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The Rise of Digital Wallets and Contactless Transactions

You are standing in line at the pharmacy, ready to check out. While fumbling around in your purse for cash or a card, you notice the person in front of you has simply scanned their smartphone across the payment card reader. In a flash, they've paid for their merchandise and are out the door, leaving you feeling like you have been lost in time warp. How did they do that? It's simple, really. A credit or debit card has been attached to a "digital wallet" which is then recognized by the merchant's payment terminal, authorizing the transaction. It is the same as if the card had been swiped or inserted into the payment terminal, except touchless and fast! Since the pandemic digital wallets have soared in popularity as a form of "contactless payment" that does not require you to handle a payment terminal or others to touch your card. By those who have adopted a digital wallet it is seen as convenient and more secure than carrying individual credit cards. And the contactless functionality can extend to other types of transactions, such as tickets, coupons, and more. In fact, a recent survey suggests that 50% of all 18- to 38-year-olds use digital wallets regularly. But other generations are catching on: 40% of Gen Xers say they’ve used a digital wallet in the past year, followed by 17% of baby boomers.

What is a Digital Wallet?

A digital wallet (also called a "mobile wallet") is an electronic method of securely storing and using your credit cards - and other types of cards, tickets, and coupons - so you don't have to carry these items physically with you. Instead, you use your iPhone, Android smartphone, or other smart device to make contactless transactions in stores, restaurants, drive-thrus, movie theatres, and more. You simply authorize a transaction by displaying a QR code on your phone for scanning or by tapping your phone on the merchant's NFC (Near Field Communication) reader at checkout. The merchant can complete the transaction securely without ever seeing your physical card, coupon, or ticket.

How are Digital Wallets evolving?

The concept of contactless payment apps has been around for the last decade and has evolved based on several angles of specialized need. Paypal was one of the first on the scene and is designed to allow more secure and anonymous online purchases. Digital payment apps, such as Zelle and Venmo, are primarily designed to allow a payment electronically between two or more individuals, also known as a peer-to-peer exchange or "P2P". Merchant apps, such as Starbucks and Chick-fil-A, are specifically designed to allow individuals to shop, purchase, and save at their stores. Then there are those apps that want to replace your entire physical wallet by securely storing multiple credit and debit cards, allowing you to select at each transaction which payment method to use. The most popular of these are ApplePay, GooglePay, and SamsungPay. The pandemic year of 2020 gave all of these digit wallet apps a huge boost in popularity and now we see the lines between these providers becoming blurry. For example, Paypal and Google Pay now allow peer-to-peer exchanges like Venmo. Venmo, on the other hand, will now allow you to make transactions at any merchant location where QR codes are accepted. Many merchants that have their own app have found it easier to accept payment from other digital wallet providers so they have extended their contactless payment options. When you are checking out in a store, restaurant, or other retail establishment, look at the card reader for either a digital wallet provider's logo or QR code, or the sideways Wi-Fi symbol that indicates the presence of NFC (Near Field Communication).

What is the difference between NFC, QR codes and Barcodes?

NFC is a technology that allows the anonymized transfer of digital information between devices if they are within 20 cm (or a little less than 8 inches) of each other and is the technology behind Apple Pay, Google Pay and Samsung Pay, the most popular digital wallets. NFC provides an anonymized connection between the merchant and your linked credit or debit card, which allows the transaction to pass through securely in real-time without transmitting your actual card number. This process is called "tokenization". At the retailer's payment register, you simply unlock your phone and tap it on the NFC terminal. The digital wallet app will recognize the NFC reader, display the transaction, and ask you to confirm the payment. One click, and you are done.

QR codes and barcodes store information visually. Barcodes are those black and white narrow rectangles (bars) printed on items and sometimes displayed through an app. You have probably used barcodes if you have been through the self-service check-out at your local grocery store. QR codes are square and a little larger than barcodes, and much less linear. They sometimes look like a mini abstract painting, if it were only black and white.

Barcodes and QR codes are used in conjunction with digital wallets in two different ways. The first and easiest to understand is a retailer app, such as Starbucks or Chick-fil-A. In this case, a linked credit or debit card will fund a pre-paid balance of cash that is maintained in the retailer's app. This makes the app a digital version of a reloadable prepaid gift card. When making a purchase you simply open the app and show the barcode or QR code generated by the app to the retail employee. The employee scans the code and the amount of purchase is deducted from the balance, just as if you had used a physical gift card at the store.

In other cases a merchant may display a QR code at their payment register that represents their store. In this case when you are ready to make a purchase you scan the store's barcode which activates your digital wallet (think Paypal or Venmo). The digital wallet confirms that you are making a purchase at the selected location and you type in the amount of payment and "voila", the merchant receives the payment. Advances in QR code technology are quickly evolving so that some merchants can now generate a dynamic QR code to match the amount of the consumer's purchase so no amount needs to be typed in. You simply click to confirm the transaction.

Is a Digital Wallet Safe?

When compared to a traditional wallet the use of a digital wallet is actually safer. Here's why:

1. Your Digital Wallet is Locked. Assuming that you have your phone locked when not in use, you must unlock your phone with either a fingerprint scanner, facial recognition or a passcode to allow a digital wallet transaction.

2. Your Actual Card Number is Never Shared. When your payment information is sent over NFC waves, or over the internet via QR code, it is encrypted in the form of a "token". The merchant never receives your actual card number. If the merchant has a data breach and your token is stolen, a new token can be issued without changing your card number or replacing your physical card.

3. Your Card Number is Not Stored on Your Phone. If your phone is lost or stolen your card number is not exposed like a physical wallet loss. And, even though your card information is not on your phone, most mobile phone manufacturers (Apple, Google, Samsung, etc.) and many third-party apps allow you to wipe the data from your phone remotely as an extra measure of security.

How Can I Help Keep My Digital Wallet Secure

• When signing up for a digital wallet for the first time make sure that you are on an official site for a reputable company before adding your personal information and your card information. Do not click on a link from an email or text message to begin the process.

• Keep your phone locked when not in use, and make sure it can only be unlocked with a strong password that is changed often, or better yet, use fingerprint or facial recognition instead.

• Keep your phone updated with the latest operating system and security patches.

• Sign up for banking transaction alerts on your accounts connected to your digital wallet so you can easily spot any unauthorized payments.

• Don’t use public Wi-Fi when accessing your digital wallet app and other online accounts. Your usernames and passwords could be compromised.

Power Your Digital Wallet with your <FINANCIAL_INSTITUTION> Credit or Debit Card

No matter which digital wallet app you choose to use, your <FI Card or Account Name> can power your digital wallet transactions. Since the transaction is passed through to your account at <FINANCIAL_INSTITUTION> you still enjoy all of the service and convenience of using your <Name of FI Card> directly. And remember, if you ever see any suspicious transactions, or you feel you might be a victim of identity theft, you can call on us. We have professional Identity Theft Recovery Advocates standing by to work with you to investigate and resolve incidents of identity fraud, even if it occurs outside of our institution.

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Whether you choose to use a digital wallet app, or you want to use your credit or debit cards as usual, and even or good ol' cash, there are thousands of ways that you can save money every day in the same easy, contactless way. If you are eligible for our Smart Savings Program, you can have the power of a digital shopping guru right on your phone, 24/7. Search for thousands of discounts on things that you purchase every day, whether your plans are for shopping, dining, travel, or entertainment for the family. Your Smart Savings "My Deals Mobile" app will tell you where the discounts are, for both local shops and national brands. You can save on online purchases or show-your-phone for a quick scan and a cash discount off your purchase! This is an easy way to learn about the convenience of contactless transactions without committing to a digital wallet just yet. And you and your family members can save an average of over $100 per month on your purchases. Ask us how you can get the Smart Savings app today at no cost to you.