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Day 49 – Q 1.What are digital wallets? How do they operate? Explain.

1. What are digital wallets? How do they operate? Explain. 

डिजिटल वॉलेट क्या हैं? वे कैसे काम करते हैं? समझाएं।


A digital wallet refers to an electronic device or online service that allows an individual to make electronic transactions. With the advent of technology driven world and use of technology in almost all walks of life, digital wallet is one technology which could be used in everyday life in almost all the transactions. With the ease of using, multidimensionality and coming up as a solution for hindrance free transaction, they are gaining huge popularity in all walks of life, throughout the world.


Technological developments have the potential to make human life hassle free, digital wallets have gained popularity due to its use in various walks of life such as-

  • This can include purchasing items on-line with a computer.
  • It can use a Smartphone to purchase something at a store-e.g.- with the help of Google Tez, Paytm, BHIM app etc.
  • An individual’s bank account can also be linked to the digital wallet. e.g. SBI online
  • They might also have their driver’s license, health card, loyalty card(s) and other ID documents stored on the phone. e.g – DigiLocker by Government of India.
  • Nowadays, digital wallets are being made not just for basic financial transactions but to also authenticate the holder’s credentials. e.g.- authenticating age in a bar or in an A certificate movie

Not only that the digital wallets are useful due to their multi-dimensionality but also due to their advantage over the traditional modes of transactions in the following ways-

  • To ensure speedy instant transactions.
  • To reduce the need for physical infrastructure.
  • To reduce Cash to GDP ratio.
  • To reduce Corruption and Money laundering.
  • It will eliminate the fear of fake currency.
  • To reduce the printing cost of cash and thus be environment friendly.
  • To keep transactions completely transparent. 
  • To ensure that the benefits are directly passed to the beneficiaries & eliminate middlemen leakages.

How do Digital Wallets Operate?

    We can lump the types of digital wallets into two broad categories: client-side and server-side-

  • Client Side Digital Wallets
    • The user download and install the program and then enter all of the pertinent payment and shipping information on the Smartphone/computer.
    • The Smartphone or the computer should be connected to the Internet.
    • The digital wallet is based on the encryption software, which encrypts the digital information or order while the transaction.
  • Server Side Digital Wallets.
    • Instead of storing data to your own hard drive, all of your wallet data is stored and maintained by Visa on the company’s secure computers.
    • The client has to just visit the server digital wallets website and type his email id and password – the order is completed after that.
    • The information is already saved and the checkout time is very quick.
    • The store receives payment from whichever credit card account you choose, and you’re spared the frustration of typing that information
    • You’re also shielded from any security risks associated with revealing your card number online.

Digital wallets in India generally ask for the One time Password (OTP) ,that is send to the registered mobile number or asks for Aadhar number or some biometric information to authenticate the transaction and make it hassle free.

However, in spite of all the advantages with respect to digital wallets , there are large number of challenges as well associated with it, such as-

  • Digital frauds and cyber hacks.
  • Low Digital literacy and huge digital divide existing in the country.
  • Lack of uninterrupted Internet services and electricity.
  • Middlemen taking advantage of the ignorance of common people.
  • Hesitancy of the older generation to move out of comfort zone and learn something new.
  • Feeling of being alienated due to lack of skills and sense of vulnerability due to the knowledge divide.


Thus, due to the multidimensionality, ease of use and advantaged over the traditional sources of transactions- digital wallets is definitely the new way forward. However, it should be ensured that the use of digital wallets is catering to all sections of the society and just to a select few, it needs digital divide to reduce and insulation from cyberattacks and increase trust of end users- to reap the maximum benefits of digital wallets.


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