Using a digital wallet can streamline and speed up payments by including payment methods on your smart device or computer. But is it safe to make payments with a digital wallet? If used correctly, a digital wallet can be just as safe—or safer—than a physical wallet. Here's what you need to know.
A digital wallet, or mobile payment service , can store a wide range of payment options, including credit cards, debit cards, gift cards and bank accounts. By storing your payment information electronically, they offer a convenient—and generally safe—way to pay for purchases with a mobile phone. Common digital wallet options include Apple Pay, CashApp, Google Pay, PayPal, Samsung Pay, WeChat Pay and Venmo.
According to a 2022 Experian survey, 62% of respondents have used mobile wallets. Digital wallets offer fast and easy payment options, but are they safe? While using your phone to make purchases can be safer and more convenient than carrying around your wallet, cash or credit cards, using a digital wallet still comes with some risks.
When you use your digital wallet to make a purchase, the app creates a token, or random identification number, that's used instead of your actual account number. This helps protect sensitive data, such as your credit card number. Digital wallets also use encryption technology to help safeguard your personal information from hackers.
According to the Federal Trade Commission (FTC), most apps offer secure protection and Wi-Fi networks aren't as risky as they used to be. But the FTC also reports that identity theft more than doubled from 2019 to 2020, up 650,572 instances to 1,387,615. So, if you're using an unreliable network or someone happens to peer over your shoulder while you're entering your password, the information in your digital wallet could be compromised.
Keeping your credit cards and cash safely stored at home can keep your physical financial assets safe. But what happens to your digital wallet if you lose your phone while you're on the go, or worse, your phone is stolen?
Because digital wallets are typically stored on your mobile phone as an app, you could lose access to your payment apps if your phone goes missing—especially if you can't access your accounts from another source, such as a computer. And if you don't have adequate password protection and your phone gets into the wrong hands, your digital wallet could be used to make fraudulent purchases.
In light of recent bank failures, the Consumer Finance Protection Bureau (CFPB) has raised growing concerns about the lack of regulations on the funds people store in some types of digital wallets. While bank accounts and the funds held in them are subject to strict federal regulation by the Federal Deposit Insurance Corp. (FDIC) and insured by the FDIC up to $250,000 per account holder, not all accounts offer the same protections.
Popular digital wallet apps that allow users to keep a balance in the app, like PayPal and CashApp, are also usually protected by their partner banks' FDIC insurance. But other payment apps, such as WeChat Pay, are instead categorized as money transmitters, which are commonly used for international remittance payments. These apps don't come with insurance or regulations like traditional banks, so any funds that are stored in these accounts could be lost if something goes wrong.
If the coronavirus has highlighted any trends, a big one is that people don't want to touch things they don't need to.
Most of the credit cards in your wallet probably offer contactless payment capabilities these days. With just a simple tap on the card reader, it's a win-win for you: your data is more secure, and you'll encounter fewer touchpoints. I've also found that these payments are faster, meaning more convenience on my end.
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Another increasingly-common trend is mobile wallets. You can load all of your credit and debit cards — as well as boarding passes, tickets, loyalty membership cards and more — all in one place. Whether you have an Apple or Android device, you can access your mobile wallet via your smartphone or smartwatch.
With the rise of mobile wallets, you may wonder if it's a good idea to load all your cards on one app. In this guide, we go over everything you need to know about mobile wallets and whether they're safe.
There are many mobile wallets to choose from. Perhaps the best (and easiest) option is to use whichever mobile wallet comes preloaded on your smartphone — whether that be Apple Pay, Samsung Pay, Google Pay, etc.
No matter your preference, setting up your mobile wallet should follow a similar process. You'll add the cardholder's name and the credit card number, along with the expiration date and CVV number. Your bank may ask you to verify your card information with a two-step authentication process. After that's complete, you're ready to begin using cards in your mobile wallet.
I've loaded multiple credit cards and my Priority Pass card into my mobile wallet. (Screenshot from Apple Wallet)Once you've loaded all of your cards, you'll be able to see them all lined up in your mobile wallet. Beyond the type of card and the last four digits of the card number, the full credit card number or any sensitive information isn't visible on your device. This keeps your information secure in case someone gets access to your phone.
Related: Best contactless credit cards: Tap to pay
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You'll select one card as your main card, which will be the default method of payment whenever you use your mobile wallet to pay.
Anytime you see a contactless payment symbol, you can pay with your contactless card or your mobile wallet. You'll then hold your credit card, phone or smartwatch near the payment reader. If you're paying with your phone or smartwatch, your payment won't go through until you verify the purchase with facial identification, your fingerprint or your passcode, which adds an extra layer of security.
Related: 3 ways to pay without touching anything
While it may seem dangerous to load all your card information onto your phone or another device, you should know that mobile wallets are safe from credit card fraud. Your data is encrypted and cannot be seen by the merchant (or anyone) once you upload your card details to your mobile wallet.
This is because mobile wallets benefit from tokenization, meaning that your full credit card number is replaced by a randomly generated number, or token. Consider this compared to traditional payment methods or using your card to dip or swipe at a payment reader. If you pay for a meal at a restaurant by swiping your card, a hacker may be able to retrieve your card information from the merchant's payment reader. When paying with a mobile wallet instead, your true card numbers are safe thanks to tokenization.
But what if your phone is lost or stolen? Couldn't someone just use the credit cards loaded into your mobile wallet? It's not likely. This is because you need to enter a passcode or other method of authentication before using your mobile wallet to pay for a purchase. As long as you create a secure passcode or can remotely wipe sensitive information from your device if it's lost or stolen, it's virtually impossible to get access to your cards.
In fact, Apple recently released three separate videos in the U.K. touting Apple Pay as more secure than credit cards, highlighting these very features. If you're interested, those videos are here, here and here.
Remember that you can also deactivate your card immediately, should you lose either your physical card or your phone with the card loaded into a mobile wallet. In this case, notifying the issuing bank will result in a new card being sent to you in the mail. In the meantime, you won't be liable for any unauthorized charges on your credit card.
Related: Credit card fraud: How to spot and report it
The Federal Communications Commission also has a list of best practices for mobile wallet users that includes tips like being mindful of your surroundings when making payments, using unique passwords for each app on your phone and making payments while connected to public Wi-Fi networks.
Admittedly, I have lots of credit cards to keep up with — 26 at present. I'm a huge fan of Apple Pay, my mobile wallet of choice. This way, I only have to keep a few cards on me at once (whether I'm prioritizing a particular card to earn a sign-up bonus or striving to use the best credit card for each spending category, such as everyday spending, groceries or dining).
If you're often thinking about which cards to use for which purchases, it's nice to see all your cards displayed on one screen. I find this easier to sort through than carrying around a physical wallet with 26 credit cards in it. Admittedly, I don't have all of my cards loaded into my mobile wallet at the same time. (There's usually a limit.)
(Photo by DjelicS / Getty Images)Of course, there are a few cons to using mobile wallets. While mobile wallets and contactless payments have been on the rise (especially in the past few years), some merchants may not offer this payment option at all. Therefore, you shouldn't totally rely on a mobile wallet; rather, it should serve as a backup payment method to the main cards you keep on hand. Additionally, the tap-to-pay feature may stop working at some of these terminals without explanation, and not having a physical card with me forced me to abandon a purchase at my local CVS recently.
In terms of security, the risks in using a digital wallet are much lower than the risks associated with losing your physical wallet or exposing your credit card number when swiping the card. Because I have to authenticate my payment (which can be done with face identification, passcode or fingerprint), it's unlikely that my cards will be used if someone steals my phone. The only downside is that you'll need to set up a passcode for your Apple Watch to use Apple Pay on your watch in addition to your phone — though this is a momentary inconvenience for the sake of increased security.
To answer the question: yes, mobile wallets are safe. When you load your card information onto your app, your data is encrypted and tokenized, making it more secure than traditional payment methods.
While you shouldn't solely rely on a mobile wallet, as not all merchants may accept contactless payments, they're becoming increasingly common. That's great for convenience and security, which don't often go together.
Additional reporting by Stella Shon.
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