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A digital wallet is a software-based system for making e-commerce transactions. By using a digital wallet, online purchases can be done easily through computers, tablets or smartphones. In general, bank accounts of individual users are linked with their digital wallet. In a digital wallet system, user credentials are securely stored and verified during transactions. Digital wallets are not only used for online purchases but also for authentication of the user. A digital wallet can store complete user information including credentials, transaction history and personal details. Digital wallets can also be used in combination with other mobile payment systems.
A digital wallet has two major components: one is the software application and the other is the information storage. The software part is responsible for security, encryption and the actual transaction. This software application is the main component which provides user interface as well as safe and secure transactional capabilities. The software part resides on the client side and is compatible with most e-commerce websites. The other component, which stores the information, is actually a database containing user input information. The user information includes items such as billing address, shipping address and payment methods.
There is another type of digital wallet available, which is known as a server-side digital wallet. It is generally created by the organizations for users. These types of wallets are gaining popularity as they are more secure, efficient and provide added functionalities.