A digital wallet refers to an electronic device that allows an individual to make electronic commerce transactions. This can include purchasing items on-line with a computer or using a smartphone to purchase something at a store. Increasingly, digital wallets are being made not just for basic financial transactions but to also authenticate the holder's credentials. For example, a digital-wallet could potentially verify the age of the buyer to the store while purchasing alcohol. It is useful to approach the term "digital wallet" not as a singular technology but as three major parts: the system (the electronic infrastructure) and the application (the software that operates on top) and the device (the individual portion).
An individual’s bank account can also be linked to the digital wallet. They might also have their driver’s license, health card, loyalty card(s) and other ID documents stored on the phone. The credentials can be passed to a merchant’s terminal wirelessly via near field communication (NFC). Certain sources are speculating that these smartphone “digital wallets” will eventually replace physical wallets. The system has already gained popularity in Japan, where digital wallets are known as Osaifu-Keitaior “wallet mobiles”