Understanding your digital wallet payment options

Digital wallets, also known as e-wallets or mobile wallets, have become an important part of how people in the UK make payments. In fact, as of 2023, 42% of the British population used mobile contactless payments through a digital wallet.¹ These tools store a person's payment information — like credit and debit cards — on their phone, allowing for quick and secure transactions both online and in-store.

This article includes tips, suggestions, and general information. We recommend that you always do your own research and consider getting independent tax, financial, and legal advice before making any important decision.

What makes digital wallets so popular? It’s the combination of convenience and security they can have. Instead of carrying multiple cards, users can simply tap their phone to pay. Plus, with features like encryption and biometric authentication, digital wallets provide a secure way to manage finances.

This article talks about different digital wallet payment options, how they work, and ways to utilise them.

Popular digital wallet options in the UK

Several digital wallets, including PayPal, have become widely used in the UK, offering different options to suit various needs. Some of the more commonly used ones include:

• Apple Pay. Designed for iPhone users, Apple Pay lets people make contactless payments easily, whether shopping online or in stores.
• Google Pay. Google Pay is a strong option for Android users, supporting contactless payments, online purchases, and peer-to-peer (P2P) transfers.
• Samsung Pay. Samsung Pay offers flexibility by working with both newer and older payment terminals. It’s a convenient option for Samsung device users who want a reliable way to pay on the go.

What are the three types of digital wallets?

There are three main types of digital wallets — closed, semi-closed, and open. Here's a more in-depth look at each:

• Closed digital wallet. A closed digital wallet is issued by a company and can only be used to make payments through that specific company. For example, an online retailer might issue a closed wallet that customers can use to purchase items exclusively from their store. Funds in a closed wallet cannot be transferred to other wallets or withdrawn to a bank account.
• Semi-closed wallet. Semi-closed digital wallets allow users to make payments at select merchants that have collaborated with the wallet issuer. These wallets provide more flexibility than closed wallets, as they can be used at multiple locations, both online and offline. But they still have some limitations.
• Open wallet. Open digital wallets can be used to make payments, withdraw funds, and transfer money to other accounts. These wallets can be used at a wide variety of merchants and are often linked to a user’s bank account or credit card. PayPal is an example of an open digital wallet.

Payment methods accepted by digital wallets

Digital wallets can store most common payment methods, including:

• Debit cards. A user can link a debit card to a digital wallet to make purchases directly from a bank account.
• Credit cards. Storing credit card details to use for purchases can be beneficial for earning rewards or managing expenses.
• Bank accounts. Some digital wallets allow direct access to a bank account, enabling bank transfers and payments without needing to use a card.

Learn more with PayPal's convenient guide to digital wallets.

How can I pay with my digital wallet?

It takes just a few steps to set up a digital wallet:

1. Download the wallet app. An individual can simply choose a digital wallet and download the app to a device.
2. Add payment methods. The next step is to link debit or credit cards, or a bank account, by following the instructions provided in the app. PayPal offers detailed steps for adding payment methods.
3. Make payments. Paying for in-store purchases is as simple as holding a device near the contactless payment terminal and authorising the payment using a fingerprint, passcode, or face recognition. For online purchases, shoppers select a digital wallet as the payment option at checkout.
4. Security and compatibility. Digital wallets may offer robust security features, including encryption and biometric authentication, to ensure that payments are secure. Most smartphones and tablets are compatible with digital wallets, making them easy to use across a variety of devices.

Understanding transaction limits

When using digital wallets, it’s essential to be aware of transaction limits, as these can impact the ability to make purchases or transfers. Transaction limits vary depending on several factors, including the type of digital wallet, the bank associated with the wallet, and the verification status of a user.

For example, the limit for debit card transactions linked to a digital wallet might differ from the limit on credit card transactions or direct bank transfers. Additionally, some wallets impose daily, weekly, or monthly spending caps, which could affect how to manage larger purchases. Being aware of these limits helps transactions go smoothly, preventing potential disruptions during important payments.