Mobile Wallets 101

Your smart phone already works as a media player, newspaper, GPS, watch, camera and social network hub. Now it can serve as your wallet too. While mobile payments are making their way, the technology is also raising questions about security and privacy. No matter, how convenient it is, mobile wallet acceptance rates are relatively low because users are wary of security and privacy issues related to new technology usage.

Key areas of concern include loss of privacy, loss of security around financial transactions and usability of the application. However, it has been observed that despite these concerns, mobile wallets are much safer than current credit cards.

Most mobile wallets such as Samsung pay or Apple pay depend on Near Field Communication (NFC). The financial information between the bank and the mobile wallet application is passed through a token in place of customer’s account information. This token is unique to the transaction in a sense that each time when mobile wallet is used to make a transaction, a new token is generated. The token is in fact an encryption that allows financial institution to comprehend the unique data of each transaction and execute the transaction instructions. This process is named as “tokenization”.

The process of “tokenization” is making mobile wallets the safest way to transact as data is transferred as a string of numbers and alphabets. Hence, it is hard for thieves to interpret the transaction. Even if they intercept, it is totally useless for them since the data is encrypted.

In terms of the retailer breaches of late, the additional tokenization and encryption processes help a lot. Most of the breaches intercepted or downloaded unencrypted transaction information, but through the tokenization processes employed by Mobile Wallets, plain text transactional information is never stored or transmitted on Point-of-Sale devices. However, another issue arises; that is, what happens if the handset is stolen or misplaced? The solution is biometric forms of user authentication. Through cooperation between handset manufacturers on fingerprint scanners and camera API’s, financial institutions can verify the handset is being used by the account owner and not a thief. Face recognition technology is also checking the “liveliness” of face and make sure that there isn’t any cheater who is just holding the picture up to the phone.

Handset manufacturers, software companies, and financial institutions are all making their own mobile wallets, and it is up to the consumer to decide their best option. The additional security burdens of late, and high adoption of Samsung and Apple devices makes mobile wallet adoption a likely trend over the coming months. Look forward to additional incentives, features, and security benefits as adoption increases as well.