A digital wallet refers to an electronic device that allows an individual to make electronic commerce transactions. This can include purchasing items on-line with a computer or using a smartphone to purchase something at a store. Increasingly, digital wallets are being made not just for basic financial transactions but to also authenticate the holder's credentials. For example, a digital-wallet could potentially verify the age of the buyer to the store while purchasing alcohol. It is useful to approach the term "digital wallet" not as a singular technology but as three major parts: the system (the electronic infrastructure) and the application (the software that operates on top) and the device (the individual portion).
An individual’s bank account can also be linked to the digital wallet. They might also have their driver’s license, health card, loyalty card(s) and other ID documents stored on the phone. The credentials can be passed to a merchant’s terminal wirelessly via near field communication (NFC). Certain sources are speculating that these smartphone “digital wallets” will eventually replace physical wallets. The system has already gained popularity in Japan, where digital wallets are known as Osaifu-Keitai or “wallet mobiles”
A digital wallet has both a software and information component. The software provides security and encryption for the personal information and for the actual transaction. Typically, digital wallets are stored on the client side and are easily self-maintained and fully compatible with most e-commerce Web sites. A server-side digital wallet, also known as a thin wallet, is one that an organization creates for and about you and maintains on its servers. Server-side digital wallets are gaining popularity among major retailers due to the security, efficiency, and added utility it provides to the end-user, which increases their enjoyment of their overall purchase. The information component is basically a database of user-inputted information. This information consists of your shipping address, billing address, payment methods (including credit card numbers, expiry dates, and security numbers), and other information.
The key point to take from digital wallets is that they're composed of both digital wallet devices and digital wallet systems. There are dedicated digital wallet devices such as the biometric wallet by Dunhill, where it's a physical device holding someone's cash and cards along with a Bluetooth mobile connection. Presently there are further explorations for smartphones with NFC digital wallet capabilities, such as the Samsung Galaxy Nexus smartphone utilizing Google's Android operating system.
Digital wallet systems enable the widespread use of digital wallet transactions among various retail vendors in the form of mobile payments systems and digital wallet applications. The M-PESA mobile payments system and microfinancing service has widespread use in Kenya and Tanzania, while the MasterCard PayPass application has been adopted by a number of vendors in the U.S. and worldwide. .
Setup and use 
A client side digital wallet requires minimal setup and is relatively easy to use. Once the software is installed, the user begins by entering all the pertinent information. The digital wallet is now set up. At the purchase/check-out page of an e-commerce site, the digital wallet software has the ability to automatically enter the user information in the online form. By default, most digital wallets prompt when the software recognizes a form in which it can fill out, if you chose to fill out the form automatically, you will be prompted for a password. This keeps unauthorized users away from viewing personal information stored on a particular computer.
Digital wallets are designed to be accurate when transferring data to retail checkout forms; however, if a particular e-commerce site has a peculiar checkout system, the digital wallet may fail to properly recognize the forms fields. This problem has been eliminated by sites and wallet software that use ECML technology. Electronic Commerce Modeling Language is a protocol that dictates how online retailers structure and setup their checkout forms. Participating e-commerce vendors who incorporate both digital wallet technology and ECML include: Microsoft, Discover, IBM, Omaha Steaks and Dell Computers.
Application of digital wallets 
Consumers are not required to fill out order forms on each site when they purchase an item because the information has already been stored and is automatically updated and entered into the order fields across merchant sites when using a digital wallet. Consumers also benefit when using digital wallets because their information is encrypted — or protected by a private software code. And merchants benefit by receiving protection against fraud.
Digital wallets are available to consumers free of charge, and they're fairly easy to obtain. For example, when a consumer makes a purchase at a merchant site that's set up to handle server-side digital wallets, he types his name and payment and shipping information into the merchant's own form. At the end of the purchase, the consumer is asked to sign up for a wallet of his choice by entering a user name and password for future purchases. Users can also acquire wallets at a wallet vendor's site.
Although a wallet is free for consumers, vendors charge merchants for wallets. Some wallet vendors make arrangements for merchants to pay them a percentage of every successful purchase directed through their wallets. In other cases, digital wallet vendors process the transactions between cardholders and participating merchants and charge merchants a flat fee. (Computer World)
Advantages for e-commerce sites 
Upwards of 25% of online shoppers abandon their order due to frustration in filling in forms. (Graphic Arts Monthly, 1999) The digital wallet combats this problem by giving users the option to transfer their information securely and accurately. This simplified approach to completing transactions results in better usability and ultimately more utility for the customer. ""this is very good performance into the wallet provided by the very large security in our private data and private information most security provided by the online function.""
See also 
- Electronic cash
- Electronic commerce
- Google Wallet
- Near field communication (NFC)
- Square (application)
- "A Global Overview Of Digital Wallet Technologies". University of Toronto. May 28, 2011. Retrieved March 23, 2013.
- "Smart (phone) money" Financial Post. Retrieved May 1, 2011
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- Murphy, David. "Dunhill Wallet Uses Biometrics". PC Magazine. Retrieved March 23, 2013.
- OLIVAREZ-GILES, Nathan. "Sprint’s Galaxy Nexus: Can a Second Google Wallet Phone Ignite Mobile Payments?". Retrieved March 23, 2013.
- "Dial M for money". The Economist. Retrieved March 23, 2013.
- "PayPass Adoption Study". MasterCard Advisors. Retrieved March 23, 2013.
- Principles for a free, powerful and stable monetary system for the digital era by S. Poirier
- Haag, Cummings, et al.; (2006). ‘’Management Information Systems for the Information Age’’ (3rd ed.). Mc-Graw-Hill Ryerson. ISBN 0-07-095569-7
- RFC 4112: ECML specification: