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Digital Wallets: Apple Pay Joins the Crowded Field

Digital wallets have recently been in the news with the launch of Apple Pay. Digital wallets in one form or another have been around for several years. Apple Pay joins other wallets such as Google Wallet, Softcard, LoopPay, and PayPal. Digital wallets allow you to make mobile and online payments. Most wallets allow you to store credit and debit card information. Some wallets store loyalty/rewards cards, membership cards, insurance cards, coupons, receipts, tickets, and even your ID. Others allow you to make other types of payments and pay bills.

All digital wallets typically use an app with or without specific hardware requirements. Some work only with specific smartphones or need additional hardware. Many of the newer wallets require NFC (near-field communication) technology. For example, Apple Pay currently works only on the iPhone 6 and 6 Plus which have NFC capability, Google Wallet and Software work on Android smartphones that have NFC capability, Softcard will work on non-NFC smartphones with a special phone case, LoopPay requires the purchase of a fob or a special phone case, and PayPal uses an app or sign-in at the register.

Digital wallets work by allowing you to select a payment method such as a specific credit card, debit card, or bank account and then completing the transaction by waving or tapping your phone. You can specify a default account if you have more than one account stored in the app. Your account information is encrypted and stored securely. Some wallets store virtual account numbers instead of your actual accounts and complete transactions with unique one-time use tokens.

Using a digital wallet can be convenient and can be more secure way to use a credit card than swiping it at a register. It may allow you to carry fewer cards, credit and loyalty/rewards, in your real wallet.

While digital wallets may become the preferred payment method in the future, there are drawbacks to using it now. Here are several:

  • Many stores don't yet accept mobile payments for various reasons including having to upgrade their credit card terminals to work with the NFC technology or contract/payment network requirements.
  • You may need more than one digital wallet because none of the wallets are accepted everywhere.
  • Wallets don't work when your cell phone battery is dead.
  • A wallet may not work with your cellular carrier particularly if it is a prepaid or no-contract carrier.
  • Poor or no cellular signal could prevent the wallet from working.

Since your digital wallet uses your existing payment cards, the protections provided by federal regulations and the industry for unauthorized transactions for credit, debit and prepaid cards apply to digital wallets. Experts recommend that you load credit cards instead of debit or prepaid cards because their consumer fraud protections are better.

If you want to try a wallet, determine which one will be most useful. Many wallets provide a way to find a store that accepts it. The following articles provide more information that can help you decide.