Today, the quickest and easiest way to pay is with your phone – just hold it up to a register, open an app, or use your thumbprint and you’ve paid for absolutely anything. But is carrying your credit cards digitally really a safe way to handle your money?
Here’s what you need to know about your smartphone’s mobile payment apps and the security of your money.
Should You Trust Mobile Pay Platforms?
According to Experian¹ in a report by CNBC, more than $721 billion in digital payments were processed in 2017. While one in 10 millennials uses mobile payment methods like digital wallets for every purchase, it’s taking longer for others to catch on. The same Experian survey revealed that 55 percent of people plan to keep using physical credit cards because they’re concerned about the safety of mobile payment technologies.
It doesn’t stop there, though. A survey by the American Bankers Association² revealed that, of the 25 percent of people who rely on mobile payment apps, only 12 percent of them trust digital payment providers to keep their information safe.
Ironically, however, mobile payments are significantly safer than virtually any other payment method out there today. If you’re among the many Americans who are still shying away from this technology, it’s time to brush up on the basics. When you do, you’ll be surprised to learn that not only are mobile wallets safe, but they’re also the wave of the future.
How Smartphone Wallets Work
Today, most smartphones are integrated with on-board digital wallets; popular examples include Apple Pay, Android Pay and Samsung Pay. Third-party mobile payment apps from brands like PayPal, Chase, and Starbucks provide additional ways to pay digitally. Digital wallets, which may also be called e-wallets, smartphone wallets, or mobile wallets, allow you to store payment information on your phone for easy retrieval and use while on the go. Once a digital wallet is set up, you can use your smartphone to make purchases both online and in brick-and-mortar stores.
Smartphone wallets aren’t solely for storing credit card information, however. Examples of other types of information that they can store include coupons, store loyalty cards, reward program information, plane tickets, concert tickets, and gift cards.
The underlying process by which smartphone wallets work illustrates why this technology is so secure. Any time you use your mobile wallet to make a payment, whether online or in person, the following occurs:
- Account information is encrypted by the smartphone – not by the bank or issuer.
- Via near-field communication technology, or NFC technology, a point-of-sale system relays information from the device to the mobile wallet provider.
- The mobile wallet provider (Apple Pay, Samsung Pay, or any other) decrypts this information, identifies which account you are trying to use, and checks your identifying information.
- When satisfied that you’re authorized to perform the transaction, the mobile wallet provider sends your payment information to the payment processor.
- The payment processor then contacts your bank and asks them to send the requested funds.
- After receiving the funds from the bank, the payment processor sends them to the store’s bank and informs the POS system that the transaction is complete.
- As you can see, when making digital payments with a smartphone, your bank information is never vulnerable. This applies both online and in physical brick-and-mortar stores.
Your Smartphone is More Secure Than Your Wallet
Like many people, you may be struggling to let go of the perceived security that’s imparted by an actual, physical credit card. However, the reality is that using your smartphone to make purchases around town is far safer than carrying around your physical wallet. If you’re not convinced, here are some examples of smartphone and mobile wallet security features that provide redundancy and keep your information safe:
Mobile sandboxing architecture: Modern mobile operating systems use something called sandboxing architecture, a technology that shields individual mobile apps from malware and drastically reduces the risk of hackers accessing your phone.
Near-field communication chips: Most smartphones are loaded with near-field communication (NFC) chips that allow nearby devices to transmit and exchange data. The data stored on these chips is encrypted; even if hacked, it’s unusable.
Tokenization: All smartphone payment technologies convey payment information through tokenization. This means that a new number, or token, is randomly used to represent your credit card number; the actual number is never used. These tokens are stored on chips in mobile devices or in the cloud.
Two-factor authentication: Many mobile devices and mobile payment technologies are enhanced by two-factor authentication. This means that in addition to a user ID and password, users must provide an extra piece of information that only they can provide. A great example is having to unlock an app or phone using your fingerprint after providing basic credentials.
Remote shutdown: Finally, while it’s true that you can lose a smartphone just as you can a wallet, smartphones can be shut down remotely by their owners. iPhones, for example, can be remotely shut down and wiped clean of all data for extra security.
Carrying Plastic Cards is Putting You at Risk of Theft
Thanks to the development of EMV chips, skimming and counterfeiting credit cards is much more difficult. As a result, fraud by use of counterfeit credit cards is decreasing. However, no-card-present fraud, in which someone obtains your credit card number and uses it, is skyrocketing.
Any time you carry a plastic credit card, you run the risk of physically losing it. Once it’s out of your hands, all bets are off. Skimming still happens, and the only surefire way to avoid it is by not using physical cards. On top of that, major data breaches – like the recent Equifax scandal – prove e-commerce sites aren’t impervious to hackers. It’s far better to save sensitive financial information in an encrypted mobile wallet than to save it online.
Let Your Smartphone Keep Your Money Safe
As unnatural as it may feel, it’s time to put away the cards and wallet and to put your trust in mobile wallets. If your physical wallet becomes lost or stolen, any paper money that’s in it is gone – and any cards can be used. If you lose your smartphone, on the other hand, you can access your mobile wallet remotely and turn it off in a flash, or just shut down the whole device remotely, and you won’t have to go through the ordeal of calling your bank to cancel all your cards.