You can hardly go into a drugstore or convenience store these days without seeing an option to pay using a mobile wallet such as Android Pay (formerly Google Wallet), Samsung Pay, and Apple Pay. These mobile wallets can hold your credit, debit, and prepaid card information—along with other cards—in your smartphone.
Only about 15 percent of smartphone owners use them to pay for purchases, according to the latest survey data from the market research firm CMB, but usage almost doubled from 2013 to 2015. And CMB says it will continue to rise over the next few years.
Here are five reasons to be part of this trend along with some caveats.
Mobile wallets offer increased security. They’re safer than carrying a credit card or cash in your wallet. That’s because information stored in mobile wallets is encrypted, so the details of your credit card, for instance, aren’t accessible to others. When mobile wallets transmit data to make payments, they never transmit your actual account numbers. Instead, they use encrypted payment codes. And your phone can’t be opened without your fingerprint or a personal identification number, so getting to your data is much tougher than opening up your wallet or pocketbook.
Even if a thief bypassed all the security, the risk to you is low. Mobile wallets usually require an underlying credit or debit card to fund transactions, and those cards limit your liability for erroneous or fraudulent charges to little or nothing. (The prepaid cards we rated can also be stored in mobile wallets, but you must register those cards to qualify for the protection.)
Retailers widely accept payment by mobile wallet. Samsung Pay can be used at more than 10 million U.S. stores, Apple Pay at more than 3 million stores, and Android Pay at more than 1 million stores. The numbers will grow as retailers upgrade their payment card readers. The new readers come with near field communication (NFC) technology, which is used by mobile wallets to transact payments with cash registers.
Samsung is the most widely available because it uses NFC technology and works with a second technology, Magnetic Secure Transmission, that mimics more securely the way a magnetic stripe works on a traditional credit card, according to Shruti Sehgal, a company spokesperson. That technology is already incorporated into many card readers.
Mobile wallets can be used for online shopping. Increasingly, retailers are making it easy to access your mobile wallet while you’re on their websites. That can make online checkout much more convenient, removing the need to type in so many payment card numbers, especially on phone screens.
Loyalty rewards programs can be stored in a mobile wallet. When you go shopping and use your mobile wallet to buy, say, breakfast at Dunkin’ Donuts, any points or discounts can be automatically applied at checkout. No need to carry a key chain with lots of store tags attached.
Mobile wallets may soon make store checkout faster. There are apps being developed that will let you speed through a store’s checkout lanes or use your mobile wallet to pay while you’re still walking in the aisles, says Amitaabh Malhotra, chief marketing officer for OmnyPay, which creates such functions for apps.
There Are Risks
Consumers should realize, though, that there are some potential drawbacks to using a mobile wallet. One could be increased fees. Because merchants pay fees to process cashless transactions, they can then pass on that cost of doing business to consumers in the form of slightly higher prices—just as they do with regular credit cards.
When consumers pay by mobile wallet, they also risk sacrificing some of their privacy. Retailers and banks can collect data based on the transactions we make, so they know the products we like to buy and the stores that we frequent. They can then use that information to target advertising.
But a bigger privacy concern is the unanticipated use of your data, because privacy policies tend to give broad permission for uses that may not even exist yet, says Claire Gartland, consumer protection counsel at the Electronic Privacy Information Center.
The biggest risk, though, could be a practical one. If your phone battery runs out of power, you’ll have to scramble to find cash or, possibly, an old-fashioned credit card.