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What are Digital Wallets and Are They Safe?

Posted on in SecurityJanuary 04, 2021

It’s easy to see that digital wallets, sometimes called e-wallets, are the wave of the future, but many Americans still wonder if they are safe to use.

According to Experian, digital payments grew to about $721 billion in 2017. However, more than 1 in 10 Millennials use their digital wallet for every purchase; but other age groups are slower to adopt these convenient, safe, secure payment options. In other countries, as high as 80% of all payments are made using mobile wallets. The U.S. has a way to go before we catch up.

What is a Digital Wallet?

A digital wallet is a mobile app or software program that you can use to pay for purchases without having to pull out a debit or credit card. These services store your payment information, so you never have to expose the debit card, bank account numbers, or expiration date when filling out a form or handing a plastic card to the cashier.

Modern innovations have made paying with mobile payment systems even easier through the use of wearables like a smartwatch. Using your ApplePay digital wallet, you can double-click a button on your Apple Watch and pay instantly whenever you see the contactless symbol. You can also pay using your iPhone or Android device if you use Google Pay or Samsung Pay.

In-store purchases use POS (point of sale) machines that support many of the popular digital wallet platforms for contactless payments. These mobile devices rely on NFC (near field communication) to process online payments. Unlike an old-style card reader where you have to have a physical card, these payment systems use wireless technology to grab the actual card number and the card issuer to pay the retailer.

Many vendors are now supporting digital wallets so you can store other things like your insurance card, gift cards, loyalty cards, rewards cards, and even boarding passes and your driver’s license so you can leave your entire physical wallet at home.

Why are Digital Wallets Safer and How do Digital Wallets Work?

Storing all your payment information in your smartphone allows you to keep your cards at home where they cannot be lost or stolen. When you pay digitally, the transaction takes place within the technology (your digital wallet and phone/watch to the terminal). You never enter any numbers or expose personal information such as PINs, security codes, checking account numbers, or expiration dates.

Digital wallet companies like Google Pay and Apple Pay have built-in security protections that allow only the owner to use them. Some use facial recognition or fingerprints, or other biometrics to prevent any unauthorized use. When accessing a digital wallet like PayPal, you can opt for two-factor authentication, which sends you a text message with a code to enter before you can even open the app. That level of security ensures that no one will be using your account to make payments without your approval.

If you lose your purse or wallet, anything in there is gone, and a thief can exploit the contents. With your smartphone, it is much harder for a thief to gain access without your biometrics (fingerprint, face scan) or other codes. Therefore, your smartphone and digital wallet are much more secure than your actual wallet.

Another bonus of using services like Zelle, Venmo, PayPal, and other cash apps, is that they are encrypted from end to end so no one can intercept the data and steal your information to commit fraud. As the technology evolves other types of digital wallets are emerging. Some cryptocurrency apps allow you to transfer funds into payment apps for use. Crypto is becoming a more popular payment format.

Are Digital Wallets Safe?

If you are worried about your information stored on these digital wallet services, don’t be. For example, PayPal stores your card information on firewall-protected, secure servers that do not have direct access to the internet.

Apple Pay uses tokenization. Instead of your credit card or financial information, it uses a randomly generated code that, if stolen, wouldn’t mean anything to the thief. Your card number and other details never end up in a vendor’s system using Apple Pay.

Additionally, your Apple Pay credit card exists only on the phone. Although you could order a real card, you don’t need to. The number is hidden within the app, and only you can access it when you need to. Otherwise, you can use the payment method across any device on the Apple ecosystem without ever exposing your card number, expiration date, or personal details. Everything is hidden from view

Many digital wallet apps use other techniques to isolate them from interacting with any other apps on your phone if it has been infected with malware.

Ways to Keep Your Digital Wallet Even Safer

Although your digital wallet is incredibly safe, there are ways you can keep your digital life and your identity even safer.

  • Keep your phone and watch locked with secure codes and biometrics like facial recognition and fingerprints.
  • Never share your passwords or passcodes with anyone.
  • Be discreet when entering your codes and unlocking your phone. You never know who might be watching.
  • Never use public Wi-Fi to log onto banking or other financial services without using a VPN.
  • Install antivirus/anti-malware software on your device.
  • Never install apps from untrusted sources (use the Apple Store and Google Play Store).
  • Turn on “find my….” apps to locate and wipe the data off your phone if it is stolen.
  • Before choosing a digital wallet, read reviews, and check out their privacy policy and security safeguards.
  • Review all your financial transactions each month to look for anything suspicious.

You might find that switching to a digital wallet for all your purchases gives you peace of mind and a feeling of more control.

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