What Is a Digital Wallet, and Why Should You Care?

The "digital wallet" is the biggest game-changer in financial services since online banking. But what exactly is a digital wallet? Is it more convenient? Is it practical?
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My wallet is super reliable, and I don't have any issues with it. So what's all the fuss about paying with my phone at Starbucks and Walmart? It's simple. Given the choice between my wallet and smartphone, I'd definitely take the phone. Why? The "digital wallet" is the biggest game-changer in financial services since online banking.

But what exactly is a digital wallet? Is it more convenient? Is it practical?

The digital wallet is not different from the leather wallet. It's a case to store valuable stuff. Typically, it stores things related to money -- payment cards and cash -- but looking at my wife's wallet I'm not so sure. Other must-have items include identification, health care info, loyalty cards, photos, receipts, shopping lists, and checkbooks. However, I would argue that the leather wallet has gotten smaller the last couple of years. People are moving to digital wallets without really noticing. Let's look at two examples.

First, I used to store photos of my daughters in my wallet. Pulling them out, I would always say "these photos are a bit old." My phone makes this opening line completely obsolete. Now, I have dozens of recent photos that I proudly thumb through with anyone willing to indulge me. The human interaction and experience of showing photos from my phone is way, way better.

Second, I used to store receipts in my leather wallet. It's annoying though to have tiny loose papers hanging around. But the receipt provides a safety net for those "just in case" scenarios. Now, whenever possible I take an email receipt. With practically unlimited storage and easy ability to search my email, the receipt is now a no-hassle experience and I'm still protected "just in case."

Ok, so what's next for the digital wallet? There's a huge push to enable mobile payments in retail stores. Starbucks, Walmart, Target, Visa, MasterCard, Google, Citibank, PayPal, and many others are pushing to make it happen. Just like e-commerce on the Internet, it's simply a matter of time.

In my view, the checkbook is the next near-term and quite practical victim of the digital wallet. In 2009, U.S. consumers wrote 12.2 billion checks to pay for services and 2.2 billion checks to pay other people, according the Federal Reserve. That's almost six checks per American adult per month. Americans use checks for things that are hard to pay electronically -- the rent, the babysitter, the preschool, the piano teacher, the gardener, the swim team, etc.

Let's face it: Checks are a hassle. First, I rarely have the checkbook, hence the "checks in the mail" scenario. Once I find it and write the check, then I either mail it or deliver it in person. Once it's delivered, then I have to rely on the person to cash it. Sometimes this happens weeks or even months after I deliver the check. This situation screams for a better way.

The mobile phone will be this new way. Upload an image of your check into your phone, and, viola, your checkbook is always with you. Then, all you have to do is fill out the check, sign, and hit send. Your payment is delivered. Done. This is the future of the digital wallet -- making payments simple and convenient. And that's why you should care.

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