Smartphones are becoming more integrated into every aspect of our lives. In addition to phones, tech-savvy users have turned their devices into mini entertainment centers, internet browsers and mobile offices. All you need is the right app and enough space, and you can do almost anything. The next phase in this process is to use smartphones to replace credit cards. But, has this technology matured to the point where digital wallets are a safe and viable option?
Digital Wallet Defined
Digital wallets, also known as e-wallets, were originally meant to provide an easy way to pay for electronic purchases. With the growth of smartphones, developers have taken this idea one step further and designed a way that users can pay for items at brick-and-mortar stores with their digital wallets, as well.
The digital wallet consists of software and information. Once the user downloads a digital wallet app, their personal information must be added. In most cases, the wallet is tied to an existing credit card or bank account, but it can go further than this. Some e-wallet applications are designed to hold the most common types of information that people include in their real wallets including driver's license and insurance policy data.
Am I Protected from Unauthorized Charges?
Many consumers are so used to being covered in the event of an unauthorized charge, that they don't give it a second thought. However, when it comes to whether you're protected from bogus billing with the digital wallet, the jury is still out. Speculators are saying that it could depend on the method used to fund each user's e-wallet. Here are the current choices:
What About Identity Theft?
Identity theft is a real possibility with a digital wallet. Like any personal information stored on your phone, you should play it smart and install security software to protect this sensitive data. At this point, no one knows if any protection will be embedded in the software to prevent hackers from picking up your information over an open network or to keep anyone from stealing it after they steal your phone. Depending on how the store's system retains the information, this could present another security concern.
Is it Expensive?
Expect to pay the same fees you would while using your regular cards. It’s possible that you may be subject to additional convenience fees when paying with your phone. PayPal Mobile and Square plan to charge merchants 2.9 and 2.75 percent of each transaction respectively, and Obopay has announced it will charge consumers a flat $0.50 fee per purchase when it totals more than $10. Even if the service provider charges the merchant, that cost will eventually be passed on to you, the consumer.
Is There a Standard?
If you're old enough, you might remember the big VHS/Beta controversy. These two formats fought it out for a few years before VHS won the battle and became the default standard. Although this is a moot point now that DVDs have taken over, there is an important lesson to learn. At this point, a few Internet and financial giants including Google, Visa, PayPal and all the major mobile phone carriers are planning to release digital wallet products at about the same time. If there are any conflicts between these items, the question will be whether they will work it out within the group or if there will be one clear winner. It might be smart to sit back and let the dust settle before jumping into this game.
According to Consumer Reports, only about five percent of shoppers are using digital wallets to purchase goods and services today. Before you join their numbers, read the fine print on any contract carefully and be sure you understand the details.
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