Digital Wallets: Intro to Apple Pay, Android Pay, Chase Pay, and more
- What is a digital wallet?
- How does it work?
- Major Digital Wallets
- Accepting Digital Wallet Payments
What is a digital wallet?
A digital wallet refers to electronic devices and programs used for making payments for purchases digitally, without presenting a physical credit card, debit card, or cash. The term digital wallet may refer to both an electronic device that stores payment information (such as a smartphone) and the program or app used to make the payment. (Such as Apple Pay, Google Wallet, Samsung Pay, or PayPal.)
Some digital wallets can also be used to hold other information, such as store loyalty cards or gift cards.
How does it work?
There are two main types of digital wallets: device-based and internet-based.
Device-based digital wallets use near field communication (NFC) technology to allow users to pay for purchases without handing over a credit or debit card. Instead, customers can wave their phone or other NFC-capable device near a contactless reader.
Compatible Samsung Pay phones will also work with traditional magnetic stripe terminals. With terminals that aren’t capable of accepting contactless payments, Samsung Pay emits a magnetic signal that allow a phone to be used like a traditional magnetic stripe card by sliding it above the magnetic stripe reader.
Apple Pay and Samsung Pay are examples of device-based digital wallets because they require paying using an iPhone, Apple Watch, or Samsung phone. Google Wallet and PayPal both offer apps that can be added to compatible phones, allowing them to be used as device-based digital wallets in store.
Internet-based digital wallets let customers add credit or debit card information to a personal account or profile. Information is kept on file and when customers make a purchase online, they sign into their account and use it to pay for their purchase. This type of digital wallet allows users to pay for online purchases without providing their card details to the website from which they’re shopping. PayPal and Google Wallet are examples of internet-based digital wallets, because they don’t require purchasing through an app or with a phone, instead using a customer’s online profile and saved card information to pay.
Internet-based digital wallets are most commonly used for paying for products from a website, but may also be accepted as a payment method for takeout meals, delivery services, donations, and other prepaid purchases.
Major Digital Wallets
As of spring 2015, there are several major digital wallets available to consumers.
Apple Pay is Apple’s proprietary digital wallet. Available for iPhone 6, iPhone 6 Plus, Apple Watch, and some iPads, Apple Pay utilizes NFC technology and can be used in many locations that have contactless terminals. Check out this introduction video from Apple:
Initially, some major retailers didn't support Apple Pay even with contactless terminals. This was due to an exclusivity agreement for retailers that are part of the group Merchant Customer Exchange (MCX) with the understanding that they would use MCX's upcoming digital wallet, called CurrentC. Such retailers include Walmart, Target, Gap, CVS, and 7-Eleven. CurrentC exclusivity expired in 2015, and some MCX retailers subsequently began accepting Apple Pay.
Originally a mobile wallet, Google Wallet changed in early 2016. It is now only usable in apps or for sending money to people you know, unless you have a Google Wallet card. The Google Wallet card can be used for ATM withdrawals and purchases in stores. Google Wallet is not usable with your phone to pay in stores, like many other digital wallets. However, Android Pay (also owned by Google) is.
Android Pay is Google's in-store smartphone payment option. Like several of the other smartphone payment options, Android Pay uses NFC technology to enable payments by tapping a phone to an NFC-enabled terminal. As its name implies, Android Pay works with Android devices.
Samsung Pay launched in 2015, compatible with the Samsung Galaxy S6 smartphone and later models. Samsung Pay utilizes both NFC and MST technologies, allowing acceptance at locations that have contactless payment terminals or traditional magnetic stripe terminals.
One major difference between Samsung Pay and other digital wallets is Samsung’s ability to pay using traditional non-contactless terminals. However, many businesses are upgrading terminals for the EMV liability shift, so terminals that aren’t currently NFC-capable may be soon.
PayPal is best known as an internet-based digital wallet for paying for purchases from shopping websites, but in 2016 the company made major strides for acceptance in store by signing agreements with Mastercard and giant processor First Data. Customers now have the option of using the PayPal app or a PayPal Mastercard to make purchases in store. The PayPal app is a tap-to-pay NFC option like Apple Pay. More information can be found in our article Taking PayPal In Store.
In autummn 2015, JPMorgan Chase confirmed a mid-2016 launch for its own digital wallet, called Chase Pay. Chase Pay will work on both Apple and Android devices, but is limited to Chase Visa cards. Chase Pay is expected to be accepted at any retailers that accept CurrentC, the MCX group's digital wallet that only works with gift cards and linked bank accounts. Unlike other digital wallets, which use tap-to-pay functionality, Chase Pay will rely on scanning QR codes to pay for purchases.
Walmart PayIn mid-summer of 2016, Walmart rolled out its own mobile wallet, which it had announced the year before. Called Walmart Pay, the wallet uses QR codes instead of a tap-to-pay function. The wallet is compatible with both Android and Apple phones, and the company boasts that all cards will be supported. To use Walmart Pay, you'll need to first download and open the Walmart app. When you make a purchase at Walmart, a QR code and Walmart Pay logo will appear on the credit card machine. You'll be able to scan the code if you'd like to use Walmart Pay, or choose a different payment option.
There is no fee to consumers to use digital wallets, and only PayPal lists specific rates and fees that businesses pay to accept PayPal.
Apple Pay, Samsung Pay, and Google Wallet/Android Pay don't charge additional fees. Businesses will pay their current processing rates and fees on the digital wallet transactions, and will be responsible for liability according to the same terms as other payment types.
However, Chase Pay is a little different than other digital wallets in terms of cost. Full details are not yet available as of November 2015, but Chase states they will eliminate traditional processing fees when accepting Chase Pay, reducing costs for businesses to accept Chase Pay.
Accepting Digital Wallet Payments
Getting set up to accept digital wallet payments can be done through your current processor, or you can find a processor through CardFellow. To accept digital wallet payments in person, you’ll need compatible point-of-sale equipment. Equipment requirements will vary depending on which payment types you wish to accept.
11/3/2015 - Added information about Chase Pay; added information about Apple Pay/MCX exclusivity ending.
12/10/2105 - Added information about Walmart Pay.
3/8/2016 - Added information about Android Pay/Google Wallet changes.
8/29/2016 - Added info on loyalty programs. Added informational videos.