Digital wallets have been around since the late 1990s in some shape or form, evolving from the first electronic payments system launched by PayPal in 1998, to the more common digital wallet apps such as the Google and Apple wallet we hold on our mobile phone today. The first thing we think of when we hear ‘Digital Wallet’ is a digital payment wallet that holds credit and debit cards, but there are many different types of wallets that serve different purposes, which can now be used across a broad range of industries for both businesses and consumers.
A wallet is more than a payments tool — it’s the single place people can store trusted credentials and share them safely.
What is a digital wallet?
At its core, a digital wallet is a secure, software-based system, almost like a digital container that stores and protects verified information. It can act as a personal vault, and can store things such as payment methods, identity documents, licenses, tickets, etc. It allows a user to prove who they are, make transactions, or access services without repeatedly disclosing or re-verifying sensitive information.
How do digital wallets work?
A digital wallet works by securely storing your credentials — such as payment cards, ID documents, or verified digital passes — on your device or in the cloud, protected by strong encryption and device-level security. When you make a payment or share information, the wallet doesn’t transmit your actual data; instead, it uses encrypted tokens or digital credentials that prove your identity or authorisation without exposing sensitive details.
Why do we use them?
One of the biggest reasons we use digital wallets is for convenience. Digital wallets are usually kept on our mobile devices, which are usually glued to our hands, meaning we are now more likely than ever to always have our most sacred credentials with us when they are stored in a digital wallet. But they come with a range of other benefits also –
Speed – You can use a digital wallet to instantly pay for something on your phone via contactless payments, seamlessly sign up to something online or access services in seconds. Your cards, tickets, passes, etc. are always at hand for you.
Security – Wallets have built in device protections such as biometrics (face ID and fingerprint) and cryptographic technology, ensuring one of the highest levels of security available.
Privacy and control – Information in a wallet is in the control of the owner, and it’s up to them what they share. For example, you can choose what individual credential to share in a wallet without sharing all the information. This ability to be selective also adds to its security benefits, limiting the chances of identity theft or misuse.
Universally accepted – Digital wallets can be a complete functionality. You can combine payments, tickets, loyalty cards, ID, etc. in one wallet and use it across different platforms and even countries.
Future-ready functionality – Wallets are gearing up for more in the future and have the ability to evolve into much more. As governments and tech providers align on digital ID frameworks, wallets will become the universal key to both public and private services.
Are digital wallets safe?
Digital wallets are generally seen as safer than carrying a physical wallet with physical cards such as bank and credit cards. They have a high standard of data encryption, biometric data protection and robust operating systems. By using encrypted payment codes, they are deemed safe and secure to share your information without putting it at risk. However, of course, nothing is completely risk free, but a digital wallet designed to transmit payment information will be created to the highest standard of security.
5 digital wallet types
1. Mobile wallets / App (general payments like Apple Pay, Google Pay)
These are the most familiar and popular digital wallets, they are your general contactless payment wallets which you use to store your bank or payment cards, loyalty passes, etc. on your mobile device. These are used at the point of sale for in person payments (simply tapping) as well as purchases online, with many check out services now accepting the most popular digital wallets such as Apple pay and Google pay.
Pros: Supported by device security (biometrics such as facial recognition), and easily accessible. Digital wallet payments are widely accepted and are directly linked to your bank account.
Cons: At risk if you lose your phone and have only set up a pin code as your security for your electronic wallet.
2. Digital ID / Credential Wallets
Most popular in the EU , and soon being rolled out to the UK, these digital ID wallets will hold verified identity documents such as driving licences and passports that allow you to prove your identity remotely. This wallet could be used to prove you are old enough to see an age restricted film at the cinema.
Pros: Easily accessible and selective disclosure available. For example, you can choose to share your age on your ID but not your address, which is harder to do with a physical document.
Cons: They aren’t as widely adopted in the UK as they are in the EU. To be able to really benefit from these the UK ecosystem has to change and adapt.
3. Custodial / hosted wallets
Another you may have heard of if you’re a cryptocurrency investor or trader, is a custodial wallet, also known as an online wallets and it’s basically a place to store ‘passkeys’ which act as credentials to access your cryptocurrency. Without the keys, you are unable to access your coins and sign crypto transactions.
Pros: The wallet is stored with a third-party provider, backed by insurance and layers of protection.
Cons: You need to have a wallet with a reputable provider.
4. Non-custodial wallets
Another form of wallet that is heavily used in cryptocurrency, this wallet acts the same as in it holds keys and credentials, however they are not managed by a third party. The user controls the keys either in hardware wallets (these are called cold wallets) or software wallets (hot wallets). The difference with hot and cold is if they are connected to the internet or not. Some prefer the wallets to be completely offline for less risk of hacking, others prefer easier access to move quickly when buying or selling coins, so would want a hot wallet connected to the internet.
Pros: Complete control from the user
Cons: The Pro is also the con; the user is in complete control for safeguarding the credentials.
5. Sector specific private wallets
A wallet can be built for sector specific reasons, and we will start to see this more in the private sector after recent changes to legal framework to recognise digital ID and make it easier for both the private and public sector to work it into processes. The announcement of a government backed digital ID has also fuelled the private sector to go more digital and adapt to new practices that are forthcoming.
For example, Credas have just announced the Credas Compliance Wallet to be launched in 2026. This digital wallet will hold not only digital ID credentials, but a complete compliance profile, including AML and PEPs & Sanctions checks. The wallet will be completely pushable and pullable, the first of its kind to offer sharable compliance.
Pros: Sharable compliance means smoother onboarding, reduced friction and duplication of checks across onboarding journeys such as property transactions.
Cons: Requires robust governance and clear consent and sharing rules within regulations.
Looking ahead, digital wallets in 2026
A variety of wallets are in the market today, with more to come in 2026. For the property sector in particular, we are very excited for the Credas Compliance Wallet to come into fruition.
Modern, well known digital wallets are evolving beyond being primarily payment wallets to become trust frameworks for identity and compliance, where verified data can be reused safely and privately across multiple organisations, aligning with emerging government and industry standards for digital identity (such as W3C Verifiable Credentials, ISO mobile ID, and UK GOV Wallet initiatives).
A digital compliance wallet could change the game completely, ensuring proving your identity and carrying out all due diligence checks are fast, secure and seamless. Digital wallets make identity simpler, safer and more private when built on standards and good governance. Our aim at Credas is to build a compliance-first wallet that makes regulated journeys faster and safer, if you’re interested in testing our BETA version, please get in touch.
