What is a digital wallet, and how does it work?

Send money abroad

Written by BOSS Money Content Team

August 04, 2026 • 8 min read

In today’s digital-centric environment, it’s not surprising for the way you store and manage money to have gone digital too. Instead of relying only on cash and physical cards, you can now keep funds in a digital wallet.

Digital wallets function much like their classic counterparts when it comes to storing money—but with the added convenience of helping you make payments, receive money, and send money. There are various digital wallets that you can choose from, and they can work with or without a bank account.

This article discusses how digital wallets work, how they differ from each other, and why you should consider using one.

What is a digital wallet?

Like a regular wallet, a digital wallet can store your money or cards that you use for purchases. But as it’s fully integrated into today’s digital ecosystem, it’s also capable of much more.

What is the primary purpose of a digital wallet? A digital wallet can help you:

Send money to other financial institutions or digital wallets
Pay for purchases from inside the app for online or physical goods
Receive money from banks, other wallets, and other financial transactions in real time
Store transaction history from all the purchases and payments you’ve made using your digital wallet
Provide access to other financial services (such as loans or investments) depending on the wallet

You can think of digital wallets as functioning similarly to your regular wallets, but the added advantages of being capable of interacting with many of today’s digital and financial services.

How does a digital wallet work?

A digital wallet stores your payment, bank account, or wallet balance information on a device—usually a smartphone—and uses technology like tokenization to allow you to transfer, receive, and send money securely.

Storing your money

Some wallets primarily store payment credentials rather than a separate cash balance. For example, Apple Wallet stores eligible payment cards¹, while Apple Pay lets you use those cards for supported purchases. Others, like PayPal, Cash App, or the BOSS Money Wallet, may let eligible users maintain funds within the wallet. These platforms usually require a linked and verified bank account to work seamlessly. Available wallet features and funding requirements depend on the provider and country.

Making payments

Digital wallets can also be used to make payments, either online or offline. Some channels include:

Near-Field Communication (NFC).
NFC devices, like many smartphones and smartwatches, can interface with a terminal in a retail store, instantly making payments from your bank account or linked credit card.

QR.
Smartphones can scan QR codes in establishments via the digital wallet app to make purchases or payments.

Online payments.
Digital wallets that are linked to popular online marketplaces can also be used to make payments directly from the marketplace platform or after being redirected to the wallet app.

Card payments.
If a digital wallet is linked to a credit or debit card, it can be used in its place to make purchases both offline and online.

Many retailers, whether online or in brick-and-mortar establishments, have already integrated digital wallets into their day-to-day operations, making it an easy way to transact with many stores across the world.

Sending and receiving money

Digital wallets can also send and receive money from other digital wallets via peer-to-peer (P2P) transactions, allowing you to seamlessly send money to other digital wallet users. You can even make these transactions internationally, though often with a fee to account for moving money abroad.

Cashing in and cashing out

Using a digital wallet doesn’t mean your funds must remain inside the app. Depending on the provider, you may also add or withdraw money through supported cash, bank, card, or wallet options.

Cashing in.
You put money into your digital wallet account by adding money through a linked bank account or debit card, or by topping up your digital wallet account directly. Some wallets can even interact with your salary accounts (or receive transfers like cash deposits) that will top up your digital wallet balance.

Cashing out.
You can withdraw or transfer funds through supported methods, such as a linked bank account, ATM, cash-out agent, or another compatible wallet.

Types of digital wallets

The Corporate Finance Institution² defines three types of digital wallets that are recognized by institutions and commercial establishments. Choosing the right one allows you to manage your money more easily and may even make transactions or purchases more convenient for your lifestyle.

Closed wallets

Closed wallets are issued by a particular merchant and are generally limited to purchases within that merchant’s platform or ecosystem. An example of this type of wallet is Walmart’s own Walmart Pay app, which only works at Walmart stores, the official Walmart website, and its mobile application.

While you can’t send money from these types of wallets to other wallets or easily convert them to cash, they do offer incentives if used within their usual operating platforms like discounts or cash-back rewards. This can be more favorable to you if you often purchase from that specific marketplace using this type of wallet.

Semi-closed wallets

Semi-closed wallets are allowed for use at listed and approved partner shops and locations. You cannot withdraw physical cash from an ATM with these, but they work for both online and physical stores in their network.

These wallets are considered semi-closed because they are only applicable to their selected partners; think of utility wallets used in transit systems. Although semi-closed wallets are more flexible than closed wallets, you generally cannot withdraw or convert the balance into cash.

Open wallets

Open wallets are issued by banks or partnered financial institutions. They let you buy items online or in stores, transfer funds, and withdraw cash from ATMs. Some of the well-known digital wallets fall into this category, such as PayPal, Google Pay, and Apple Pay.

Open wallets are generally the most flexible way to use your money, as they can work with purchases, sending and transferring funds, and converting digital wallet balances into cash. These apps can also credit money in (or close to) real time, which can help you access and manage funds more quickly.

Is using a digital wallet safe?

Digital wallets have several layers of security that keep your money secure, including but not limited to:

Encryption.
Your personal and card details are scrambled into a hidden format while they are saved on your device or sent over the internet.

Tokenization.
Your real credit card number is replaced with a unique digital token, helping prevent merchants and payment terminals from receiving your actual card information.

Biometrics.
Payment can only go through after your fingerprint or face is scanned and verified.

Fraud monitoring.
Real-time data analysis, anomaly detection, and biometric verification are used to block unauthorized transactions and account takeovers.

Multi-factor authentication (MFA).
Your account is secured in different ways to authenticate whoever is using it, potentially making account takeovers more difficult to achieve

PIN.
Many digital wallets also use a PIN system to verify purchases or authorize logins when using the digital wallet app itself.

These security measures can reduce some risks associated with carrying and using physical cards, though it’s important to note that simply using a digital wallet does not mean you’re not exposed to risks. Organizations like Consumer Reports³ report that while digital wallet use among Americans is rising rapidly, threats to its users are rising as well.

Staying safe when using a digital wallet

So how do you protect yourself when using a digital wallet? Fortunately, many of the best practices for protecting your physical wallet still apply, like not handing it to strangers or keeping it (in this case, your phone or smart device) in a safe place or secure on your person.

However, the best way to stay safe while using a digital wallet is to integrate safe usage habits. Enabling every security feature your digital wallet has, like the ones discussed above, keeping the app itself updated, and using your mobile data rather than Wi-Fi when making purchases in public are all excellent ways to reduce your risk.

It’s also a good idea to keep a little physical cash on you as well, especially if you’re traveling. While digital wallets may be widespread and their adoption rate is rising, there are still parts of the world or some establishments that only take cash. Try to have enough cash on hand to get by in case your digital wallet becomes temporarily unavailable, just to make sure you can still make purchases as normal.

Benefits and limitations of using a digital wallet

Digital wallets can replace your physical wallet in most day-to-day activities and transactions, but they’re not strictly a one-to-one replacement. Here are a few things you need to consider:

Faster payments. Many digital-wallet payments and transfers are processed quickly or in real time, meaning that any money that moves on or off the app will register with you or the recipient.
No cash. Because your money is stored digitally, there’s no need to worry about the bulk or potential risk of carrying physical bills and coins with you all the time.
International transfers. Many digital wallets operate internationally, meaning that you can seamlessly send money or make international payments—especially useful when you’re traveling.
Budgeting. Some digital wallets offer features like a budgeting system so you can keep a closer eye on how you spend and manage your money.
Rewards. Digital wallets may also run promos with their partner merchants for discounts, frequent purchases, or even memberships that can unlock exclusive perks.
Instant transfers. Peer-to-peer transactions become even easier with digital wallets, allowing you to send and receive money from family and friends without having to wait for something like a bank to credit the funds.
Convenience. A digital wallet can be accessed through your smartphone and can operate via compatible smart devices for seamless payments with establishments.

Connectivity. Many digital-wallet functions require an internet connection, particularly transfers, balance updates, and account management. Some contactless payments may still work temporarily without a live connection, depending on the wallet, device, and card issuer.
Acceptance varies. Not all establishments have the technology or the setup to accommodate digital wallet transactions, which means you may still have to pay in cash
Verification. Digital wallets require several layers of authentication before a transaction is made, which can slow down your purchases if the platform itself is having technical difficulties or if you forget your security details
Fees. Some digital wallets charge fees that can considerably change the total transaction value of your purchase, or be subject to fees that come with sending money to other wallets (especially internationally)
Supported countries. Some countries restrict or do not support certain digital wallet services, which may limit where and how you can use them.
Safety. While digital wallets can add protective measures, their safety still depends on the provider, your device settings, and how securely you manage your account.

BOSS Money Wallet: a digital wallet built for international money

The BOSS Money wallet lets users receive, hold, and access funds sent internationally, particularly serving as a mobile account option for eligible users in supported countries to get direct remittances from the U.S. It acts as a digital storage space where funds arrive quickly for mobile-first users without traditional bank access, which can be convenient for areas that don’t have banks or other financial institutions readily accessible.

What can you do with the BOSS Money Wallet?

The BOSS Money Wallet is designed to become your central payment hub. Rather than repeatedly entering payment information, you can:

Store USD funds in one place
Spend using a Visa payment card
Quickly send money to other BOSS users using a unique @BOSSTag
Receive promotional rewards directly into the wallet
Use the wallet balance to pay for international money transfers and mobile top-ups
Add and withdraw funds as needed through supported funding and payout methods

It becomes an everyday digital wallet for holding, spending, sending, and managing money - ultimately helping you manage eligible wallet functions through one app, anywhere.

Should I use a digital wallet or a bank account?

Sometimes adoption of digital wallets can seem a little intimidating compared to the ease of using cash or a bank account, but there are some considerations that can make the transition easier.

Digital wallet	Bank account
Fast digital payments	Full-service financial account
Instant wallet-to-wallet transfers	Broad banking services
Convenient for remittances and top-ups	Better for savings and direct deposits
Mobile-first experience	Supports a wider range of financial products
May not earn interest or provide deposit insurance	Often includes interest and deposit insurance (where applicable)

In practice, you can use both: a bank account for receiving income, savings, and broader financial services, and a digital wallet for convenient spending, peer-to-peer payments, and international money transfers.

Final thoughts

Digital wallets are becoming the standard way to manage money. They may not be adopted everywhere, but with rising use and support, getting used to managing your money through digital wallets can make future transactions much easier.

And if you need a convenient wallet for holding a USD balance, making international transfers, spending wherever Visa cards are accepted, and sending instant transfers to other users, the BOSS Money Wallet combines all these features in a single app.

FAQs

What is a digital wallet?

A digital wallet is a secure software application (often on your phone) that stores your credit card, debit card, or bank details on your device, allowing you to make quick, contactless transactions.

How does a digital wallet work?

A digital wallet securely stores payment details or a wallet balance and uses technologies such as encryption and tokenization to help you make payments and transfer money.

Are digital wallets safer than debit cards?

Digital wallets can have several protection features. They may hide your real card number and require biometric or PIN authentication. However, they aren’t risk-free, so you should still secure your device, use strong login credentials, and monitor your transactions.

Is a digital wallet the same as Apple Pay or Google Pay?

Apple Pay and Google Pay are payment services connected to digital-wallet systems. They’re different from Apple Wallet and Google Wallet, which store eligible cards and other digital items, like boarding passes, event tickets, and student IDs that Apple Pay or Google Pay do not process. Apple Pay and Google Pay help you use supported payment methods online, in apps, or at compatible terminals.

Can I withdraw cash from a digital wallet?

Yes, you can withdraw cash from a digital wallet by transferring funds to a linked bank account, using a cardless ATM, or visiting an authorized cash-out agent. However, keep in mind that not all digital wallets will allow you to do this, so check with your chosen wallet provider.

Sources: all third party information obtained from applicable website as of August 3, 2026

https://support.apple.com/en-my/guide/iphone/iph9b7f53382/ios
https://corporatefinanceinstitute.com/resources/cryptocurrency/digital-wallet/
https://advocacy.consumerreports.org/press_release/consumer-reports-evaluates-digital-wallets-and-makes-recommendations-for-how-providers-can-improve-their-apps-for-consumers/

This article is provided for general information purposes only and is not intended to address every aspect of the matters discussed herein. The information in this article is not intended as specific personal advice. The information in this article does not constitute legal, tax, regulatory or other professional advice from IDT Payment Services, Inc. and its affiliates (collectively, “IDT”), and should not be taken or used as such by any individual. IDT makes no representation, warranty or guaranty, whether express or implied, that the content in this article is current, accurate, or complete. You should obtain professional or other substantive advice before taking, or refraining from, any action on the basis of the information in this article.