I don’t get asked “what is a wallet” nearly as much as I ask “how do you define wallet?”

Like many concepts in the world of payments, some seemingly simple words have multiple meanings. When someone mentions "wallets," a few key clarifying questions are in order, and that's already filtering out the analog velcro version that held your allowance. In this post, I'll arm you with these questions, what their answers mean, and why each wallet is different.
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When we think about a wallet there are two key pieces to define first:

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(1) What does it store?

(2) Where is it used?
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With these questions we can understand which "wallet" is being talked about, how it functions, and which benefits apply.

What does it store?

It’s 2024, so if you’ve gotten this far and think I may be talking about leather goods or velcro options I apologize. Digital wallets can either store value (ie, funds) or payment credentials.

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For stored value wallets, a wallet-holder’s funds can be used to make a purchase, as useful and finite as literal cash in a wallet fold. An example of a stored value wallet is Shop Cash or the Starbucks wallet. Sometimes this type of wallet is also referred to as a “staged wallet” since the funds in an interim stage are held in the wallet.

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How do funds get into the wallet? There are 3 main ways:

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1. A user can add funds to their wallet (which then can be called a prepaid wallet)
2. The brand who runs the wallet can add funds. Examples of a brand funding a user’s wallet are store credit for a refund or cash back rewards.
3. Some wallets also allow users to send each other funds, know as peer-to-peer (P2P) transfers.
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A wallet can also store payment credentials, think of this as a digital analog of what’s in your back pocket. This type of wallet can hold credit cards, loyalty cards, even a driver's license. The wallet is able to securely store these pieces of information to be used to pay more conveniently. The example most of us are familiar with here is ApplePay and GooglePay. They let you seamlessly load cards into your phone and tap and the register, or auto-fill on a website. Merchants  also use the term “wallet” to refer to the tokenized cards-on-file they store alongside a customer’s details in their system. A key benefit of stored payment credential wallets, also referred to as “pass-through digital wallets,” is convenience.
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Can a wallet be both? Well of course! Take Venmo or PayPal, these digital wallets can be both a store of value and store payment credentials. Wallet holders can choose whether to use their balance or a linked card for a transaction with each purchase.

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Where is it used?

The next question - where is this wallet accepted? If it’s for an individual brand it’s called a closed-loop wallet. If it can be used more broadly, say with any merchant who offers it as a payment method, we call that an open-loop wallet.
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Closed loop wallets look like the Starbucks wallet: a customer adds funds to their wallet, and uses that balance to order their morning coffee. For a pass-through wallets, think about every brand you may have payment methods stored in your profile for easy checkout. Maybe your favorite online store, airline, and ticketing platform. These details, which are often tokenized cards, can be used just with the brand you link that card to.
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Examples of an open loop wallet are ApplePay and AppleCash where you can use your linked credit card or balance at a Starbucks, Peet's, Verve, or Sightglass Coffee. Shop Pay also has both types and is open loop: cards are stored for easy one-click checkout at any Shopify merchant alongside the Shop Cash customer balance.

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Why offer a wallet?

Now that we have the shared terminology to talk about which kinds of wallets exists, let’s cover why a brand may want to provide customers with a wallet. Two key benefits of an open loop wallet are convenience for the customer and insights into how and where customers spend.

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Closed loop wallets, specifically those that hold a user’s balance, have broad benefits. This use case is our bread & butter at Ansa, here are a few of the reasons we see brands launch a wallet:

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‍Customer experience Like open loop wallets, closed loop wallets also provide a slick customer experience and convenience at checkout.‍

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Revenue uplift + deeper loyalty Brands can increase revenue and retention from their best customers by combining the consumer psychology of a balance (”girl math”) with incentives, rewards, refunds, and appeasements. A balance can guarantee future purchases and recapture that customer with credits into their balance when something goes wrong. Our customers see a 26% increase in frequency.

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Data and insights A wallet becomes a new surface area to not just engage but also understand your best customers. For example: better forecast revenue based on historical data and current user balances or track potential churn and reengage those customers.‍

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Reduce payment costs Especially for brands with high repeat, low-dollar transactions, the unit economics of payments can be painful. Fixed fees add up, so bundling reloads into a wallet hugely reduce swipe fees and improve unit economics. If a brand drives customers to load funds over ACH they can see even greater cost savings.‍

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Cash flow With high interest rates and slower economic recovery from the pandemic, wallet balances can be a tool to bolster cash flow. We help brands understand the complex accounting nuances while benefiting from float to invest in their growth.

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When someone comes to us they often want all or some of those benefits, but use a myriad of different terms to describe what they're looking for, such as: 

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• closed loop wallet
• branded wallet
• stored value balance
• customer balance
• “the Starbucks thing”

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Once you know what you’re looking for, Ansa can help you drive long term loyalty and experience all the financial benefits of a branded wallet. Let's not let vocabulary get in the way. Our simple APIs and SDKs handle the accounting complexity, regulatory nuances, scalability, and more to give you time back to focus on customers and deliver the product they know and love: yours.

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