What is a digital wallet and is it safe? (2024)

FAQs

What is a digital wallet and is it safe? ›

A digital wallet serves as an extra-secure means of storing credit cards and other forms of payment that can be used to conduct transactions. Most major credit cards can easily be added to a digital wallet, except for many prepaid cards, business cards and cards issued outside of the U.S.

When using a digital wallet for payments, transaction data may be tracked, leading to privacy concerns about the security of personal information stored digitally. The idea that third parties could track and analyze your financial behavior is a significant privacy concern for many users.

Contactless forms of payment such as digital wallets are always more secure than swiping a card, he added, noting that scammers are still known to put card skimmers on credit card readers to steal the customer's information. If you use a digital wallet, “you are always going to be in control,” McKnight said.

Digital wallets often provide enhanced security through information encryption, making them safer. However, if an unauthorized individual were to gain access your device, they could potentially access your digital wallet, putting your personal information and financial assets at risk.

Secondly, if you haven't locked your phone (with a password or biometric lock), your digital wallet is easily hackable; a thief could simply access your financial information and make a number of purchases or even withdraw money from your bank account before you've even realized your phone is gone.

Digital wallets allow you to pay when you're shopping using your device so that you don't need to carry your cards around. You enter and store your credit card, debit card, or bank account information and can then use your device to pay for purchases. Digital wallets can also store: Gift cards.

Although banks claim that RFID chips on cards are encrypted to protect information, it's been proven that scanners—either homemade or easily bought—can swipe the cardholder's name and number. (A cell-phone-sized RFID reader powered at 30 dBm (decibels per milliwatt) can pick up card information from 10 feet away.

Digital wallets like Google Pay and Apple Pay are generally considered safe because they follow the global security standards set by the PCI. In fact, they're often considered safer to use than physical cards.

Digital wallet fraud involves unauthorized activities exploiting a person's digital wallet for illicit transactions. This may include using stolen credit card information. It may also involve creating fake digital wallets to trick individuals into revealing payment details. Fraudsters employ various tactics.

How do I protect my digital wallet? ›

Always protect your digital wallet with a lock, whether a unique passcode, fingerprint scan, or facial ID. This is the best and easiest way to deter cybercriminals. If you use a numerical code, make it different from the passcode on your phone. Also, make sure the numbers are random.

“For apps like PayPal and CashApp, the FDIC insurance is there. But for payment functions in more international apps — such as WeChat — your money might be at risk if a hacker steals the account information,” Salter says.

Account takeover on digital wallets

Most of this data is swiped through phishing attacks, credential stuffing, data breaches and card skimmers. Stolen credentials can be used to identify other accounts with the same logins.

Debit and credit cards

Not only are they quick and easy to use, but they offer a relatively high level of security and protection of your private data. If you're using a credit card, you don't actually pay for the goods or services until your credit card bill is due.

Data breaches and hacking attempts remain a severe concern for digital wallet users. Despite robust security measures like encryption and tokenization, no system is immune to cyberthreats. Hackers continually develop sophisticated methods to infiltrate networks and access sensitive data.

However, the widespread adoption of digital wallets is not without its challenges and potential drawbacks. Overspending and loss of budget control, privacy and security concerns, and limited adoption among certain demographics are some of the challenges that businesses and consumers must navigate.

Cons of Apple Pay

Apple Pay is not accepted at all retailers and not compatible with all banks or card issuers. Backup may be required, just in case. Apple Pay only works if your phone does. You may still need to carry a physical credit card as a backup in case your battery dies or you misplace your phone.