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What is a mobile wallet?

In today’s dynamic and interconnected world, digitisation naturally takes centre stage.

More and more everyday activities like sharing, learning, and working are performed via a mobile device – a fundamental component that shapes the digital realm. 

But perhaps one of the most revolutionary transformations of the modern age is the ability to make payments using nothing more than a mobile phone.  

In the following sections, we answer the question of what a mobile wallet is and provide valuable insights into a few essential aspects – how does the solution work, what are its features and capabilities, and how it benefits users.

What is a mobile wallet?

As its name properly suggests, a mobile wallet is a virtual substitute for a physical wallet

It suits the exact same purpose, with the key difference being that it enables users to fully digitise in-store purchases. Ultimately, this eliminates the need for carrying a physical card. A wide range of websites also accept mobile wallet payments, which makes them a versatile and convenient solution for most users.

Mobile wallets can store multiple cards, including credit and debit cards, but also loyalty club membership cards or reward cards. They are designed to store them on mobile devices like smartphones, tablets, and smartwatches. 

They can also be utilised via a mobile wallet app that is pre-installed or downloaded via an app store. 

This contactless payment form has gradually become a preferred payment method in the UK and worldwide. 

The evolution from physical to mobile wallets 

Tracking the evolution of mobile wallet technology takes us back to 1997, when Coca-Cola established the first-ever digital wallet. At the time, the company launched two vending machines, which enabled customers to make payments via text message using a mobile device. 

Two years later, in 1999, PayPal launched electronic money transfers for online purchases. Five years later, Alibaba introduced consumers to Alipay to offer mobile payments.

These digital advancements naturally led to the creation of Google’s first virtual wallet in 2011

Since then, mobile wallet adoption has increased dramatically. This trend has been significantly influenced by the mass use of smartphones. For instance, the smartphone industry in the UK is expected to reach 64.83 million users by 2025

In 2022, more than one-third of online transactions in the UK were performed via a mobile wallet. By 2028, expectations are that the United Kingdom’s mobile wallet industry will reach an industry size of £216.468 billion.

Globally, the number of digital wallet users is expected to grow by 53% to 5.2 billion, representing more than 60% of the global population.

This evolution of contactless payments offers extra convenience when it comes to in-store payments, too. It eliminates the reliance on physical debit cards and credit cards and instead empowers users to complete payments with a single wave of a mobile device in front of a card machine.

Types of mobile wallets

There are different types of mobile wallets based on how they operate and their functionalities. 

The three core mobile wallet types are:

  • Open wallets;
  • Closed wallets;
  • Semi-closed wallets.

Below, we provide an overview of each of the three types.

Open wallets

One of the most popular examples of an open wallet is PayPal – the online payment platform

This format enables users to use the money available in the debit or credit cards connected to the mobile wallet for making swift in-store payments, online purchases, or cash withdrawals.

Closed wallets

On the other hand, closed wallets are connected to merchants

Amazon Pay is a great example of a closed wallet. With it, users are only permitted to complete payments if the merchant organises the transaction. 

Cross-merchant payments are not allowed in this case, and cash withdrawals are also not an option.

Semi-closed wallets 

Semi-closed wallets combine some of the characteristics of both the open and the closed wallets described above.

While they enable users to use their funds and complete transactions with other merchants, they do not offer cash withdrawals. However, the funds from semi-closed wallets can be withdrawn into a bank account.

Mobile wallet payments

The most popular mobile wallets worldwide

Despite the vast range of available money wallets, some of the most recognizable products include:

  • Google Pay – created by Google, Google Pay can be used by both iOS and Android users. It supports in-store, online, and in-app purchases. Google also offers Google Wallet, which was originally created for peer-to-peer payments and online purchases. Today, it offers online purchases and facilitates in-store purchases via a physical Google Wallet Card.
  • Apple Pay – Apple’s private mobile wallet service is designed for iPhones, Macs, Apple Watches, and iPads. Users can store their credit and debit cards in Apple Wallet to use with Apple Pay.
  • PayPal – originally an online payment platform, PayPal now provides users with the opportunity to take advantage of a mobile wallet that enables the connection between a PayPal account, bank accounts, and cards.
  • Samsung Pay – developed for Samsung devices, Samsung Pay stands out with its magnetic Secure Transmission (MST), which supports not only NFC terminals but traditional magnetic stripe card readers, too.

Although these mobile wallet solutions hold significant market shares on a global scale, Apple Pay is considered the UK’s most popular mobile payment service as of March 2023.

Mobile money vs. Mobile wallet

Mobile wallets and mobile money are two terms that are often used interchangeably. However, they are fundamentally different from one another.

Unlike mobile wallets, mobile money supports peer-to-peer cash transfers via mobile phones and is considered an alternative payment method that is not linked to a bank. This service has become increasingly popular in Africa and other emerging markets.

By using mobile money, users can fund their mobile accounts with cash via a designated agent. As a result, they can make payments to merchants, service providers, or government agencies. 

Merchants can receive the payment and “cash out” by visiting a designated agent. 

How does a digital wallet work?

As noted above, mobile wallets can be used through wallet apps, installed on any mobile device.

The process is fairly similar, although it may differ on Android phones, Samsung phones, Apple phones, or other brands. Once installed on your smartphone, the mobile wallet can also be connected to other devices, like an Apple Watch or a tablet. 

In the next paragraphs, we will explore step-by-step how mobile wallets work.

Registration and set up

If you want to use a mobile wallet, your first step would be to check your device for an available built-in feature that supports mobile wallets. 

With no pre-installed feature provided, you can download various mobile wallet apps from your Google Play Store or another app store. 

Next, you’ll need to set up your mobile wallet by creating a Google Pay account or another type of account. Keep in mind that throughout the registration process, you will be asked to provide personal data. This data usually includes names, addresses, and other contact details. 

In some apps, you may also be asked to create a PIN code, a password, or another form of secure login method for safety reasons.

Funding options

Once you’ve completed the setup process, you must supply your wallet with funds to actually complete transactions. 

Based on the mobile wallet provider you’ve chosen, you can either link your bank account to the wallet, add a debit card or credit card, or transfer funds from other sources.

If you’ve chosen to link your bank account to your wallet, you will be able to send money from your bank account into your mobile wallet. To complete the process, you’ll need to verify your bank account. This procedure is usually much easier when logged into your banking app. 

On the other hand, if you add credit or debit cards to your mobile wallet, you’ll be able to use them to make direct payments from the virtual wallet. 

Once the debit or credit card has been added, most mobile wallets will ask you if you wish to make this card your default card. Keep in mind that you can store more than one card in a single mobile wallet, including coupon cards and loyalty cards.

How does a digital wallet work?

Making payments

After you’ve set up your mobile wallet and it has been funded, you are ready to make in-store and online payments

When completing an online payment from your mobile wallet, you may be asked to submit your credentials or go through biometric authentication for verification

For in-store payments, all you have to do is wave the mobile device that is connected to your mobile wallet in front of a payment terminal. In this case, the payment process is possible thanks to NFC technology.

Near Field Communication (NFC) relies on radio frequencies to enable communication between devices. NFC processes the transaction at the terminal via an encrypted key, QR code, or another personal identification format. 

The procedure is initiated when the user waves an NFC-enabled device at a POS terminal

Secure measures

Mobile wallets are designed with advanced security measures to protect financial, personal, and payment information and eliminate chances of data theft or malicious activities. 

Wallets rely on sophisticated encryption to protect data during transmission. They also utilise unique tokens as a substitute for sensitive card information, further minimising risks of card details exposure. 

Above, we mentioned biometric authentication as another form of identity verification. 

In addition, some mobile wallets support two-factor authentication, asking users to submit various verification forms. 

Pros and cons of mobile wallets

The popularity of mobile wallets today stems from the vast range of benefits they offer to both consumers and merchants.  

Meanwhile, uncertainties about this technological solution remain.


Studies reveal that the top 3 reasons why users prefer digital wallets are convenience (62%), security (52%), and rewards (45%).


One of the most significant factors influencing the dominance of mobile wallets is their security features. 

For several reasons, mobile wallets are considered a much safer alternative to physical wallets. 

First, physical products of high value, like wallets, suffer high risks of being stolen or lost – two scenarios with equally damaging consequences. 

With mobile wallets, your data is safely stored digitally. Password recovery is always an option, even in the case of forgotten credentials. 

At the same time, card theft becomes much more challenging. 

To access the connected cards to the mobile device, the user must first unlock their mobile device using a password or fingerprint. Before the transaction is completed, another form of verification, such as a face scan or additional passcode, will be required.

Advantages of mobile wallets


The accessibility and convenience of mobile wallets are also factors in their mass use today. 

These solutions enable users to use a virtual card anywhere, at any time. 

Carrying a physical wallet with multiple physical credit cards and cash is no longer necessary – all of your data is on the go, allowing you to make in-store and online purchases at your request. 

Integration with loyalty programs

Most mobile wallets provide built-in loyalty programs and reward programs for users.

Instead of remembering to bring physical loyalty cards to stores and shops, you can use a virtual card connected to your mobile wallet. This makes rewards and savings even more enjoyable and seamless. 

No physical contact

Mobile wallets permit contactless payments and thus prove more hygienic and safe from a health-inspired perspective.

The ability to make touchless payments and avoid using cash at the same time makes mobile wallets a much preferred option. 

Especially in situations like the COVID-19 outbreak in 2020, touch-free payments can help protect individuals from viruses, contamination, and other health-related threats.


At the same time, there are several concerns related to mobile wallets.

Safety concerns

Despite the security measures put in place to protect sensitive information, some users are still sceptical about the safety of mobile wallets. The growing global cyberattacks only inspire more distrust and concerns related to data theft.

However, mobile wallet providers are actively striving to enhance security features even more, giving peace of mind to users.

Compatibility challenges 

Most mobile wallets are designed to operate with specific devices or systems. For instance, Apple Pay is explicitly created for iOS users, while Google Pay works on Android devices. 

Using devices with different operating systems may mean the inability to use the same mobile wallet. 

Earlier, we mentioned that mobile wallets use NFC technology to work. However, some smartphones and POS terminals don’t support this technology, creating another reason for concern. 

At the same time, there are challenges related to merchant acceptance, geographic restrictions, and compatibility with financial institutions.

Privacy concerns 

Privacy is another significant factor that creates uncertainties in the world of mobile wallets. 

Mobile wallet providers gather and store sensitive user data to enable transactions and improve customer services. Naturally, this creates concerns around data protection, usage, and sharing

In addition, third-party integrations with banks, payment processors, and loyalty programs are an inevitable part of mobile wallet services. While they improve convenience and functionality, they also raise concerns.


Mobile wallets are an inevitable part of the digital revolution in today’s dynamic world. By offering attractive benefits like security, safety, and convenience to users, they’ve become a commonly preferred means of making in-store and online payments. 

As the mobile wallet market continues growing, we expect to witness further innovations and creative solutions to some of the remaining concerns in the industry.

Frequently Asked Questions

Although mobile wallets are often referred to as digital wallets, these two terms are not the same. While mobile wallets are connected to a mobile device like a smartphone, tablet, or smartwatch, digital wallets can be linked to laptops, desktops, and mobile devices.

Yes, mobile wallets are considered a safe and secure way to perform contactless purchases in-store and online. Via safety measures such as encryption, two-factor authentication, and tokenization, mobile wallets can provide extra levels of protection for users.

There are a wide range of mobile wallets available for use. Some of the most popular ones are Google Pay, Apple Pay, PayPal, and Samsung Pay.

Yes, mobile wallets are designed to support multiple cards. Apart from credit and debit cards, you can also link your mobile wallet to loyalty cards, rewards cards, and more.

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