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Modulr glossary

Digital Wallet

A digital wallet is a software-based payment tool that stores payment credentials, allowing users to make electronic transactions securely. Digital wallets can store credit/debit card details, cryptocurrencies, and loyalty points. Digital wallets enable pass-through payments, where transactions from an underlying funding source (e.g., a card) pass through a third-party interface such as a wallet like Apple Pay, Google Pay, or PayPal, rather than being used directly by the cardholder at the point of sale. Wallets can be pass-through or rely on stored value (like PayPal, Alipay, or M-Pesa, which hold funds). EMI accounts are often seen as a type of digital wallet as the user experience can be very similar, however while an EMI account can be the underlying infrastructure for a digital wallet it is not a wallet in itself, and is instead a regulated financial product that a wallet may sit on top of.

Applications

E-commerce:

Reduces fraud in online card payments by verifying the cardholder's identity

Banking and fintech:

Helps issuers and payment providers comply with Strong Customer Authentication (SCA) requirements.

Advantages

  • Enhanced security: Reduces unauthorised transactions by verifying that the genuine account holder is authorising the payment
  • Fraud prevention: Helps reduce chargebacks related to fraud.

Challenges

  • User Experience: Additional authentication steps can cause friction and increase checkout abandonment
  • Implementation complexity: Requires integration with card schemes and issuer systems.

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