Mobile payments: how do they work and are they safe?

You’ve probably seen people using their smartphone to make purchases, especially when they are buying their morning coffee.

Mobile wallets are now widely available through Apple Pay, Android Pay and various bank apps within Canada.

For those less familiar with the concept of mobile payments, they are made via mobile wallets which rely on Near Field Communication (NFC). NFC allows two devices to communicate wirelessly when they’re close together, thereby enabling contactless payments. This technology is built into the majority of smartphones these days.

Are mobile payments safe?

According to a recent survey of 1507 Canadians, 48 percent of respondents were willing to give up some aspects of their personal information in order to get the convenience of a mobile payments app. The good news is that you don’t have to. Mobile payments made in store, may be more secure than you think, and here’s why.

First, payment transactions are between you, the merchant, and your bank. Keep in mind your bank already knows where and how much money you are spending.

Second, the process by which mobile payments work is generally designed with security in mind.

In order to add your debit or credit card you must have a passcode or fingerprint set on your device. You will need to use this passcode or fingerprint every time you make a mobile payment.

  • When you add your card, your mobile wallet requests a “token” from your bank. If supported, your bank then issues the token, which is a unique identification number that is different than the number on your physical card. The mobile wallet then encrypts this token on your smartphone for later use.
  • In order to make a payment, you launch your mobile wallet and tap your smartphone on the point of sale terminal. Your mobile wallet will respond with the token and a cryptogram which acts as a one-time-use password. The card network then validates the cryptogram and matches the token with your physical card number.

Here are some additional security benefits to consider:

  • If you lose your wallet, anyone can access your information. On the other hand, if you lose your phone, you can be comforted by the fact that your mobile wallet is protected by a passcode or fingerprint, and transactions are typically limited to $100 dollars or less for in store purchases. Please verify with your bank.
  • You’ll benefit from the same security and fraud protection features as you would with your physical payment card when it comes to unauthorized transactions.
  • You are issued a virtual card, which means you do not have to share your physical card with the merchant.

The idea of a cashless society is becoming more real, and an understanding of how it works, along with advances in security, are helping to make this idea less daunting. That said, like anything we choose to do on the Internet, it is important to be wise – so rely on native mobile payment apps where possible and do your research on the apps you choose to download or use.