In the past 10 years, digital wallets have grown more and more common as a way for people in the United States to pay for things. Using apps instead of credit cards or cash can make life easier for shoppers and sellers. However, the convenience of digital wallets also introduces security issues that we need to think about. This article explores the safety risks that individual users and merchants accepting digital payments might face. We weigh the upsides against the downsides and suggest ways to increase protection. The goal is to understand both the advantages of digital wallets as well as the potential threats they pose.
Security Risks for Users
One of the most common payment methods in the US, digital wallets create an attractive target for hackers. Digital wallets store sensitive user data like credit card details and bank account numbers. A breach of a digital wallet provider exposes this information.
Even individual user accounts on digital wallets can be vulnerable to attacks like phishing scams, where users get duped into revealing login credentials. Fraudsters can then gain access and use the stolen payment instruments for fraudulent transactions. This can result in financial loss and identity theft for users if early detection does not happen.
Additionally, losing access to the mobile device or forgetting the account password can lock out an individual user from their digital wallet account. Without adequate account recovery options, this can cut off access to the user’s stored funds and cards.
Security Risks for Merchants
Merchants in the US accepting digital wallet payments also take on additional risks, ranging from chargeback fraud to account takeovers by hackers.
Since digital wallets allow users to store multiple payment instruments under one account, it becomes easier for fraudsters to use stolen payment accounts for purchases from merchants. Even if the merchants receive payments successfully, the legitimate account owners can dispute the fraudulent transactions later leading to chargeback losses for merchants.
Benefits of Digital Wallets
While the risks cannot be ignored, digital wallets continue to rise in popularity due to their ease of use, convenience, ability to avoid carrying cash, potential rewards programs, and smooth integration across e-commerce stores and apps. Contactless payments using digital wallets provide a hygienic payment method in the US amid health safety concerns.
For merchants, digital wallets provide access to a broader customer base. Additional benefits are faster checkout completion, and lower payment processing costs. Integrating with digital wallets has also become easier for merchants with the availability of developer APIs and solutions tailored for e-commerce stores, websites, and mobile apps.
Recommendations for Users
Digital wallet users in the US should adopt best practices not just during initial signup and usage but also for account recovery and inactive wallet accounts.
Using strong and unique passwords for the wallet account and enabling two-factor authentication are important starting points. Linking the wallet to a secondary email address and mobile number creates additional login and recovery options. Users must avoid saving passwords or other credentials within the wallet app itself making the stored information more vulnerable.
It is also vital for users to monitor transaction alerts, report unauthorized charges promptly to the provider, avoid public Wi-Fi for accessing the wallet, and frequently update devices/apps used to access the wallet.
For inactive and deprecated wallet accounts, users must withdraw or transfer out any stored money and delete payment cards to minimize dormant account risks.
Recommendations for Merchants
The top recommendations for merchants to boost digital wallet security include:
- Integrate with digital wallet/e-wallet partners directly instead of third-party payment gateways whenever available. This reduces security gaps.
- Adopt tokenization techniques offered by digital wallet providers for payment processing instead of directly handling user credentials. This isolates merchant systems from stored payment information.
- Utilize risk management tools to identify fraudulent digital wallet transactions through parameters like inconsistent user location, transaction size, etc. Set appropriate fraud filters.
- Monitor transactions daily for abnormal failure rates, average order sizes, and suspicious payment accounts indicating a breach. Conduct regular external security audits.
- Train employees to spot and report phishing attempts aimed at stealing merchant account credentials for digital wallets.
By implementing security best practices individually and collectively, users and merchants can continue to reap the benefits of digital wallet payments while keeping risks under control. As threats evolve, continued vigilance and adaptation of safety measures are vital for the sustainable adoption of digital wallets.
