Mobile pay: The benefits and risks of turning your phone into a digital wallet

February 6, 2020

Learn about the benefits (and risks) of using a digital wallet, such as Apple and Google Pay, to make purchases on the go

Smartphones have revolutionized the way we live. They have changed the way we look at phone calls, altered the way we entertain ourselves on long drives or bus rides, and brought a wealth of knowledge to our fingertips. Now, smartphone developers are changing the way we handle money. Digital wallets and mobile pay apps, such as Google and Apple Pay, are relatively new ideas that are catching on quickly. But how do they work? What are the benefits and risks of turning your phone into a wallet?

What is a digital wallet and how does it work?

A digital wallet is exactly what it sounds like! They are applications that store your actual credit cards and allow you to make purchases using your smartphone. There are many such apps available that all boast a variety of abilities beyond that of a normal credit card. However, for the purpose of this blog, we will focus on the apps that feature in-store, point-of-sale (PoS) purchasing capabilities.

In the past, some of these services were actually two separate apps. For example, Google Pay used to be Google Wallet and Android Pay; one acted as a place to store your credit cards digitally, and the other allowed you to make in-store purchases. While these have merged into a single app, they can be split into two primary functions.

The digital wallet function

As the name suggests, this part of any "Pay" app is where your credit cards are stored and kept safe. In order to add a new card, you simply need to take a peek at the physical card using your phone's camera. Don't worry - it doesn't take a picture or store it on your phone. Instead, it takes the visual information and uses it to fill out the relevant fields.

Sometimes, there is an additional verification step, but this can vary depending on your bank or credit card company. Once it has been added to the wallet, it isn't actually stored on your phone. It is kept in Google or Apple's secure, encrypted storage in the cloud! While you are able to quickly scroll through the various cards, it doesn't actually display the card's number.

This means that even if someone were able to hack into your phone, they still wouldn't have the ability to get your credit card information. In fact, even when you make an in-store payment, your card's number is kept secret.

The mobile pay function

Mobile pay is the second aspect of these apps and it allows you to use your digital wallet to make in-store purchases. After you've selected the card you want to use, your smartphone uses Near-Field Communication (NFC) to send the payment to the PoS system. Like Bluetooth, NFC is simply a short-range signal used to transfer information.

Like the chips on newer credit cards, this uses a special type of transaction called "tokenization." This means rather than sending your credit card number to the register like it would with a traditional magnetic card strip, it sends a unique, one-time-use "token." Even if a criminal were able to intercept that token, it is essentially useless.

What are the advantages of a digital wallet?

So now that you have a better understanding of how digital wallets work, you're probably wondering why you would go through the process of setting one up. There are many advantages services like Google Pay and Apple Pay offer and they fall into two categories.


While learning how a digital wallet works might make it sound complicated, one of the primary benefits they offer is convenience. In the past, our wallets were a must-have whenever we left the house. These days, our phones are arguably more important. At the very least, we never leave home without them.

Quick access. If you have your digital wallet set up on your phone, you basically have all your cards on hand. Rather than rummaging through your wallet or purse to find the right one, you simply swipe left or right. If you set a default card, you can simply unlock your phone and hold it next to the card reader to make a payment. You don't even have to open the app!

Pay with a flick of your wrist. But sometimes it can be a pain to fish out your phone from your pocket. Well, if you have a smartwatch, such as an Apple watch, you can even use that to make a payment. Simply open the app on your watch and hold it near the reader.

Easily make in-store payments. If you see the "G Pay" or "Apple Pay" stickers near the register or in the window of the shop, you're good to go. You can usually use digital wallets any place that has the "contactless symbol" as well.

In addition to using a digital wallet to make a purchase at a grocery store or retail shop, many gas stations now accept mobile pay applications. There are even some taxi and mass-transit services that are beginning to implement mobile pay compatibility!

Easy online checkout. Finally, both Google and Apple Pay platforms allow you to easily checkout with your saved cards on many online stores. Rather than having to pull your card from your wallet and enter your number, expiration date, and billing address, you simply click a few buttons.


At this point, you might be asking a very reasonable question: How safe can digital wallets possibly be? Very safe, actually! The following are some of the safety features that make digital wallets safer than plastic cards.

Your card information isn't stored on the device. When you lose your wallet, or if it is ever stolen, you probably panic and rush to cancel all of your cards. With a digital wallet, you might not have to. Your actual credit card information is never stored on your phone, but is rather encrypted and stored in the cloud. If you lose your phone or if it's stolen, no one will be able to gather any information about your credit cards.

You can lock down your digital wallet remotely. If a thief is able to crack your lock screen somehow, they could theoretically use your digital wallet. That's why many phones have a "Find My Phone" or "Lost Phone" app, which allows you to lock the phone down or possibly revert your phone to factory defaults. This means if you ever lose your device, you can quickly and easily ensure that no one has access to your digital wallet (or anything else for that matter). Just make sure to act quickly!

They provide an added layer of protection. As an additional security measure, both Google and Apple Pay require you to set up a screen lock for your phone. If you don't, it removes access to your cards and your digital wallet. This is meant to encourage you to use the powerful security features, such as facial recognition and fingerprint scanning. These are incredibly difficult to bypass or fake, which essentially gives you an added layer of security that normal credit cards simply don't have.

They are unskimmable. With the rise of credit card skimming, it's important to be extra cautious when using cards. Because digital wallets use tokenization, they never actually share your card's information when completing a transaction. This makes it impossible for anyone to skim your cards.

What are the drawbacks of using a digital wallet?


Despite the growing number of stores and services that accept mobile payment options, it is still possible that you'll come across a place that doesn't. While many larger national stores typically have support, smaller ones might not have the proper equipment.

There is also the possibility that your credit card company or bank might not support digital wallet apps. If you use a small bank or credit union, it's a good idea to check for compatibility before trying to set it up.


What is your favorite phone company? Chances are they have their own digital wallet and mobile payment applications and chances are, they won't work with any other devices. This is perhaps one of the largest setbacks, but this shouldn't be surprising. 

Apple Pay only works with Apple phones, tablets, and smartwatches. Samsung Pay only works with Samsung devices. Google Pay will work on any Android device, but won't necessarily work with Samsung smartwatches. You can also install Google Pay on an Apple device to send money to other users, but not to make in-store purchases.

This means if you decide to switch from Android to Apple, or vice versa, you'll have to set up a digital wallet using their respective apps. As you can imagine, this can be frustrating if you like to switch phones from time to time.

Other drawbacks

Despite the ample security features in place, there are some situations that could be potentially dangerous.

Because digital wallet services store your cards on the cloud, they require some sort of internet connection when adding a new one. If you happen to be on public Wi-Fi, or any unsecure network, it is possible for a hacker to intercept your information as it's being sent to the cloud.

However, this is easily avoidable by using a secure network, a VPN, or by using your 4G cellular network. It is also important to remember that your security, whether it be a digital wallet or your home network, is only as strong as your password!

So which digital wallet app is the best?

The debate between Apple and Google rages on! The truth, however, is that it comes down to personal preference. As previously mentioned, most digital wallet services are proprietary, meaning they won't work on other companies' devices. So your preferred digital wallet will likely be the one that works on your favorite phone.

Google and Apple Pay are virtually identical in terms of their security, compatibility, convenience, and the number of stores that accept them. Regardless of your preference, digital wallets are useful tools to help you shop by combining convenience and security.

A smart phone being used to make a mobile payment using a digital wallet

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Read more: Check out our blog and learn more ways you can protect your credit card online!

by Geoff Ullrich

About the Author

Geoff Ullrich is a writer and Content Marketing Strategist at Germania Insurance.

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