What Is a Digital Wallet & How Does It Work

byMrinal MandalLast Updated: August 24, 2022
digital wallet definition

A digital wallet is an electronic version of your traditional wallet that allows you to make transactions without the need of having the bank account details of the receiver. Generally, a digital wallet is accessed by a mobile application but it can also be accessed by other means such as a website or a desktop application. However, mobile application tops all the other modes of using digital wallets. 

Digital wallets have completely changed our ways of making payments or transactions for many products and services. Even when we go out shopping or eating out, we often use digital wallets for payments over other modes of payment. And since the Government of India has also started to promote the cashless economy, the use of digital wallets has been growing. 

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How Do Digital Wallets Work? 

Since it is now clear what a digital wallet is, let’s now understand how digital wallets work. To use any digital wallet, you need to register for it first and then follow a simple process of getting on board as a user. Once you are on board with a digital wallet as a user, all you have to do is add a bank account or a debit card. You can add more than one bank account and debit card as well.

Whenever you need to make a payment or a transaction, you will have to add money to your mobile wallet from your bank account or the debit card. You can also choose to add any amount as you want and then use it for making payments or transactions whenever you need. 

What is the KYC and Verification Process of Digital Wallet?

Generally, the wallet issuers have a KYC and a verification procedure before they activate a user’s digital wallet. Take Paytm for an example, once you create a Paytm account with your mobile number, you will need to complete the KYC (Know Your Customer) process to be able to use Paytm Wallet. 

The KYC process needs you to upload your ID and address proof such as Aadhar Card, PAN Card, Voter ID card, etc. After uploading the document, there will be a video verification where you will have to show your ID and address proof to an executive. Once the verification is done, you can start to use the Paytm Wallet. 

Uses of Digital Wallets

A digital wallet is an electronic substitute for a physical wallet, meaning that you can do any sort of payment or transaction with the help of cash or cards. This implies that a digital wallet can be used for a wide range of transactions and payments, you can also recharge or make bill payments online, pay for your online shopping, order food, etc. You can also visit the select stores or merchants where you can pay through your digital wallet. Also, with the help of all in one QR codes, you can pay almost anywhere with your digital wallets. Here are some of the places where you can pay with your digital wallet or e-wallets: 

  • On e-commerce websites
  • For making recharge and utility bill payments 
  • For booking travel and accommodation
  • For ordering food online 
  • You can send or receive money to or from other wallet users


Digital wallets have replaced the use of cash and cards with cashless modes of transactions. For you to use a digital wallet, you will need to register and complete your KYC (Know Your Customer) process. Once the KYC and verification are done, you can use your digital wallet for a wide range of payments and transactions such as online shopping, in-store payments, recharges and utility bill payments, and a lot more.

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Are digital wallets safe for making payments and purchases?
Yes, digital wallets are safe. These wallets provide you with a much faster and easier way to make your payments and transactions.
Which is the most preferred digital wallet in India?
Paytm Wallet is the most preferred digital wallet in India as it has the highest rate of success of transactions among all the other wallets in India.
Where can I pay with my digital wallet?
Using your digital wallet, you can make purchases online, send or receive money, make in-store payments etc with the help of your digital wallet.
Are there any charges for using digital wallets?
No, there are no charges on using digital wallets for making payments or transactions. Digital wallets like Paytm Wallet also offer cashback for adding money to the wallet; thereby, helping users to save money by using the Paytm Wallet.

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