Digital wallets and global payments: Everything you need to know
From ordering our favorite takeaway to reserving the accommodation for our next holiday, life is becoming increasingly digital. This includes how we handle money. Online banking has long since become the norm and digital payment solutions are gaining in popularity. So much so, that they are on the verge of taking over cash payments on a global scale.
One key element in the modern payments infrastructureare so-called digital wallets. These mobile wallets allow users to store payment details on their mobile device and use it for payments, thus replacing the use of cards or cash. While this is the most frequent and best known use of digital wallets, they also have their part to play in international transactions and payments.
Global organizations process tons of cross-border payments each month, often spending important amounts of money on transaction fees that come with international bank transfers. In this blog post, we’ll tell you how digital wallets can be leveraged for global payments and what benefits businesses can gain from it. But first of all, let’s cover the basics about digital wallets.
What are digital wallets?
In simple terms, a digital wallet is a virtual wallet that is designed to make payments quicker and more convenient. When talking about digital wallets, you often come across various different terms, including electronic wallet (or e-wallet for short) and mobile wallet. Although these terms are most often used interchangeably, there are slight differences as to which digital money transactions they can be used for.
Mobile wallets are mainly virtual wallets which are stored on your phone and which contain your card and payment details to enable payments through your mobile device. Electronic wallets, on the other hand, are online money transfer services similar to a prepaid account, which you can top up and use for electronic transactions. In this context, digital wallets often include multi-currency wallets that allow the user to receive, hold and pay in different currencies.
Examples of digital wallets
The most famous digital wallet examples in the sense of a virtual wallet on your phone are Google Pay, Apple Pay, Amazon Pay, Samsung Pay and PayPal. An example for a digital multi-currency wallet is our Lano Wallet which we’ll tell you more about later.
What types of digital wallets are there?
There basically are three different types of digital wallets – apart from the aforementioned distinction between e-wallets and mobile wallets. The first digital wallet model is the so-called closed wallet. A closed wallet means that electronic funds transfer is only possible between the wallet user and the wallet provider. An example for this model is Amazon Pay.
The second digital wallet model is the so-called semi-closed wallet. With a semi-closed wallet, the wallet user can make payments to the wallet provider as well as to a network of select partners. The third model is, as you may have guessed already, an open wallet which allows any kind of electronic transactions, no matter who the payment recipient is.
Not all digital wallets work the same way, as there are different technologies wallet providers can use to facilitate electronic transactions. While some digital wallets use software to store the payment details from a connected bank account, which serves as a funding source for the transaction, others are designed to hold funds within the application itself, which can then be used as a kind of prepaid account to process transactions. Contactless payments with mobile wallets are enabled through either NFC (Near Field Communication), MST (Magnetic Secure Transmission) or QR codes.
What to use a digital wallet for?
In short: The main purpose of digital wallets is to make purchasing easier and quicker. When thinking of mobile wallets for contactless payments, their main function is to replace physical credit and debit cards to allow the user to pay through their phone. This kind of digital wallet can be used in different ways, i.e. to either allow contactless payment, issue in-app payments or pay when shopping online. In some cases, it’s even possible to use it for ATM withdrawals. In addition, mobile wallets can also be used to store further pay-related information like loyalty card bonuses or gift cards.
Digital wallets and global payments
So far, we’ve focused solely on the use of digital wallets for direct purchasing. However, digital wallets can be used in more ways than just paying for grocery shopping or food delivery services. When designed as a multi-currency wallet with the ability to hold and send multiple different currencies, a digital wallet can facilitate international payments and save the user a lot of money on international transactions.
International money transfers are notoriously slow and expensive. The biggest banking system for cross-border transactions is SWIFT. However, the problem with SWIFT is that transaction fees can quickly skyrocket, as soon as several intermediary banks need to be used to process the transaction. Especially for organizations with global operations that have to initiate a large number of cross-border payments each month, fees can quickly accumulate.
Let’s say, a company is working with a globally distributed team of contractors and freelancers. At the end of each month, they all send in their invoices and expect to be paid on time and in their local currency. This is a classic example where using a digital multi-currency wallet comes in handy. Instead of issuing an international bank transfer to each contractor, it’s a lot quicker and easier to send money with a digital wallet.
How to send international payments with a digital wallet
In order to use your digital multi-currency wallet to issue global payments, you first need to top it up in your preferred currency. Think of your digital wallet as a kind of prepaid online account where you deposit money to be used for fulfilling your payment obligations. Once you have money in your digital wallet, you can start issuing payments to beneficiaries in countries all over the world. Each digital wallet is assigned a so-called virtual IBAN, which serves as identification for the wallet in inbound and outbound transfers. In most cases, a few clicks is all it takes to initiate a payment.
What are the advantages of using digital wallets to pay international contractors?
For illustration purposes, let’s keep our example of a company with a remote team of freelancers based in different countries. Using a digital wallet to pay all their invoices allows the business to:
Save money: Let’s assume the company is based in the US and needs to issue 50 different cross-border payments. When using traditional SWIFT payments with an average fee of around USD 55, this leads to a total of USD 2,750 in transaction fees – plus the operational costs involved in having someone handle the payments and the fees for foreign exchange. Using a digital wallet is a lot cheaper, since they allow local payments within their network – which are usually free – and operate with better exchange rates.
Save time: Digital wallets are designed to allow payments in just a few clicks, which saves a lot of time compared to manually issuing SWIFT payments. Instead of spending hours on paying invoices every month, the team can focus on what really matters: bringing the business forward.
Pay their team faster: International bank transfers are slow. Global payments with digital wallets are a lot quicker. If both the sender and the recipient use a digital wallet, the transfer can be completed in an instant.
With Lano, slow and expensive international transactions are a thing of the past. With our Lano Wallet, you can pay your contractors and freelancers in more than 150 countries all over the world. Benefit from free local payments and pay invoices in over 50 different currencies – and at the best exchange rates around!
Simply bring your contractors to our platform to streamline your invoice processing and send mass payments with one single click. What’s more, your contractors get a free Lano Wallet as well, which means they will receive their payments even faster and be even more happy to work for you.