An e-wallet is an electronic account where you store money, analogous to a physical wallet. It allows you to buy or sell goods and services online just like a traditional bank does — but without the brick and mortar, and with fewer fees. You can also use it at ATMs and point-of-sale (POS) terminals just like a credit or debit card.
Your e-wallet is stored on the servers of your payment service provider (PSP), just like any other data you store in the cloud. This might be an American company such as PayPal, Google Wallet and Amazon Payments, or it may be a European e-money institution such as Skrill and Neteller.
You can store money in your e-wallet either by depositing funds from your bank account or by “crediting” money to it using a credit card. Some PSPs also allow you to add funds using direct debit, where they take the payment directly from your customer’s bank account every month — an option popular with merchants, since it’s less risky than asking customers to put money into an e-wallet.
The main advantage of e-wallets is the security they offer, thanks to their ability to “lock” payment details so that other websites can’t steal them. That way you don’t have to re-enter all your payment details every time you shop online, and it protects you from phishing attacks.
Your e-wallet provider is also responsible for any problems, such as non-delivery of goods or services bought with your e-wallet or unauthorized use of your account because someone hacked into their servers. They’ll usually help you sort the problem out, although they don’t have to if it’s your fault that the e-wallet was hacked or misused.
What Is an E-Wallet Used for?
Your e-wallet is best suited for making “card not present” transactions, where you aren’t physically touching the card and therefore can’t use it to prove your identity. They’re useful for buying things online because you don’t need to disclose your credit card details over the internet.
You can also use an e-wallet to make purchases in person– at a store, for example – provided that the retailer has chosen to accept payments via that PSP. Most PSPs have an app which you can use on your smartphone. Some, such as PayPal, also have a card reader that plugs into your smartphone’s audio jack and reads the information off the card for you.
What Are Prepaid Cards?
Prepaid cards work just like gift cards: they’re sold at retail stores and can be used as an alternative to cash at those retailers, wherever it’s accepted. Some prepaid cards can even be used at ATMs and POS terminals, but they usually incur a fee every time you do so.
The balance on your prepaid card is stored on the card itself and can be accessed by typing in the unique card number into a PSP’s app or website, where you’ll usually find an “Add Funds” button next to your current balance. You can add more money to the card at any time, and if you spend all the money stored on it, some cards allow you to reload them with a new batch of funds.