were stored on the desktops of personal computers. By the early 2000s new digital wallets were compatible with wireless and other mobile devices, and were more often stored on a central server owned by a digital wallet vendor or Internet service provider (ISP). Among the technologies touted as a cornerstone for the growth of e-commerce, digital wallets had a history of promise interrupted by false starts. They evolved in stages, with a series of incarnations since first emerging in the mid-1990s.

Digital wallet vendors maintain relationships with online merchants in a manner similar to those between credit card companies and brick-and-mortar stores. The digital wallet vendor either charges a commission to the retailer on every purchase involving the vendor's wallet, or merchants pay the vendor a flat fee for accepting the vendor's wallet in their transactions. In turn, businesses and customers mutually agree to use the products, software, and services of a particular digital wallet vendor, which then acts as an intermediary for all transactions between the firm and its customers. In this way, customers needn't transmit credit card numbers for each transaction. Instead, they send the purchase order to the wallet vendor, which simply charges it to the customer's account.