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What is the Difference Between Digital Wallets and Payment Gateways

The boom in the Ecommerce industry has led not only to an increase in online financial transactions but also in the emergence of digital payment modes like e-wallets. In the recent times, demonetization of high currency notes by the government led to a rapid surge in the usage of e-wallets and PoS machines.

What are payment gateways?

Payment gateways is a term used for the E-commerce service which provides a channel to authorize the credit/debit card payments from the customers bank to the online retailers. In other words, payment gateways facilitate the transfer of funds from the customer to the website through a secured portal.
There are two types of payment gateways, i.e. direct and external gateways. In the external payment gateways, the customer is directed to another online portal to process the transaction and can be redirected to the parent website once the transaction is confirmed.
However, in the direct payment gateways, the payment process is done on the parent site itself.
Some of the popular payment gateways are PayPal, SecurePay, Fastcharge, and Paynova.

What are digital wallets?

Digital wallets, on the other hand, allow customers to store their money in an online wallet, which they can then use for various online transactions directly from the wallet. Digital wallets help you save time and are more secure since you do not have to enter your card details every time you do a financial transaction online.
There are many smartphone apps which offer digital wallets like Paytm, MobiKwik, and FreeCharge. With digital wallets, you can pay utility bills, recharge mobile phones, and DTH connections as well, the same way as you would through a traditional wallet.

Difference between digital wallets and payment gateways

Although digital wallets and payment gateways are a medium to make and accept payments, they are different in terms of their usage and features. Some of the differences between the two are:
  • You need to install the software/app of the digital wallet on your smartphone and enter your details to start using it, whereas no such procedure is required to use payment gateways. You can just select from the various payment gateways on the website, fill in your credentials and the payment is done
  • The personal details entered in the digital wallets is a one-time process, whereas, in payment gateways, you have to enter your credentials every time you do a financial transaction online
  • You can deposit money in the digital wallets online and use it anytime and anywhere, whereas no such feature is available with payment gateways
  • A digital wallet is just an intangible form of the traditional wallet, whereas a payment gateway is the intangible form of the PoS machines
Considering that the payment gateways work as a channel for a financial transaction between the buyer and the seller, it is evident that the payments through digital wallets would require a payment gateway for the transaction to be successful. Payment gateways are hence, the basis for every financial transaction online, while digital wallets are a mode of payment.
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