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Your smart phone is about to get smarter as mobile payment apps replace swiping plastic, by enabling you to tap your phone and exchange your credit card information via a radio frequency field. But just how safe is this?
I first learned about mobile payment apps in a college personal finance class. My professor warned us to be careful about using these apps until laws catch up with technology. Let me explain.
Once upon a time
the government enacted laws to protect consumers using credit cards. For example, did you know that by law you are not liable for any fraudulent transactions if you report your credit card missing before the card is charged? Or that you are only liable for $50 if the card is used before you report it? Before these laws were on the books, each credit card company had their own rules and some followed regulations imposed by the industry itself.
Which is where we are now with mobile payment technology. There is no standard for how mobile payment app companies should handle fraudulent transactions. Each offers their own policy on protection for fraudulent or disputed charges. Notice that the existing credit card law has no reference to mobile payments even though you’ll still be using a credit card via your cell to pay.
Another reason to stay away from mobile payments is that, like credit cards, it desensitizes us from our cash. Mobile overspending will be just as easy as when using plastic because the whole transaction is disconnected from our money – or lack thereof.
A third problem arises when your mobile phone gets lost, stolen, or hacked into. While many of the companies pushing mobile payment apps are reassuring customers they use the latest technology to encrypt their information, take precaution by knowing beforehand what you are liable for in case your phone gets into the wrong hands. If you think you’ve been the victim of identity theft, act fast to avoid major damage to your accounts.
What other safety issues are you worried about? Or are you looking forward to putting your credit cards away and using your phone to pay instead? If you’ve used a mobile payment app, what has been your experience?
Welcome to Bargain Babe! I’m Mara, and I’m so glad you’re here. I am an obsessive bargain hunter and penny pincher, and I am determined to live a full life without EVER paying full price.
I myself am looking forward to the phone apps because my business just made a bar code app to just order your product from home. Run out of toilet paper, scan and order right there. However you bring up interesting points about the laws that I did not concider. I would like to add this article to my blog if that is ok with you? Your link included of course.
@Jim Rosenau We’d love a link back, but please no copying and pasting of the post. Thanks!
Some interesting issues you bring up, but you seem to be conflating several mobile payment methods.
First, you are correct that mobile payment methods that get billed directly to a mobile bill do not have the same consumer protections as credit and debit cards. Consumers Union has been calling for those protections to be extended by regulation or legislation. That may not be necessary. These types of payments are only available for digital goods of small dollar amounts and most wireless carriers will remove a charge on a phone bill placed there by a third party. Consumers looking to charge things (games, ringtones, etc.) to their phone bills like it’s a credit card should check their T&C’s first.
As for newer payment methods hitting the market, like NFC (e.g. Google Wallet) at the point of sale or even m-commerce using PayPal, the same protections for credit and debit cards apply to them. They are tied to credit and debit cards so the consumer is still protected.
What many consumers don’t know is that new payment methods using NFC are actually SAFER than plastic from an encryption standpoint. Even if a phone with a Google Wallet is lost or stolen, the credit card information isn’t actually ON the phone. There’s nothing a thief can get from the wallet. (Though losing the phone itself kind of stinks.)
If the loss or theft of a phone with a Google Wallet is reported, the phone’s ability to make a payment is immediately turned off thanks to the provisioning process. And it can’t be ‘hacked’ (or ‘sniffed’) either. Again, the account information isn’t actually on the phone, and what’s stored in the secure element inside the phone is encrypted as well. That means several layers of protection not afforded plastic cards.
Oh, and if there’s a concern that mobile payments will desensitize shoppers, it’s hard to lay that one on mobile payments, but there’s a solution for that too: Tie mobile payments to a prepaid card. It’s not a perfect solution, as prepaid cards don’t have the same consumer protections as credit can debit cards, but it’s great for budgeting.
I hope this is helpful. Statistics show that the number one barrier to consumer adoption of mobile payments is security. Obviously as the editor of a site dedicated to mobile payments I want the whole industry to take off, but I also want to make sure that information on the safety of mobile payments gets out into the market.
Regards,
James Wester
Editor
Mobile Payments Today
@James Thanks for your comment. The post was not meant to discourage, but to educate readers about the latest technology. I did not mistake the different payment methods. This post focuses on payment methods using NFC.
You state the same protections that apply to credit cards apply to this new form of payment, but credit card companies do not have this in writing yet. The same thing happened when mobile banking came around. Now there are regulations banks must follow. (Visa recently bought a mobile payment firm and I believe they may very well be the firsts to deal with these issues.) Until this is stated in consumer’s credit card contracts, they have to be vigilant. Therefore consumers must ask what they’ll be liable in case a fraudulent transaction is made using their phone. Once the consumers are aware of the fees and their liability, it’s their choice of whether they want to use cash, plastic or their phone.