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Digital wallets, also known as e-wallets, have transformed the way consumers conduct transactions in the modern economy. As the world increasingly shifts towards digital solutions, understanding digital wallets—how they function, their advantages, and measures to prevent fraud—becomes essential for you as a consumer.
What is a Digital Wallet?:
A digital wallet is an application on a smart device, typically used on a smartphone, that can securely store digital versions of your debit card and credit cards. Digital wallets can be used for various purposes, including online shopping, in-store purchases, and peer-to-peer (P2P) transactions. It is also common to store digital versions of user specific documents or passes such as event tickets, boarding passes, identification cards, gift cards, loyalty or membership cards, or hotel reservations for example. The most common types of digital wallets are Apple Pay, Google Pay, and Samsung Pay. The decision on which type of digital wallet to use will typically correlate with the type of smartphone you have.
How Does it Work?:
Once you have added your debit or credit card information into a digital wallet, wherever there is contactless or a “tap to pay” feature at a merchant’s point of sale terminal, you would be able to tap or hold your smartphone close enough to the card reader so that your information can be transmitted—rather than having to get into your wallet, find your debit or credit card, insert the chip into the machine and wait. When shopping online, the payment info you have saved in your digital wallet is available with a single click and auto populates the card information on the website’s checkout page. This eliminates the need to hop off the couch, out of bed, or wherever you are ordering from, locating your wallet, digging for your cards and manually inputting each number. You simply need to know the three digit security code on the back of the card, which is much easier to memorize than the full card number and expiration date.
While using a digital wallet your debit card or credit card number is encrypted and tokenized. This means none of your actual card or financial information is stored within the digital wallet itself. The information is encrypted by the app and then your encrypted data is tokenized when a payment is made. Tokenization refers to a process that takes a piece of sensitive data (like your debit or credit card number) and replaces it with a substitute value also known as a token.
Think about going to an arcade and buying tokens to play games. Each token represents a certain amount of money, and as long as you are at the arcade, you can use the tokens like money in order to play games like air hockey or Pac-Man, but once you leave the arcade the tokens have no value. This is how a digital wallet and tokenization help to keep your payment and card information safe. The token corresponds to a specific transaction and outside of that transaction the token is useless.
Why Would You Want to Use a Digital Wallet?:
Using a digital wallet is convenient.
Most everyone always has their phone with them. As long as a merchant accepts digital payments, you’ve got everything you need right in your phone. This eliminates the need for you to remember to bring along your purse or fumble through your wallet looking for the correct card.
Using a digital wallet is quick.
With a digital wallet, you can complete transactions with a few taps on your smartphone. This can save time at busy check out counters or crowded events.
Using a digital wallet is more secure.
The tokenized information transmitted via the digital wallet is more secure than swiping your debit card. That tokenized information shared by the digital wallet does not contain your actual card information, therefore it helps protect your card information against breaches that may occur in a merchant’s payment environment.
Digital wallets can assist in sending and receiving money.
Without having to hand over a check with your account information printed on the bottom, and without ever having to stop at the bank or an ATM to take out cash, you can simply pay your friend with just a click of a button.
How to Keep Your Digital Wallet Safe:
- When entering your card information into the digital wallet for the first time you will receive a one-time passcode to verify that it is truly you who is adding your debit card to the digital wallet. NEVER SHARE A ONE-TIME PASSCODE WITH ANYONE. This is key in safeguarding your information. Sharing this one-time passcode could result in allowing a fraudster to set up a digital wallet using your financial information on their phone. This would allow them to perform transactions and make purchases appear as if they are valid and authorized as they had the proper code to initiate the digital wallet set up.
- Beware of phishing scams. Be vigilant and avoid clicking unexpected links in text messages or emails. Be sure you are not sending your money to a bad actor. Always verify the source of emails or text messages before clicking links, paying a friend, or paying for a service or product.
- Enable two factor authentication. Protect your phone with a passcode, password, or use biometric data such as your fingerprint or face ID.
- Never leave your phone unattended in a public place.
- Don’t use public Wi-Fi. These unsecured public networks are vulnerable to hackers.
- Keep your phone’s software and security features updated.
- Always keep an eye on your accounts and verify the activity listed on your banking statements.
Conclusion:
Digital wallets can be a useful tool in conducting many types of transactions as they offer convenience, speed, and enhanced security. As times change, and spaces and events become “cash-less,” it becomes more and more beneficial to embrace digital wallets. Continue to stay informed about how to safeguard your personal information and remain vigilant against phishing and other scams, as you continue using –or consider adopting this new payment method.