At this point, it’s fair to say that digital wallets proved to be more than a passing trend. Over half of all U.S. adults now use digital wallets more than traditional payment methods, such as cash, debit cards, and credit cards. This trend is particularly noticeable with younger consumers, who are twice as likely to use a digital wallet app than any other payment method.

Why are digital wallets eclipsing the traditional payment methods? To answer that, let’s go over what digital wallets are, how they work, and why they’re safe to use.

What Are Digital Wallets?

A digital wallet is any software application that can serve as an e-version of a physical wallet. It allows you to store digital versions of payment methods (credit cards, gift cards, coupons, etc.) and use them on the go via your phone. You can use a digital wallet to make purchases online, at physical stores, or through specially designed apps.

Digital wallets come in many types. Companies such as Apple, Google, Samsung, and Paypal all have their digital wallet products. Similarly, many credit card companies and banks use apps that enable digital wallet functionality.

How Digital Wallets Work

To use a digital wallet, you need to unlock the app via PIN code, fingerprint, or facial recognition, then select the stored payment method you’d like to use. Depending on where you’re making your purchase, digital wallets can use several technologies to process payments:

Near-Field Communication (NFC): This is the technology that usually powers contactless payments. NFC allows devices like smartphones and smartwatches to transmit payment information to card readers without making contact with them.

Magnetic Secure Transmission (MST): This technology allows smartphones to emit a magnetic signal similar to the magnetic stripe on debit and credit cards. A digital wallet can use MST to send encrypted data to a card reader that’s at close range.

QR Codes: These are matrix barcodes you can scan with your smartphone camera. If you have a digital wallet, you can scan a QR code to make a payment.

Are Digital Wallets Safe?

Like any new technology involving sensitive banking information, digital wallets can give new customers pause. However, using them is safe due to a built-in security feature called tokenization. Every time you buy something with a digital wallet, it will generate a random token and use it to process the payment. Your personal information will remain secure.

Beyond tokenization, digital wallets also use other layers of security that make them perfectly safe to use. That said, it’s still prudent to exercise caution and cover your phone screen if you’re accessing your digital wallet in a public place.