It's hard to find a checkout area that doesn't offer a cloud of payment services like Apple Pay posted above it. Digital wallets are increasingly taking over payment processing in our daily lives. Thanks to the convenience of a mobile wallet, many customers already expect contactless functionality at checkout.
So, Cathay Bank wants to help guard you against common problems and risks and prepare you for using your digital wallet safely.
Digital wallets are a group of technologies that help automate payments at store registers and within online transactions.
Thanks to the numerous offers on the market, a digital wallet can come as an online service, which often includes a mobile wallet app and a website, or as a dedicated mobile device. It is essential to know that some wallets are less common than others, which may affect their acceptance.
The most common digital wallets are mobile wallets such as Apple Pay, Google Pay, Fitbit Pay, Garmin Pay, or Samsung Pay. These dedicated smartphone apps store your payment information and process payments through the phone's NFC tag. Which one you will use often comes down to your own mobile device. Android users will naturally use a Google Wallet or a Samsung Wallet. In contrast, Apple users utilize their equivalent via the Apple Wallet. Each will hold loyalty cards as well as debit cards and other information.
Online payment processors like PayPal, Skrill, or Neteller are secondary services. While some offer mobile apps, they originally started as web apps for online transactions. However, they may be less suitable for everyday use than the first category. For instance, they may not be accepted at the supermarket checkout—that is, unless you connect a digital wallet like Google Pay to an online payment processor like PayPal.
Then, there is the seemingly endless category of hardware wallets, often associated with cryptocurrencies. However, they can also hold fiat currency.
Like desktop crypto wallets, which are often software applications installed on your desktop or laptop computer, hardware wallets store your cryptocurrency data on a physical storage device. The difference between the two is that the latter can sometimes be used in stores.
So, a whole spectrum of products and service providers offer what is colloquially called digital wallets. Your usage preference and bank accounts will ultimately determine the right fit for you.
While the technology involved can take many forms — from smartwatches to NFC cards and smartphones — the payment process usually goes through similar steps.
When setting up your new device, most smartphones will ask you to enter your credit and/or debit card information.
You need to unlock your phone at the cash register through face recognition, a passcode, or Touch ID. Once it recognizes you, you choose one of the saved payment methods. Then, you hold your phone against the reader with the NFC symbol.
For some debit cards or more significant transactions, you may be required to enter your pin or sign the receipt on-screen.
In many cases, you can also use those digital wallets to pay online, for instance, in online markets or app stores. The process may differ depending on your device and operating system. Still, usually, you'll see the branded payment button at checkout. You tap it and verify through the process described before.
You may be thinking, "What happens if I lose my smartphone?" In that case, most mobile operating systems allow you to either mark your device as lost or lock it remotely. That will not only keep thieves from accessing contacts and private information, but it will also disable the payment feature on your stolen device.
If the worst should happen and you cannot, for some reason, lock your device, you can still get in touch with the card-issuing banks and have them block your credit cards. So, using a digital wallet gives you two safety nets since you don't need to carry around your cards to pay, and you have more ways to prevent misuse.
And if you're worried about those precious credit card rewards, don't be. While initially, some banks were slow to support digital wallets, leading to compatibility issues and loss of bonus points, that's no longer the case. Many banks will reward you for using a processor like Apple Pay or Google Pay, so you should keep everything in one place to keep track of your finances in a digital wallet.
In many ways, digital wallets can help prevent the pains that naturally come with credit and debit cards. The first credit cards were used in the 1950s when technological innovation meant waffle irons and transistor radios. So, it's no surprise you'll be exposed to more advanced risks today than back then.
For one thing, a card is just a card. If you lose your physical wallet on the street, your private information is now in the open. A digital wallet can provide a secure environment to store that information and allows you to only share it deliberately and consciously.
Unless you agree to a transaction, your data is safely locked away and guarded by modern-day encryption regularly updated to meet modern-day requirements.
You can benefit from two-factor authentication once your card is tied to digital payment apps. While some credit card companies offer 2FA verification for online purchases, that extra layer of security is otherwise hard to come by at a local store. Today's smartwatches will even identify you by tracking your heart rate after authorizing the first transaction. That way, you can conveniently charge credit card payments for the rest of the day if the device is on your wrist.
And you don't even have to share your actual card number to do that — either with the cashier or your device manufacturer. Most modern operating systems use device-specific hash numbers or a virtual credit card number to create, what's often called, a "trustless" system. That means you've got an extra layer of protection, either through anonymized data or an exchangeable virtual number, to protect your account.
Most device manufacturers even emphasize that they won't store or use your purchase history, even though the level of privacy might differ between brands.
Crypto wallets will provide a separate layer of protection, even though that often means they may be limited in their use cases. The main difference between digital wallets and crypto wallets lies in the currencies they carry, and the technologies required to do so.
While the payment process may look very similar to a crypto wallet, cryptocurrency advocates enjoy the benefits of pseudonymity and an extra layer of encryption, protecting your transaction details from unwanted observers.
While the benefits of digital payments are hard to deny, that doesn't always mean everyone will jump on the bandwagon immediately. So if you finally want to plan that post-pandemic trip, it's advisable to research the overall acceptance of contactless payments at your destination.
While most Asian countries have embraced digital payments, some European countries have not. Even within Europe or South America, you will find great differences in their overall acceptance of digital wallets.
This may also affect you if you don't physically travel to other countries but perform transactions outside your home country. Legal regulations can vary by country and change over time. Even though digital wallets may be the perfect fit for your grocery shopping needs, you could end up paying fees or being limited in your options in other countries.
The biggest benefit of digital payments certainly lies in their convenience combined with modern-day security standards. As digital wallets are becoming the norm, they offer more extensive services, such as additional payment plans independent of your bank account.
That said, these perks also make you rely on the technology in your pocket. So, if you happen to lose your smartphone or it just won't work, you don't have any way to pay. While that's not a huge problem at the store around the corner, you should consider this risk when traveling.
It's also worth noting that, while convenient and primarily safe, digital wallets come with a learning curve, especially if we're talking about securing a crypto wallet. That learning curve sometimes also makes you vulnerable to new risks, such as phishing scams or data breaches. Choosing a reputable digital wallet provider can guard against most of these problems. Still, it's worth pointing out that they aren't perfect, either.
Just like every technology, digital wallets have upsides and downsides. What counts is how you use them. They can be a blessing if they suit your lifestyle, and you stick with the best security practices. But it's best to pick the right solution for your lifestyle, have a backup plan for those rare emergencies, and plan for future vacations. Could society ever go back to physical wallets? Only time will tell.
This article does not constitute legal, accounting or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.