You may be familiar with at least one banking application such as your bank, a credit union or credit card company’s app. If you do any type of online shopping, you may be familiar with digital wallets which allow users to connect different payment options to an online service to make transactions quicker and easier. If you save your banking, credit card or gift card information in a vendor’s website, you are likely using a digital wallet.
Mobile wallets are different from individual banking applications and are considered a unique relation to digital wallets. In general, mobile wallets are the digital equivalent to the physical wallet in which we carry money, and allow a user to keep money from multiple source (debit cards, credit cards, bank accounts, gift cards, etc) saved on a mobile device (Singh, Jaskirat & Gupta, Manish, 2016).
The Federal Reserve Bank of Boston, defines mobile wallets as “a digital container accessed by a mobile device (i.e., smartphone) that stores wallet applications, payment credentials, loyalty cards, and coupons, and is used to make proximity and remote mobile payments” (Pandy & Crowe, 2017).
The most popular mobile wallets include Apple Pay, Android Pay, Samsung Pay, and there are a dizzying collection of others, including countless retailer and financial institution-branded apps. Restaurants have also joined the mobile wallet industry (e.g., Starbucks, Meatheads).
Consumers mainly use mobile wallets for transactions in stores or restaurants, online shopping, and other ways. For online shopping, mobile wallet transactions are often considered in-app purchases (Connie Thienes, 2016).
Pros & Cons of Mobile Wallets
Many people are already utilizing mobile wallets, and according to Business Insider, “between 2015-2020 mobile payment volume is expected to rise by a compound annual growth rate (CAGR) of 80 percent, which would bring mobile payments volume to $503 billion by 2020.” With this evidence of mobile payment growth and impact, it is best to learn the pros & cons of using mobile wallets.
Pros:
- Convenience – mobile wallets can reduce the need for carrying lots of cards, especially if you can upload gift cards.
- Security – password and fingerprint protection can protect your cash assets and creditworthiness using a mobile wallet rather than a physical wallet.
Cons:
- Loss of Access – if your phone dies, you won’t be able to access your money via the mobile wallet.
- Increased Spending – mobile wallets may increase spending for some; the worldwide mobile payment revenue in 2015 was 450 billion U.S. dollars and is expected to surpass 1 trillion U.S. dollars in 2019 (com).
If/when you are considering ditching a physical wallet and switching to a mobile one, it is important that you truly understand the platform that you choose to use, its legal regulations and best practices for managing mobile wallets and your spending.
Mobile wallets may also hold prepaid amounts, depending on the application you’re using. When it comes to prepaid accounts, it’s important to recognize the protections that are unique to prepaid accounts vs debit or credit cards. The CFPB released federal protections for prepaid account consumers in 2016 that also covers mobile wallets using prepaid accounts.
Mobile Wallet Management Best Practices
No matter what type of mobile app you use (Apple, Samsung, Android, Starbucks, Meatheads, etc.,), ensure that both your device and the application itself is password and/or fingerprint protected.
Questions to ask when deciding on how to best protect your money when using a mobile wallet are related to:
- Security: Does the mobile wallet provide bank-level security and data encryption? Does it have options like passwords or fingerprint protection built-in? Does it require fingerprint access before completing a transaction? What type of data will be collected through the app and how will it be used? Will any of it be shared without my permission?
- Features: Can I enter all of my cards or accounts to one mobile wallet application? Are there limits to how many transactions I can make? Is there a maximum amount of cards or accounts I can sync? Can I remotely disable my location if my mobile device is stolen or lost?
- Best for Me: How will using a mobile wallet impact my spending habits? Will it encourage increased spending or decreased spending? Are there features I can leverage to better accomplish my goals such as; saving more, spending less or paying debt? Will it help me save me or will it cost me money?
To conclude, if you are unfamiliar with mobile wallets or would like to switch from physical wallets; ensure that you ask yourself the questions above or any others that cross your mind. Most importantly, do your research. Better safe than sorry!
Still have questions? Contact the University of Illinois Student Money Management Center at studentmoney@uillinois.edu.
