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Published April 23, 2024
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What Is a Digital Wallet and How Does It Work?

A digital wallet, also known as a mobile wallet, lets you make purchases using your mobile device.

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Mobile devices such as smartphones have forever changed how we communicate, and they’ve also started to have a powerful influence on the way we pay for things.

A growing number of merchants across Canada embrace mobile payments, and as a result digital wallets becoming more popular.

What is a digital wallet?

A digital wallet, also known as a mobile wallet[1], is a virtual storage tool that can allow you to use credit cards, debit cards, loyalty cards, gift cards and more without the physical card being present.

Digital wallets can also hold other information, such as event and concert tickets and boarding passes, and in some cases, can be used to transfer money to other people.

A digital wallet can be a much more convenient form of payment because it means you don’t need to carry around multiple payment and loyalty program cards — to say nothing of cash.

As long as you have your mobile device with you, you can quickly and securely make payments with the card of your choice.

How a digital wallet works

Digital wallets use specialized apps to perform a variety of transactions, including making payments. Rather than using a credit card or cash to pay for goods and services, you can make mobile payments through an app, such as Apple Pay or Google Pay.

Mobile payments rely on Near Field Communication (NFC), which allows smartphones and other electronic devices to communicate when held nearby. Your digital uses this technology to “communicate” your payment information to a merchant’s payment processing terminal.

How to get a digital wallet

Getting a digital wallet is as simple as downloading your preferred app. Some of the most common digital wallet apps are Apple Pay, Google Pay, PayPal and Samsung Pay, though there are others.

  1. After downloading a compatible digital wallet app, you will first be required to secure it with a passcode, fingerprint or facial scan (each wallet may have a different security process).
  2. You will then need to add each of your debit and credit cards to the wallet. You’ll be prompted to input each card’s number, and then the app will connect to the provider’s site so you can authorize the card by entering your password.
  3. Depending on the app you use, you may also be able to add gift cards, loyalty program cards, flight boarding passes and more.

While this setup process takes time, you should only have to do it once. After you’ve added all the cards to your mobile wallet app, you can choose one card as your default payment card. You can change your default card at any time and easily switch between all the payment cards within your wallet.

How to use a digital wallet

Generally, any merchant that accepts contactless credit and debit payments will accept payments via a digital wallet. If you’re not sure, it’s a good idea to ask if they accept payments from your specific mobile wallet.

To pay, follow these steps.

  1. Open the digital wallet app, and the card you selected as your preferred form of payment should show up on your screen. If you want to use a different card, swipe through your options.
  2. Hold your smartphone close to the merchant’s payment processor as you would when making a contactless payment with your physical credit or debit card. Depending on the merchant and transaction amount, you may need to enter the card’s personal identification number (PIN).
  3. The payment will go through just as it would with a debit or credit card.

Sometimes, as an added layer of security, you may be prompted to provide a fingerprint ID or a code, depending on the wallet app you’re using.

Are digital wallets safe?

Mobile payment data is protected through a process called tokenization, which replaces your financial data (such as bank account and credit card numbers) with a unique random number (a token).

The token hides your data, and your financial information is only revealed once a legitimate financial service provider processes it. Merchants never see your banking information.

Using a digital wallet that relies on tokenization is potentially even safer than using a physical credit card and entering a PIN because your banking information is never visible.

In addition, as with credit card payments, mobile payments are protected by the zero-liability policies of all the major credit card providers in Canada, like MasterCard, American Express and Visa. Even if you lose your phone and someone bypasses your PIN, fingerprint ID or password to unlock it and hack into your digital wallet, you are still as protected as you would be if your credit card was lost or stolen).

Finally, many smartphones have apps that allow you to track your phone and even erase sensitive information remotely — something that is impossible to do if you lose a physical wallet. If you’re concerned about using a digital wallet, reach out to your credit and debit card providers to learn more about how you’re protected by zero liability.

Pros and cons of a digital wallet


  • A digital wallet lets you keep all your credit, debit, loyalty and gift cards in one place.
  • Digital wallets are more convenient and secure than carrying a wallet or purse full of cards.


  • A mobile device, such as a smartphone or smartwatch, is required.
  • Not all retailers accept mobile payments.
  • Requires your device to be charged. If the battery dies, or you lose your device, you can’t access your mobile wallet.

Other ways to make mobile payments

If you don’t want to use a digital wallet, you can still use your smartphone to send and receive money using your financial institution’s banking app or by logging into a bank’s website (much as you would on a computer or tablet). For example, you can use Interac e-transfer to send money using someone’s email address or phone number.

However, you may not be able to use e-transfers to pay for goods and services at retailers as you can with a digital wallet.

Article Sources

Works Cited
  1. Financial Consumer Agency of Canada, “Mobile wallets,” accessed April 14, 2024.


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