If you’ve seen someone wave their phone at a gas pump or tap their smartwatch on the credit card terminal to buy a latte, you’ve seen a mobile wallet in action. You may have even used PayPal to buy something online or Zelle to send money to a friend without realizing you were using a digital wallet.

What is a Digital Wallet?

Like a regular wallet, a digital wallet holds multiple means of paying for goods and services. A physical wallet may hold credit cards, debit or check cards, cash, store or brand loyalty cards, gift cards, public transportation passes, and coupons. Digital wallets hold digital versions of all those things and offer benefits like the convenience of having everything payment-related in one place, often on a smartphone. Since they are software-based, hence the digital part of the name, digital wallets are very secure.

A quick note about terms – digital wallet and mobile wallet are often used interchangeably, and they are similar. But digital wallets can be used on a desktop or laptop computer as well as a mobile phone, whereas a mobile wallet, also called an e-wallet or smart wallet, is accessed via a smartphone app only.

Online payment platforms such as PayPal and Venmo as well as major banks and credit card companies offer digital wallets. Digital wallets from consumer electronics companies like Apple and Samsung allow customers to pay using smartphones, smartwatches, tablets, and other connected devices. It may be helpful to think of a digital wallet as one umbrella account that can store funds, points, coupons, and more while allowing account holders to conduct transactions and keep track of payment histories online and on the go. In the same way that many banks and financial institutions offer budgeting and money-management tools, digital wallets can track spending and activity but across all payment methods, not just in one account or entity. While digital wallet usage is still relatively limited in the US, in some countries it’s the primary method of paying for goods and services and soon may even store identification documents like passports, health records, and driver’s licenses.

Where is a Digital Wallet Used?

Digital and mobile wallets work with compatible merchant payment systems. Often that’s at the cashier or check-out counter of restaurants and retailers. It can also be on apps such as Uber, Airbnb, and Grubhub as well as various shopping sites. Digital wallets from some banks allow users to access ATMs by using a smartphone just like a debit or credit card.

While a lot of the marketing around digital wallets touts them as easy ways to pay on the go, they are also popular for shopping and paying online. PayPal, the original digital payment platform, is the fifth most-used payment method across all online retailers. It trails only the four major credit cards – Visa, MasterCard, American Express, and Discover, according to financial information firm Investopedia. One reason is the added security.

Are Digital Wallets Secure?

Card numbers and sensitive data are stored in the digital wallet software on your device in order to facilitate transactions. Just like a regular wallet, everything is in one place and you need to be as careful with your device as you are with a physical wallet. Digital wallet applications do require authentication like a password or fingerprint for every transaction which is a helpful added touch of security that traditional wallets don’t have. Using an online digital wallet works the same as using microchip-enabled credit cards. Regardless of the setting, digital wallets work by creating a unique number instead of sharing your actual card number with a merchant, which some also consider an added security factor.

How Do I Protect Myself When Using a Digital Wallet?

Digital wallets do add an extra layer of protection between the world and your money. But you can, and should, take additional steps to fortify your defenses. As mentioned, once you’ve added cards and other information to your digital wallet, guard it like you would a traditional wallet. You wouldn’t leave your wallet out on the table in a restaurant while you went to the restroom so don’t do it with your device. Take advantage of the security features your device offers, especially any biometrics including fingerprint or iris scanners. If your device doesn’t have these features, use a good password, and change it often.

Additionally, it’s important to choose the right digital wallet. You can gauge security and safety to a certain extent by the reputation and renown of the digital wallet vendor. One way to protect yourself when choosing a digital wallet platform is to go with what you know – your bank. Many banks and credit unions offer their own digital wallets and using their products makes it easy to load cards from that institution. Other well-known, popular non-bank digital wallets include Google Pay, Cash App, Android Pay, Samsung Pay, PayPal, and Venmo.

If you’re nervous about using a digital or mobile wallet, start small by using your bank or credit card’s version at an online merchant you trust to see how it goes. Whatever protections your credit or bank card offers with other purchases are also valid with virtual wallet transactions. You can also try one of the mobile wallet apps with one card for a small purchase.