People are becoming accustomed to hailing cabs, reserving hotel rooms, and video chatting family and friends using their phones. So it only makes sense to pay for groceries, movie tickets, and other purchases with a quick scan of a smartphone-based app called a mobile wallet. But what is a mobile wallet, and how does it work?

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First, it helps to understand that there are a few major categories of mobile wallets — those offered by Apple, Google and Samsung, for example, those offered by major banks, and still others offered by merchants, in which you download their app onto your device and store payment credentials in their app to use for payments. They work by either storing your payment credentials on your device, or off the device on a server. At the point-of-sale, wallets such as Apple Pay can be used at merchants accepting Apple Pay, while merchant wallets can only be used at that merchant’s stores.

Given their convenience and enhanced security features, they are starting to gain traction among consumers. While 52% of North Americans were “extremely aware” of mobile payments, just 18% of respondents regularly used them, according to a 2015 Accenture survey. However, that number is on the rise. An eMarketer forecast predicted that the value of mobile payment transactions would grow 210% in 2016 to $27 billion, from $8.7 billion in 2015.

How Do Mobile Wallets Work?

Most mobile wallets work through an app on your smartphone by scanning a barcode, tapping or waving at the point-of-sale. This means you can make a purchase by positioning your phone in front of a terminal at checkout. The phone transmits your payment information, then asks you to verify your purchase by entering a code, entering a pattern or taking your fingerprint.

And a bonus to using mobile wallets? Phone provider wallets may integrate with loyalty and rewards programs, and merchant wallets may let you buy and store gift cards, order and pay in advance, and use coupons.

When using a mobile wallet, the same good habits should apply as when you’re using a plastic card. Choose your “default” card carefully, and make sure that your sound financial behaviors follow you into cyberspace.

Are Mobile Wallets Secure?

Mobile wallets rely on EMV technology at the point-of-sale, a payment method already in use in Europe and increasingly being adopted by U.S. merchants, that creates a one-time code that is sent to your bank over a network for approval.1

This means that, with each transaction, your phone encrypts your information, which is taken by the terminal at checkout and then sent to the mobile wallet provider, who decrypts the information, identifies you, and then sends the request to the payment processor, who then requests the money from your bank.2

Depending on the mobile wallet you choose, you may enjoy other features. Many credit card issuers do not hold cardmembers liable for unauthorized transactions on their account, adding another layer of protection.

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So, what is a mobile wallet? It’s yet another way that your smartphone is taking over for an important tool in your life — first the calendar and the camera, and now your plastic cards.


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