The Digital Wallet Takeover: The Tech Predictions for 2017 Series

In this episode of our Tech Predictions for 2017 Series, we take a closer look at financial technology from how digital wallets work to how hosting institutions keep your information secure and what you can do to further protect your information. If the term “digital (or virtual) wallet” sounds unfamiliar, it is still very likely you’ve heard of Apple Pay or Samsung Pay, the two applications leading the digital wallet market. The premise is simple: input your credit card or bank account information to your phone, and when the phone is presented to a device that accepts this form of payment, your account is debited, no cash or card required. As convenient as this sounds by cutting the number of cards and the amount of cash you carry, many consumers are reluctant to adopt this new technology, mostly due to security concerns.

Chances are that you’ve used a form of a digital wallet before, such as entering your payment information on a website and saving it for future purchases. This information is saved locally to your machine. The newer digital wallets involve an institution (a bank or tech company), which has your financial information saved on their secure servers, ready to access when you are at the register. The process is not at all dissimilar to using a conventional credit or debit card, or paying an online vendor through a service like PayPal. Digital wallet apps are great for lightening your daily load – not only can they link to a selected account, but many will store multiple credit cards as well as necessities like insurance information and store reward cards all in the same program.

Physically, the digital wallet works using either a scannable bar code on the phone’s screen, or a type of radio wave called Near Field Communication. Unlike RFID (Radio Frequency Identification, the type of technology that is used in highway toll passcards and passports), NFC works at very close range – a few centimeters at most. There are many concerns about the ease with which hackers can apparently steal RFID information, from a number of feet away with only a clear line-of-sight required. The limitation of NFC’s bandwidth means that one must be close enough to touch it in order to activate the connection – or potentially steal data.

The companies that host digital wallet technologies are keenly aware of potential for exploitation, and go to great lengths to ensure that financial data is only shared with approved parties. Users’ information is encrypted with SSL, secure socket layer, which is an industry standard technology used universally. Digital Wallets issued through major banks have the added security of the banks’ servers, which have several layers of physical and technological safeguards in compliance with their high levels of government security regulation. Apps also require user verification such as a PIN, fingerprint, or other passcode. Many wallets also offer protections such as generating unique codes for each transaction, or storing account numbers on a phone’s encrypted chip, which renders it almost useless to a criminal.

Loss or theft of a phone remains a big concern. Unlike a stolen credit card, which can be used by a criminal with ease, a user is able to add protections on top of their app’s security to keep a thief from accessing private information. One should always lock their phone and use a unique passcode as a first line of defense. The app should also be protected; many will allow passcode verification to be turned off for ease of use, but this is a level of security should always be enabled. Also activate any second form of verification either a question or a fingerprint. The more information the app needs in order to function, the less likely it can be used to steal from you.

Digital wallets are becoming more commonly accepted and safer to use every day. More renowned institutions are developing their own, lending legitimacy and normalcy to the practice of using your phone to pay with an existing line of credit. As always, do your research to find out which apps have the features and protections that work for you, and leave the cards at home and venture boldly into 2017.

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