A brief explanation of how digital wallet technology works, including what steps you can take to further protect your financial information.
Have you ever seen someone use their phone to pay for their purchase? If the answer is yes, then you witnessed a digital wallet in action. The convenience and reliability of digital wallets make them quite popular, but some consumers are still leery of this modern technology.
Some consumers may worry about their banking information getting hacked or a phone thief accessing their credit cards. However, digital wallets are incredibly secure and effective at protecting your personal and financial information. We’ll break down how digital wallets work and how you can add a few extra layers of security to offer some more peace of mind.
What is a digital wallet?
A digital wallet is an app on your phone that stores your credit and debit cards. It can also store concert tickets, plane tickets, coupons, gift cards, and more. Your pre-downloaded mobile wallet app may depend on what type of phone you use. So, if you have an iPhone, you’ll have Apple Pay, and with an Android, you’ll have a Samsung Wallet. However, other digital wallet apps are available, like Google Pay, Venmo, and PayPal, which you can download to your phone.
To set up your digital wallet, you’ll add your name, credit card number, expiration date, and CVV number (a three- or four-digit number on the back (VISA, Mastercard, Discover) or front (AMEX) of your card). Your bank will request a two-step authentication method to confirm your identity. When you’re ready to make a purchase, open the app and hold your phone near the point-of-sale terminal. Before you know it, you’re out the door with your coffee in your hand.
How do digital wallets work?
Digital wallets work using a combination of the following technologies to process payments:
Magnetic Secure Transmission (MST) – This type of technology is very similar to the magnetic stripe on your credit card. The mobile wallet app creates a magnetic signal, which is transmitted to the payment terminal after placing your phone on top of it.
Near Field Communication (NFC) – Apple Pay and Google Pay use this type of technology. NFC is a short-range wireless connectivity technology that occurs when two devices, like a smartphone and payment terminal, are in proximity to one another and can exchange data information.
QR Codes – The PayPal app uses this type of technology, where the app generates a scannable QR code to let you pay for your purchase.
Are digital wallets secure?
Digital wallets are very secure because of a technology called tokenization. Tokenization occurs when the electronic wallet applies an identification number attached to the consumer’s purchase. Instead of providing debit and credit card information to the merchant, this token is provided instead. The process ensures your bank account information is kept hidden.
Digital wallets also use encryption technology, randomly scrambling your financial and password information. So, it makes it much more difficult for hackers to collect your personal information.
In addition to tokenization and encryption, your digital wallet app should require an additional layer of security, like a passcode, PIN, fingerprint, or Face ID. This extra layer of protection helps prevent thieves from using your credit or debit card if they gain access to your phone.
How can you make your digital wallet more secure?
Even though electronic wallets are incredibly secure, it doesn’t mean they are without risk. So, for example, if you leave your phone unattended without security protection, then your information could be used to make purchases. You don’t want to lose your phone and have it end up in the wrong hands unprotected. Here are a few steps you can take to ensure your personal information is more secure.
Lock your phone
It’s essential that your phone requires a passcode, PIN, thumbprint, or Face ID to unlock your phone. If you’re using a password, make sure it is complex and contains a random selection of numbers. Also, never unlock your phone in a crowded, public area because you never know who may be watching. By making your phone password protected, you’ll add an additional layer of security to your personal device and information.
Connect to a secure Wi-Fi network
Make sure you’re connected to a secure Wi-Fi network. If you join a public network, your information is at a higher risk of being hacked. Free Wi-Fi makes it easy for skilled cybercriminals to hack into your private activity, unless you are also using a reputable virtual private network (VPN) downloaded on your phone.
Add extra layers of security to your phone
Adding some additional security apps to your phone can give you some peace of mind. Some apps allow you to restrict access to your phone even if it is no longer in your possession. You may be able to remotely lock your phone from a computer or wipe your private information and credentials. There’s also the “Find My Phone/Device” app, which lets you search your phone’s location from your computer or a friend’s phone.
Check your bank account regularly for fraud
It’s important to routinely check your bank accounts for suspicious charges. Every bank has an online website where you can review your most recent purchases. If you notice any suspicious recent transactions or withdrawals, then a criminal might have accessed your financial information.
You should be able to deactivate your credit or debit card immediately, so the thief can no longer make purchases with your cards. Be sure to notify your bank immediately if you suspect fraud.
A digital wallet is much more secure than a physical one due to its tokenization and encryption technology. That being said, you should continue to take precautions and add additional layers of security to increase your financial protection. As you begin using your mobile wallet in everyday life, you may wonder why you didn’t start using it sooner.
