Digital wallets vs. credit cards: How do they compare for small businesses and startups?

In recent years, digital wallets have become an increasingly popular tool for both small businesses and startups, as well as the everyday consumer. In addition to existing as a convenient alternative payment method as opposed to physical credit and debit cards, digital wallets are now frequently used to easily store and access everything from cryptocurrencies to concert tickets. 

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But what exactly is a digital wallet, how does it differ from a traditional credit card, and how can small businesses and startups potentially benefit from its expanding use cases? In this article, we’ll provide a simple guide to the differences between digital wallets and credit cards, as well as how the two can be used together to boost the efficiency of business transactions and optimize processes around expense management. 

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What is a digital wallet?

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A digital wallet, less frequently referred to as an electronic wallet or e-wallet, is a software program or online service that allows individuals and businesses to perform fast, secure transactions through a mobile phone or another electronic device. While popular use cases date back to the earliest iterations of online payment platforms like PayPal, typically to facilitate e-commerce transactions, digital wallets have since evolved to include a variety of unique and increasingly innovative applications. 

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Today, in addition to sending and receiving online payments, digital wallets like ApplePay and Google Pay can be used to make in-store purchases at a growing number of popular retailers, eliminating the need for consumers to carry around physical cards. Moreover, most mobile wallets allow users to opt for “contactless payments,” in which purchases are made by simply waving a mobile phone or smartwatch in front of a payment terminal. Beyond sending and receiving payments, digital wallets have become a popular method of storage for a variety of virtual assets, including boarding passes, hotel reservations, and movie or concert tickets. 

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5 digital wallet options

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When it comes to choosing a specific digital wallet platform or provider, individuals and businesses have a variety of available options. Generally speaking, most users are likely to make a decision based on two primary factors: Device/operating system, and features/functionality. 

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For example, iPhone users may opt to utilize ApplePay, as it doesn’t require installing an additional application on their mobile device, and can be set up and used within a matter of minutes. However, those looking to take advantage of a specific feature, such as the ability to buy, sell and store cryptocurrencies, might prefer to utilize a more crypto-friendly platform like PayPal. 

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Here are 5 popular digital wallets on the market today worth considering:

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PayPal

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PayPal has spent decades establishing itself as a respected and reliable online payment service, and users can now make purchases using the platform’s mobile wallet at a large number of retailers across the U.S. and beyond. PayPal’s wallet application has the advantage of being available to download on virtually all smartphones and devices, however you will need to have an account with PayPal to get started. 

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Amazon Pay

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Amazon Pay streamlines the online shopping experience by allowing users to make ecommerce purchases using the funds linked to their Amazon account. The wallet can be used at an increasing number of largely U.S. based e-commerce sites, and it’s as simple as clicking the Amazon Pay icon at checkout. Unfortunately, however, as an online-exclusive wallet, Amazon Pay is one of only a few popular options that does not currently support in-person transactions. 

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Apple Pay

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iPhone users will be hard-pressed to find a better option than ApplePay, an incredibly intuitive digital wallet that takes only minutes to set up. After adding your credit card or bank account information, ApplePay can be used to make purchases both online and in-person at a growing number of participating retailers. Keeping true to the brand, ApplePay was developed with a unique eye toward security and user experience, and in addition to serving as a convenient alternative to physical cards, Apple’s seamlessly integrated wallet application allows users to easily store and access everything from boarding passes to gift cards. However, it’s also important to mention that ApplePay is exclusive to the iPhone and other Apple devices, so those who prefer the Android operating system will need to look elsewhere. 

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Google Pay

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Formerly Google Wallet, Google Pay pre-dates ApplePay by a few years while sharing many of the same basic features and advantages. But whereas ApplePay can only be used on Apple devices, the Google Pay wallet is available to download and use on virtually all popular smartphones on the market today. As for drawbacks, those with a particular concern for privacy and security might object to the fact that Google stores its users’ passwords and card information on its servers, and utilizes more traditional PIN-based security features as opposed to Apple’s use of fingerprint matching and facial recognition technology. 

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Click-to-Pay

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Introduced jointly by Visa, Mastercard, American Express, and Discover, the “Click to Pay” system streamlines the checkout process by allowing users to upload, save, and easily access multiple cards when making an online purchase. Before Click to Pay emerged in 2020, digital wallets offered by major credit card issuers were mostly limited to Visa’s “Visa Checkout” and Mastercard’s “Masterpass,” both of which have been phased out in favor of this unified offering. Overall, Click to Pay lives up to its title by consolidating the often lengthy online checkout process into a few simple clicks, but unlike ApplePay, Google Pay and PayPal, it does not currently support contactless in-person transactions. 

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What are the major differences between digital wallet and traditional credit cards?

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Despite the fact that both can ultimately be used to make payments, it’s important to understand the basic differences between digital wallets and credit cards. For one thing, digital wallets are entirely virtual, meaning payment information is stored digitally and reliant on the use of a computer or mobile device as well as an internet connection. Credit cards, on the other hand, can be either virtual or physical. 

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Perhaps most importantly, whereas credit cards provide individuals and businesses with access to a line of credit, a digital wallet comes with no issuance of debt and exists merely as a tool to make the use of a credit card or bank account more convenient and efficient. In this sense, digital wallets and credit cards can be described as fundamentally different, yet complementary financial instruments.

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Digital wallets vs. credit cards: head-to-head

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Digital wallets and credit cards can both be incredibly valuable assets to small businesses and startups, but to better understand their potential benefits it’s crucial to first recognize and compare the individual attributes of each. Here is a brief, side-by-side comparison of the basic features typically associated with digital wallets and credit cards:

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Benefits of digital wallets and credit cards

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Now that we have identified some basic attributes and explored the differences between digital wallets and credit cards, let’s highlight and take a closer look at some of their individual benefits, particularly as they relate to small businesses and startups:

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Benefits of digital wallets

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Organization: One of the most attractive benefits of digital wallets also happens to be one of their defining attributes: centralization. Rather than having multiple physical credit cards stacked together in a wallet or purse, digital wallets altogether eliminate the need to search for the appropriate card when making a purchase. Moreover, most digital wallets allow the user to store additional information or assets, such as loyalty cards, hotel reservations, and plane tickets. This can be particularly beneficial for businesses that frequently make travel arrangements for employees, as it ensures they have everything they need and mitigates the risk of a misplaced boarding pass or unnecessary confusion at the check-in desk. 

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Convenience: The centralized component of a digital wallet not only leads to better organization but also makes both online and in-person transactions much more convenient and efficient. When it comes to placing online orders, digital wallets remove the need to manually type out credit card numbers or enter personal and/or business-related information. And when making an in-store purchase, most mobile wallets allow transactions to be executed in seconds, often by simply waving a phone or smartwatch in front of a payment terminal. 

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Security: With instances of credit card theft and financial fraud on the rise, it’s more important than ever to ensure all business transactions are secure to the point of redundancy. Digital wallets deliver this level of protection through a process called tokenization, which ensures that all payment information is constantly encrypted throughout the checkout process, and further guarded by advanced identity verification technology, such as facial recognition or two-factor authentication (2FA). 

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Benefits of credit cards

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Access to capital: Utilizing credit is an essential component of running any business, and it’s particularly important for small businesses and startups looking to accelerate growth during the earliest stages. Business credit cards and charge cards like Ramp provide small businesses with the upfront capital needed to launch critical growth projects or cover operating expenses, often alongside flexible credit lines and spending limits based on a company’s individual needs and credit history. 

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Rewards: Whether it’s office supplies, fuel, or travel, small businesses and startups are bound to have a variety of expenses that simply can’t be avoided. But one thing businesses can do is utilize a small business credit card that offers valuable rewards as a result of frequent spending, whether in the form of cash back, or points redeemable for dining, entertainment, or travel-related perks. Some business cards available today allow businesses to easily customize rewards based on spending categories, however there may be a cap on how many rewards can be earned each year, depending on the offering. Other cards like Ramp allow businesses to earn 1.5% cash back on all spending categories, and without any limits or expiration dates. 

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Accounting and expense management: Issuing business cards to employees can also be a huge benefit from an accounting and expense management perspective. For one thing, business expenses are far easier to track and account for when transactions are flowing from the same account. Moreover, when employees are only authorized to make purchases on behalf of the company using a business card, it can minimize or entirely eliminate the costly and time-consuming task of issuing reimbursements. Finally, to take this benefit to the next level, business cards like Ramp not only improve a company’s ability to track expenses across the organization, but also to automate a variety of time-consuming accounting tasks and implement customized spend controls down to the individual card user, category, and even vendor.

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Digital wallets and credit cards work together with Ramp

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As we have seen, digital wallets and credit cards are distinct financial tools, each with their own set of unique advantages to offer small businesses and startups. But while the individual benefits of each are certainly attractive, the best way to maximize the value of both tools is to allow them to work together. 

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More specifically, you’ll want to look for a business card that integrates as seamlessly as possible with the digital wallet applications your employees will be using, and ideally one that already leverages modern technology to optimize expense management and accounting processes. For example, here’s a brief overview of what small businesses can accomplish when they utilize the Ramp card alongside a digital wallet:

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Easily issue new virtual cards to employees: The Ramp business card can be issued in virtual form and stored in the digital wallets of new and existing employees at any time, and for no additional cost. Virtual business cards in general allow for a much more frictionless integration with digital wallets, as there’s no need to await the delivery of a physical card and manually enter card details into a mobile application. 

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Minimize reimbursements: Ensuring your employees always have access to an authorized card to make business purchases when needed is critical to avoiding the constant processing and issuance of reimbursements. With the Ramp card always available to your employees via secure access to their own digital wallets, you’ll no longer need to worry about physical business cards being damaged, misplaced, or even stolen. 

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Make business transactions more convenient: Business transactions should be as efficient and convenient as possible for everyone involved. When the Ramp card is used for business purchases via a mobile wallet, not only will your employees be treated to a fast and streamlined checkout experience, but Ramp’s customized spend control features will eliminate concerns related to overspending or unauthorized transactions. 

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Optimize user experience without sacrificing rewards: Finally, everyone wants an optimized user experience when it comes to making payments in the digital age, but at what cost? One thing the Ramp card has in common with popular digital wallets is that it’s entirely free to use, which means you can enjoy the dual benefit of convenient transactions and advanced expense management tools without adding any additional expenses to the balance sheet. Moreover, Ramp’s 1.5% cash back rewards are always unlimited, whether you’re paying with a physical card or a virtual card linked to a mobile wallet. 

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Want to learn more about how Ramp’s virtual business card can help your business spend more efficiently and improve your accounting and expense management processes? Visit us here to get started. 

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