Should You Use Mobile Payment Apps?
For the days you forget your wallet at home, mobile payment apps can make your life a lot easier. But is your information as safe as it is on a credit card?
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Recently, I had a really interesting experience while shopping. I go to check out and notice that every line is about five people deep, except for one that has only a single person in it. After a couple of seconds, it was very clear to see why. The woman in line was trying to use Apple Pay because she forgot her wallet—except both her and the clerk had no idea how it worked. After I explained it, then, boom, she was on her way.
The conversation left me with a lot of realizations though about how new payment methods, such as Android Pay and Apple Pay work, and some misconceptions about them. So, let's see how these mobile payment apps work compared to credit cards, and whether they're as safe for you to use.
(Apple Pay and Android Pay are for paying at the store, but in a later episode, we'll cover payment apps like Venmo, Google Wallet, and PayPal, which are helpful for paying back your friends and other person-to-person transactions!)
For starters, let’s talk about how your credit card works. Now almost everyone understands how the general process works. You walk up to a counter, swipe your credit card, show your ID if the purchase is over a certain amount, sign for the purchase, and then you’re done. In another episode, I’ll discuss newer “Chip and PIN” credit cards, but the process is pretty similar.
In the background after you swipe your credit card, it gets sent to the acquirer. The acquirer is simply a bank that processes credit and debit card transactions. The acquirer then checks with your credit card company to make sure your credit card number is authorized for purchases, and then the acquirer will tell the credit card terminal that you’ve been approved to make a purchase. This happens in about a second, and it’s pretty straightforward.
What’s actually happening when you swipe your card is you are moving the magnetic stripe across a sensor on the credit card reader. This stripe contains your credit card number, and some other information about your card.
Now let's learn about how the new mobile payment systems work.
The new payment systems like Android Pay and Apple Pay are done completely with your phone. It’s really convenient because if you have your phone then it’s just like having your credit card. Instead of using a magnetic stripe to transfer your credit card number, your cell phone uses a type of wireless communication called NFC or Near Field Communication. This wireless communication only works within a few centimeters, and your phone has a special chip in it just for NFC. This means that you can only use your phone for payments at new credit card terminals that also have an NFC chip. You will see this represented with the Apple Pay logo and Google Wallet logo on the credit card terminal.
Now this sounds like a security nightmare, doesn’t it? Your credit card on your cell phone! What if someone steals your phone? What if someone hacks your phone? It sounds like a way easier way to have your information stolen doesn’t it. Luckily, both Apple and Google thought the same exact thing so they invested a ton of money into making sure these apps were secure.