Digital wallets, also known as e-wallets, have become integral to daily life in the United States, offering convenience and efficiency in financial transactions. These digital tools allow users to store payment information securely on their devices, facilitating swift payments both online and in-store. Services like PayPal, Apple Pay, and Google Pay have gained widespread adoption, simplifying the purchasing process for many users and clients.

Despite their growing popularity, many billers don’t offer digital wallet payments. This has created a gap between consumer preferences and the payment experience their billers offer.

PayNearMe recently conducted a survey to determine how important convenience and hyper-personalization are to consumers during the loan payment process. Research revealed that borrowers are increasingly gravitating toward digital wallets as a loan payment option, while their tolerance for friction is decreasing. 12

Consumer trends: alternative payments methods

An important part of making payment easier for consumers, ultimately driving on-time payments—is offering the payment types they use in other areas of their lives. Today, that includes digital wallets. In the consumer survey, when asked which alternative payment methods are important to them when paying loans online 44% of respondents said Venmo, 55% said PayPal and 43% said Cash App Pay.

These digital wallets have seen remarkable growth in preference since a previous report published by PayNearMe in 2021. Since then, survey respondents noted significant increases in preference for “the big three” as a loan payment option:

Venmo (27% in 2021 - a 63% increase)
PayPal (43% in 2021 – a 26% increase)
Cash App (22% in 2021 – a 95% increase)
Apple pay (15% in 2021)

This increase highlights a strong shift toward these platforms, indicating a competitive landscape where digital wallets are becoming integral to how people manage payments.

What we learned confirms a clear preference: consumers want to pay bills with wallets, and billers are missing an opportunity to attract and retain customers (PayNearMe, 2024).3

Impact of Digital Wallets on the Daily Life of Consumers

The adoption of digital wallets has significantly altered consumer behavior. A 2024 survey revealed that 53% of consumers now use digital wallets more frequently than traditional payment methods, highlighting a shift towards more convenient payment solutions (Cardaq, 2024),(Russ, 2022).

Payments Dive

This trend is particularly evident among younger demographics, with millennials and Gen Z users leading the charge in adopting digital payment methods.

Benefits

• Convenience: Digital wallets streamline transactions, reducing the need to carry physical cards or cash.

• Security: Advanced encryption and authentication methods protect user data, making digital wallets a secure alternative to traditional payment methods.

• Financial Inclusion: E-wallets provide accessible financial services to unbanked populations, offering a gateway to digital payments and financial management.

The PayNearMe (2024) survey shows the generational adoption pattern of digital wallets. It revealed a clear trend of increasing desire for alternative payments across all age groups. Most notably was an increased preference for digital wallets as a payment option for the 45–60-year-old age range from the 2021 report.

The data clearly defies the stereotype that digital wallets are predominantly used by younger consumers. This should serve as an incentive for billers to appeal to all their customers by offering the types they desire.

Survey says that with an income between $150,000 and $174,999 prefer Venmo (71%), PayPal (77%) and Cash App (66%). This diversification suggests that comfort with digital payments transcends economic status, making it a universal trend. Overall, what we’re seeing is that digital wallets have become pervasive across age and income ranges and are an important way to empower customers to self-serve and make on-time payments.

People use digital wallets in a variety of ways in their daily lives, making transactions more convenient, secure, and efficient.

Some Existing Use Cases for Digital Wallets

According to PayNearMe (2024) and Cardaq (2024), here are some of the common ways that digital wallets are being used today.

1. In-Store Purchases

• Contactless Payments: One of the most common uses of digital wallets like Apple Pay, Google Pay, or Samsung Pay is making contactless payments in stores. Instead of swiping a physical credit card, users can simply tap their smartphone or smartwatch on a payment terminal to complete the transaction.

• Speed and Convenience: This eliminates the need to carry multiple cards or cash, speeding up the checkout process and providing a hassle-free shopping experience.

2. Online Shopping

• E-commerce Payments: Digital wallets are widely used for online purchases on websites like Amazon, eBay, or smaller e-commerce sites. By linking a credit or debit card to their wallet, users can easily make payments without re-entering card details every time.

• Secure Checkout: Digital wallets provide an extra layer of security through encryption and tokenization, making online transactions safer.

3. Peer-to-Peer Payments (P2P)

• Sending Money to Friends and Family: People use apps like Venmo, PayPal, or Cash App to quickly transfer money to others. Whether it’s for splitting bills, paying rent, or sending birthday gifts, digital wallets make sending money fast and simple.

• Instant Transfers: These apps often allow users to send money instantly without waiting for business hours or bank processing times.

4. Subscription Payments

• Automated Bill Payments: Many people link their digital wallets to subscription services like Netflix, Spotify, or cloud storage services to make automatic payments each month. This ensures uninterrupted access to services without having to manually pay every month.

5. Transit and Public Transportation

• Commuting with Digital Wallets: In many cities, digital wallets are integrated into transit systems, allowing users to pay for bus or subway rides with their smartphone. For example, users can tap their phones on metro card readers or bus fare machines for seamless travel.

6. Loyalty Programs and Rewards

• Storing Loyalty Cards: Many people store their loyalty or rewards cards digitally in their wallet. This includes cards for grocery stores, coffee shops, and airlines. This makes it easier to track and redeem rewards without carrying physical cards.

• Discounts and Coupons: Digital wallets can also store discount codes and coupons, allowing users to automatically apply them during purchases.

Some Challenges Associated with Today’s Digital Wallets

According to Russ (2022), despite their advantages, digital wallets face several challenges:

1. Security Concerns

While digital wallets offer enhanced security features, they are not immune to threats. Issues such as device theft, phishing attacks, and data breaches pose significant risks. Ensuring robust security measures is crucial to protect user information.

2. Technological Dependence

Reliance on mobile devices for digital payments means that technical issues like software glitches, poor connectivity, or battery depletion can hinder transaction processes.

3. Market Fragmentation

The digital wallet market is fragmented, with various platforms offering different features and levels of acceptance. This fragmentation can lead to compatibility issues and limit the universality of digital wallet usage.

Interoperability based on open standards should help mitigate against items 2 and 3 above. We refer the reader to our The Case for Open Finance - Part 1 article for a discussion on the benefits of open standards and open source.

Conclusion

Digital wallets have transformed the financial landscape in the U.S., offering unparalleled convenience and security in daily transactions. However, addressing security vulnerabilities, technological dependencies, and market fragmentation is essential to fully harness their potential. As technology evolves, digital wallets are likely to become even more embedded in daily life, shaping the future of consumer payments.

Back to Homepage

In this article I present four digital wallets that are based on open standards and open source. I discuss the key features of each wallet as well as some of the terminology. While my review of the available digital wallets in this area is not exhaustive, the goal is to highlight some open wallet projects and give the reader an idea of what is happening in this space.

Introduction

The Open Wallet Foundation (OWF) which is part of the Linux Foundation was established in October 2023. It is an initiative aimed at developing open-source software and standards for digital wallets. While the foundation is still relatively new, it is working to create interoperable, secure, and privacy-preserving digital wallet solutions. Specific wallets based directly on the OWF toolkit are still in development or early stages of user testing. In this article we present three examples based on OWF, and another that is not however it is open sourced:

1. Trinsic

Trinsic is a prominent platform in the decentralized identity (DID) space, focusing on enabling developers and organizations to build self-sovereign identity (SSI) solutions, including digital wallets. Trinsic is designed to support open standards like W3C Verifiable Credentials (VCs) and Decentralized Identifiers (DIDs), which are foundational to interoperable and secure digital identity ecosystems.

Key Features of Trinsic:

• Support for Open Standards

  Trinsic is built to comply with W3C Verifiable Credentials and DID standards, ensuring interoperability with other systems and wallets that adhere to these standards.

  It also supports DID methods like did: key, did: web, and others, allowing flexibility in how identities are created and managed.

• Wallet SDKs and APIs

  Trinsic provides Software Development Kits (SDKs) and APIs for developers to integrate decentralized identity capabilities into their applications.

  Supported platforms include JavaScript/TypeScript, Python, Go, Java, and more.

• Credential Issuance and Verification

• Trinsic enables organizations to issue verifiable credentials (e.g., digital driver’s licenses, diplomas, or membership cards) and verify them securely.

  It supports zero-knowledge proofs (ZKPs), allowing users to share only the necessary information without revealing sensitive data.

i. Sign Up: Create an account on the Trinsic website.

ii. Explore Documentation: Check out their comprehensive developer documentation.

2. Sovrin Wallet

Sovrin Wallet is a key component of the Sovrin Network, which is one of the most well-known decentralized identity (DID) networks.

The Sovrin Network is built on the principles of self-sovereign identity (SSI), empowering individuals and organizations to control their digital identities without relying on centralized authorities. The Sovrin Wallet is designed to support open standards like W3C Verifiable Credentials (VCs) and Decentralized Identifiers (DIDs), making it a robust tool for managing digital identities and credentials.

Key Features of the Sovrin Wallet:

• Support for Open Standards

  The Sovrin Wallet adheres to W3C Verifiable Credentials and DID standards, ensuring compatibility with other SSI ecosystems and wallets.

  It uses the Sovrin DID method (did:sov), which is specifically designed for the Sovrin Network.

• Self-Sovereign Identity (SSI)

  Users have full control over their identities and credentials, stored securely in their wallets.

  Credentials can be issued, stored, and verified without relying on centralized intermediaries.

• Credential Management

  The wallet allows users to store and manage verifiable credentials (e.g., digital IDs, diplomas, certifications).

  Users can selectively disclose information using zero-knowledge proofs (ZKPs), enhancing privacy.

Download the Wallet: The Sovrin Wallet is available as a mobile app for iOS and Android.

3. Microsoft Entra Verified ID

Microsoft Entra Verified ID (formerly known as Azure AD Verifiable Credentials) is Microsoft's solution for decentralized identity and verifiable credentials. As a founding member of the OpenWallet Foundation, Microsoft has been actively contributing to the development of open standards for digital identity and wallets. Their solution is designed to be interoperable, secure, and privacy-preserving, aligning with the principles of self-sovereign identity (SSI).

Key Features of Microsoft Entra Verified ID:

• Support for Open Standards

  Microsoft Entra Verified ID is built on W3C Verifiable Credentials and Decentralized Identifiers (DIDs), ensuring compatibility with other systems that adhere to these standards.

  It uses the ION network, a Bitcoin-based decentralized identity network, for anchoring DIDs.

• Interoperability

  Designed to work seamlessly with other decentralized identity ecosystems, enabling cross-platform credential sharing and verification.

  Supports integration with third-party wallets and identity systems.

Official Documentation: Microsoft Entra Verified ID Documentation.

4. Connect.Me

This wallet was developed by Evernym and they describe it as “the world's most advanced general purpose digital wallet. Its purpose is to empower individuals to gather, hold and share digital credentials in the most secure and privacy preserving way possible. It uses Hyperledger Indy to talk to distributed ledgers and Hyperledger Ursa for performing advanced cryptographic operations such as signing, proof generation and holder binding.”

Key Features of Connect.Me:

• Form private, secure connections with other entities in the Sovrin ecosystem

• Gather and store digital credentials

• Present digital proofs of part or all of your credentials, privately and securely

• Answer secure messages from any connection you have

Get the source code from https://github.com/evernym/ConnectMe.

Conclusion

In this article I introduced four open wallet projects. This is an area where there is a lot of development that happening. The open source space is very dynamic with new projects starting all the time, while others are growing, stagnating, or dying depending on the level of community support. I encourage readers to let me know of any additional projects that are based on open standards and open source.

Back to Homepage

This article introduces digital wallets and describes the three main use cases for digital wallet today, which are around payments, identity, and access. Specific examples around each of these uses cases are outlined. Digital wallets are closely linked to mobile phones and as such these wallets continue to gain popularity across the world as a means of payment. The article briefly describes how digital wallets work. Next, the challenges of the current digital wallet ecosystem are discussed, in particular it is shown how the current litany of isolated digital wallets that are not standards-based leads to data silos which impact the users’ experience and also presents them with security vulnerabilities. The article discusses why open wallets are the way to address the challenges facing the digital wallets ecosystem today. Finally, the Open Wallets Foundation is introduced as an organization seeking to build a digital wallets ecosystem that is based on open standards and open-source.

Introduction

The use of digital wallets continues to grow globally in conjunction with the increased use of mobile phones and other smart devices. Besides their use as a tool for payments, digital wallets have the potential to lead to the building of a financial environment that is decentralized, disintermediated, democratized, disaggregated, debiased and where individuals have more financial autonomy. This is the case especially when the concept of open digital wallets is combined with others such as the blockchain and open banking which are the focus of this newsletter.

In this article we introduce digital wallets and describe the three main use cases for digital wallet today, which are around payments, identity, and access. We outline specific examples around each of these uses cases. Digital wallets are closely linked to mobile phones and as such these wallets continue to gain popularity across the world as a means of payment. We also briefly describe how digital wallets work. The challenges of the current digital wallet ecosystem are discussed, in particular we show how the current litany of isolated digital wallets that are not standards-based leads to data silos that impact the users’ experience and also presents them with security vulnerabilities. We discuss why open wallets are the way to addressing the challenges facing the digital wallets ecosystem today. Finally, we introduce the Open Wallets Foundation, an organization seeking to build a digital wallets ecosystem based on open standards and open-source.

What is a Digital Wallet?

Much like its physical counterpart, a digital wallet is a secure place on a smartphone or a smart device where important digital items (assets) such as financial account information or digital identity information are encrypted and stored. Today digital wallets are mainly used for three functions: payments, digital identity, and digital access. Digital wallets can be used to facilitate payment for products online or in physical stores at a point-of-sales (POS) terminal. Digital wallets can also be used to prove one’s identity, for example when used in an e-passport, and to enable access to services when for example they store things like train or concert tickets.

Google Pay, Apple Pay and Samsung Pay are some of the more well-known digital wallets that can be used both online and offline. While PayPal, Venmo, CashApp, and Zelle are other well-known digital wallets in the U.S. with more usage in online or mobile transactions. Around the world there are several digital wallets, such as M-Pesa, AliPay, WeChat, Tingo Money, GCash, and Orange Money which are used primarily for mobile payments1.

One area where digital wallets dominate is in payments. According to 2023 global payments report by Worldpay from FIS2, digital wallets will continue to be the leading payment method for both e-commerce and POS retail, as can be seen from Figure 1.

How Digital Wallets Work

Next, we present a brief overview of how digital wallets work. We will use payments as a use case for this overview.

The digital wallet is a secure container in the mobile device where the digital assets are stored and can be accessed from. An agent is a software module that can put digital assets into the container or access the digital assets in the container. The mobile user accesses their digital wallet through the agent as shown in Figure 2.

Figure 3 from Anwar et al.3 shows a mobile device with a digital wallet using Near-Field Communication-enabled POS to facilitate a purchase via a credit card payment network.

A more detailed presentation of how digital wallets work will be provided in a future article.

Uses of Digital Wallets

Besides payments, digital wallets may be used to store4:

• Credit or debit cards

• Passwords or keys

• Cryptocurrencies

• Boarding passes

• Hotel reservations

• Concert tickets

• Gift cards

• Coupons

• Loyalty-rewards cards

Challenges with Today’s Digital Wallet Ecosystem

Many of today’s digital wallets are designed, developed, and supported using a black box model that is controlled by a single organization. In many cases it is not known how the user data is stored and secured in the wallet, that is these organizations have adopted the security through obscurity paradigm5. In the black box model, once the user’s data enters the digital wallet often it cannot be shared with other wallets as there are at present no standards for wallet interoperability. Users cannot easily transfer their data to a competing digital wallet or have one wallet work with another in a federated fashion. The user wanting to use another competing digital wallet has to sign-up for that wallet and potentially recreate the stored data that is the present situation creates vendor lock-in with the data silos as a by-product. These data silos increase data redundancy and potentially increase the security risks for users as they may have their data in multiple locations (wallets).

Graham6 lists the following as additional limitations of the current digital wallet ecosystem:

• Questionable security

• Intrusive business models

• Limited capabilities

Open Wallets As the Way Forward

Digital wallets based on open standards and open-source promise to address the challenges mentioned above. Leading the charge in this effort is the Open Wallet Foundation (OWF) which is one of the Linux Foundation projects. OWF “brings developers, standard development organizations and academia together to facilitate global interoperability of verifiable credentials, by establishing best practices and through collaborative development of digital wallet technology to enable standards-based OSS (open source software) components that issuers, and wallet providers can rely on.”7

We will discuss more about the OWF projects in future are articles, but in the meantime we want to bring to the attention of our readers the Open Digital Wallet – Infographic from the OWF.

Conclusion

In this article we introduced digital wallets and described the three main use cases for digital wallet today, which are around payments, identity, and access. We outlined specific examples around each of these uses cases. Digital wallets are closely linked to mobile phones and as such these wallets continue to gain popularity across the world as a means of payment. We provided a brief description of how digital wallets work. The challenges of the current digital wallet ecosystem were discussed, in particular we showed how the current litany of isolated digital wallets that are not standards-based leads to data silos that impact the users’ experience and also presents them with security vulnerabilities. We discussed why open wallets are the way to address the challenges facing the digital wallets ecosystem today. We concluded by introducing the Open Wallets Foundation, an organization that is seeking to build a digital wallets ecosystem based on open standards and open-source.