Last month we discussed a few of the critical differences between digital wallets and mobile wallets. Continuing on that path, today’s post is intended to clear away some of the confusion concerning another popular term in the evolving fintech lexicon: e-wallets.
In short, there are multiple sources that make distinctions between e-wallets and digital wallets. Thus far, dictionary.com offers no definition for either term. And until the industry coalesces around a common definition, it’s important for anyone using these terms to make clear their specific definition.
eWallets vs. Digital Wallets
If you look to Investopedia, you’ll find they use the terms interchangeably:
A digital wallet (or e-wallet) is a software-based system that securely stores users' payment information and passwords for numerous payment methods and websites. Digital wallets can be used in conjunction with mobile payment systems, which allow customers to pay for purchases with their smartphones. A digital wallet can also be used to store loyalty card information and digital coupons.
Meanwhile, Technopedia explains
A digital wallet has two major components: one is the software application and the other is the information storage. The software part is responsible for security, encryption and the actual transaction. This software application is the main component which provides user interface as well as safe and secure transactional capabilities. The software part resides on the client side and is compatible with most e-commerce websites. The other component, which stores the information, is actually a database containing user input information. The user information includes items such as billing address, shipping address and payment methods.
There is another type of digital wallet available, which is known as a server-side digital wallet. It is generally created by the organizations for users. These types of wallets are gaining popularity as they are more secure, efficient and provide added functionalities.
Both definitions fall short of spelling out one of its key features: e-wallets can be used to store funds, not just information.
In Asian markets, the Economic Times has a bit of a different take:
E-wallet is a type of electronic card which is used for transactions made online through a computer or a smartphone. Its utility is the same as a credit or debit card. An E-wallet needs to be linked with the individual’s bank account to make payments.
Again, this definition fails to convey the utility of actually storing the funds in an e-wallet which is different from the notion of it being linked to an individual’s bank account where the money is stored. This is an important distinction because, in doing so, digital wallets make storing funds in multiple currencies simple, making global digital payments more efficient and less costly.
Yet another definition, offered by Feedough.com, gets to some of the key advantages of e-wallet beyond simply digitizing transactions:
eWallet is an online prepaid account used to store money and transact online and offline through a computer or a smartphone whenever required. It is a pre-equipped electronic wallet which, just like a real wallet, is used by the customers to transact immediately (and securely). Unlike Bank Accounts, eWallets are considered to be a fast mode of digital transactions.
This definition points to a key advantage of embedding e-wallet capabilities in payments software: speed. And it can be forgiven perhaps for not spelling out the other key benefit: cost. Simply put, transacting globally through multiple local banks is not just slow, it’s expensive.
They go on to offer distinctions between digital wallets and e-wallets by defining a digital wallet on largely the same terms as mobile wallets were described in our last post. For digital wallets, card details are saved in the wallet to transact with funds remaining in the user's bank account or credit card until a transaction occurs, whereas an e-wallet stores funds that are pre-loaded so that money goes directly from the user’s account to a merchant or escrow account. This definition evidently presupposes a merchant services or traditional payment processor framework.
Another aspect of e-wallet types that parallel models created by the payment networks: “Open wallets” that work “much like credit and debit cards’’; “Closed wallets” that are only usable at the sponsoring entity, analogous to the old days of retailer credit cards; and “Semi-Closed wallets” which have a sponsor but may be used at several vendors and transferred among users but not withdrawn to a user’s bank account.
In summary, both the beauty and the definition of a digital wallet or e-wallet may lie with the beholder -- or, rather, the provider: the platform surrounding the wallet or the application or service embedding it.
The Beauty of Digital and e-Wallet Payment Solutions
As noted above, server-side digital wallets are both more secure and more efficient. Thus, embedding digital wallets in payments software for payment distribution is a low-risk initiative that offers the potential to extend the functionality of payment software and solution providers’ offerings to provide more comprehensive, end-to-end solutions to their customers - at a lower cost.
Digital wallets are accessible, via the web or embedded within apps to reach any mobile device, anywhere making it simpler to manage payment distribution as part of an end-to-end payables solution or service. The payments platform provides a next-gen payment technology overlay with multi-currency capabilities to solve multiple international payment headaches by connecting accounts to banks globally using open API access. Regulated in the same way as a bank, the payments platform manages Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements.
The Difference Is In The Payment Architecture
A digital wallet is a technology to be sure, but it’s also as much a concept as it is a deliverable. Its potential rests in its extended capabilities and its connections.
Digital wallet capabilities are defined primarily by the platform which hosts it and the software or service within which it is embedded. The platform can facilitate easy wallet-2-wallet (W2W) exchanges between accounts on the platform to make paying partners, suppliers, contractors, and customers easy and immediate. Every user account is provisioned with as many currency-specific wallets as needed so that currency exchange is both simplified and completed at lower FX fees than when done through the banks.
Perhaps even more exciting than the capabilities inherent in the platform are the possibilities they create for anyone with a payments process to re-invent payment distribution to improve upon existing processes or to offer new payment distribution capabilities and services to their customers. Thus digital wallets have nearly unlimited potential for competitive differentiation.
Connections, of course, are essential to make it seamless for users to move funds into or out of the platform Inbound sources for funding digital wallets include wire transfer, ACH/EFT, invoice, and card processing options. APIs are available to embed these sources into streamlined workflows. Outbound options for transferring funds externally complete the picture. The platform facilitates multiple external transfer options which, importantly, can provide users with the choice of how they would like to receive their funds - transfer directly to their bank account, rapid transfer to prepaid debit cards, digital gift cards, etc. And here again, APIs can be used to direct the external transfers directly to one option or enabling users to have the choice.
Digital Wallet Best Defined by Use Case
In conclusion, perhaps the most important definitions is the definition that most closely aligns with your specific use case needs. For the record, here is our definition:
A digital wallet (or e-wallet) is a server-based payment technology typically accessed via embedded APIs to securely store money in multiple currencies in a single prepaid account. It enables its users to transact online and offline in their currency of choice through a computer or a smartphone and can be used for wallet-to-wallet and external transfer of funds to multiple end-points such as virtual debit cards, digital gift cards or directly to a linked bank account for use in both online or in person financial transactions.
If you’re ready to discuss how digital e-wallet capabilities can enhance your product or service offering, drop us a line. We’re here to help.