What You Should Know About Mobile Wallets

According to a recent study, the average American carries four different credit cards in their wallet—in addition to debit cards and loyalty cards. This can make for over-stuffed wallets, cards easily lost at the bottom of a purse, and plenty of opportunities to misplace that loyalty card you need to get a free breakfast sandwich. Mobile wallets offer a convenient, cashless, weightless solution to all of the plastic you’re toting around.

A mobile wallet is an application on your smartphone that stores payment information from your credit cards and debit card, loyalty cards, airline frequent flier numbers, coupons, gift cards, and even public transportation passes so you can pay for things with just a tap of your phone. The most popular mobile wallets, including Apple Pay, Google Wallet, Android Pay, and Samsung Pay, appear on their respective brand smartphones as native apps—meaning they come with the operating system (OS). Others, like PayPal and brand-specific wallets such as Walmart Pay and Starbucks Wallet, need to be downloaded from an app store.

Acceptance of mobile wallets is increasing at retailers; however, like credit cards, your mobile wallet will only work at retailers that accept it as a payment method. Your favorite shoe store may only accept Apple Pay, while your local hardware store accepts Google Wallet and Samsung Pay.

How do you set up a mobile wallet?

The mobile wallet that comes with your smartphone will usually take fewer steps to set up and use than a merchant-specific wallet, although using merchant wallets can earn you bonuses for shopping with them. Remember, you can still upload and use retailer loyalty cards with Apple, Android, and Samsung Pay and get your points, but downloading and using a merchant wallet is different.

Setting up a mobile wallet is easy. Open the app and add the information for each card you want to store in the wallet, either by taking a picture of the card or entering the information manually. The app will have you select one of your cards as the default payment option. If you want to use another payment option later, you’ll need to go into the app and select the new card before making a purchase.

How does a digital wallet work?

The convenience of mobile wallets is thanks to near field communication (NFC) technology, a type of wireless communication that’s actually a subset of RFID (radio frequency identification). NFC uses a specific RFID frequency, which only transmits over a few inches, to transfer your payment information to the merchant’s point of sale (POS) system with a swipe or tap of your phone over the payment terminal.

Are mobile wallets secure?

Mobile wallets use multiple layers of security to protect your information. First, you must open your smartphone using a passcode, touch ID, or facial recognition before you can even access your mobile wallet. From there, the NFC-enabled merchant terminal and your smartphone use encrypted information to communicate and complete the payment.

The encrypted information—credit card number and security code, your bank account information, etc.—is dynamic, meaning it changes every time you use your mobile wallet.

For example, Apple Pay uses a technology called tokenization to protect your banking information. When you take a picture of your credit card and load it into your iPhone’s wallet app, Apple sends the details to your card’s issuing network. The network replaces your banking details with a series of randomly generated numbers (called the “token”). The token is sent back to Apple to program into your phone. These tokens change each time an NFC transaction takes place between your iPhone and a store’s POS terminal.

All of this means that if fraudsters were to copy, or clone, the token’s set of random numbers, it wouldn’t be useful because they could not extract from it any banking information.