Skip to main content
Credit Card Marketplace

Are digital wallets safe to use?

Time to read min

      Quick insights

      • Any form of payment comes with some risk, but payment apps like digital wallets typically include security features to help protect your information.
      • These features often include password protection, encryption and tokenization.
      • You can take additional measures to help protect your financial information, including enabling biometric protection on your mobile phone.

      Whether you forget your wallet at home or prefer contactless payment methods, digital wallets offer another way to pay for purchases. But those new to digital wallets may be wondering if there are risks associated with storing personal and financial information on your phone.

      While traditional payment methods may pose potential risks like unauthorized purchases or identity theft, mobile payment services like digital wallets come with enhanced security features.

      Here are some things to know about digital wallets and their security features, along with a few additional precautions you can take.

      How digital wallets work

      Digital wallets allow you to make electronic transactions and store various payment options, including credit cards, debit cards and gift cards. You may also store coupons, event tickets and boarding passes.

      With a digital wallet, you can pay with your smart phone, whether shopping online or in person. Users need to download the digital wallet app of their choice and register an account. That usually requires providing personal information and linking credit cards and other payment methods.

      The process for making a purchase can vary depending on the app you use.

      Digital wallets and their security features

      Digital wallets are often equipped with security features designed to minimize risks associated with this digital payment method. These features help to protect against risks like unauthorized purchases and identity theft.

      Some security features digital wallets offer typically include:

      • Password protection: Helps to prevent unauthorized access when a strong, unique password is used.
      • Multifactor or biometric authentication: Helps provide additional security by requiring a second form of identification, such as a text message code, fingerprints or facial recognition.  
      • Encryption:Converts your financial data into a coded format to protect sensitive financial information.
      • Tokenization:A process that replaces sensitive data with a unique identifier, or token, which cannot be used outside of the specific transaction for which it was created.

      Digital wallet safety tips

      If you decide to use a digital wallet, you may want to consider taking these additional precautions:

      • Enable the password or biometric protection on your phone.
      • Use security apps that allow you to locate, lock or wipe your phone in the event that it’s lost or stolen.
      • Monitor any accounts stored in the digital wallet for unauthorized use.
      • Avoid digital wallets or mobile payment apps that aren’t regulated or insured.

      Potential risks of digital wallets

      Digital wallets generally offer features designed to help protect your accounts and identity, but no payment option is entirely risk-free. Here are a few potential risks associated with digital wallets:

      Unauthorized purchases

      While most digital wallets have security measures to help prevent unauthorized purchases, they can still occur. If your phone is lost or stolen and lacks adequate password protection, someone could use it to make unauthorized purchases.

      Digital wallets can also be targets for phishing attacks, which may trick users into revealing their digital wallet credentials or other sensitive information. Additionally, malware or spyware infections could capture keystrokes, potentially allowing hackers access to the wallet.

      It’s possible you’re not liable for unauthorized transactions, depending on the protections offered by the account. Features that may help you prevent unauthorized purchases include:

      • Strong passwords
      • Biometric authentication
      • Two-factor authentication
      • Transaction alerts

      Additionally, it might be helpful to lock your device when it’s not in use.

      Identity theft

      Digital wallets commonly use encryption technology to help protect personal information, but this protection is not guaranteed. If someone obtains your personal information or if you use an unreliable network, the information in your wallet could be compromised. You could potentially limit these risks by being cautious with links and attachments, limiting stored information and only using apps and services from well-known, reputable providers. 

      Uninsured funds

      For debit cards or other payment methods that access funds in a checking or savings account, funds are covered by the FDIC.

      FDIC insurance doesn’t cover funds held within a digital wallet app. Unless a digital wallet provider has a partnership with an FDIC-insured bank that provides “pass-through” FDIC coverage, the funds held in the digital wallet are not insured.

      In summary

      Digital wallets aren’t without risks, but they typically include features to help minimize them. Password protection, encryption and tokenization are features that help protect your personal and financial information. Additionally, you can enable biometric protection on your phone and regularly monitor the accounts stored in the digital wallet for added protection.

      Find a credit card
      What to read next