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digital wallet
Posted on December 14, 2014 by in Identity & Privacy, Personal

Need to pay a friend back after he picked up the tab last night? Want to loan some money to a pal but don’t have time to get to a bank for some cash? Click, click, done.

Last month, we talked about online banking safety. Now, we’re taking on a related subject: payment apps. Touted for their potential to replace checks and even cash transactions, these apps let you create a digital wallet that holds financial information.

A Look at the Options

Housed in a smartphone, payment apps like Venmo, Square Cash, Google Wallet, PayPal, Lemon Wallet, and Dwolla have cropped up in the last few years, vying for a top spot in the online transaction space.

Venmo, in particular, has been promoting the ability to transfer money between friends — as long as they both have Venmo accounts, of course. You simply use your phone to access your account through their website, select the friend you want to pay, and type in the amount to send. It’s almost faster than texting.

A service like Square Cash doesn’t require an account setup. It instead allows you to send funds via email, routing the transaction through a secure site.

Reviews on these services are generally positive, such as a recent Wall Street Journal test drive of several apps. But writers tend to caution users to keep an eye on the fees. For example, Google Wallet charges 2.9% for credit card and debit card payments. Venmo charges that same amount for credit card transactions, though debit card payments are free.

Every digital wallet app has unique features that set it apart. For instance, you can attach payments to any Gmail message with Google Wallet. Meanwhile, PayPal lets you transfer funds to overseas accounts and features a high maximum transfer (up to $10,000 in the United States) compared to other payment app providers.

Gauging App Safety

With all kinds of funds whipping through the digital ether, it’s easy to feel concerned about that money getting redirected. Also, the fact that the apps are so easy to use on a phone presents a privacy issue. Can one forgetful moment of leaving a phone in a cab open you up to financial ruin?

To assure users that the apps are safe, every provider offers 24-hour fraud protection, and some services put in additional controls. Venmo, Google Wallet, and PayPal let you password-protect the app, while Square Cash asks for a credit card security code before you can transfer funds.

Still, there’s plenty of reason to be alert to potential issues. The SANS Institute, a security research firm, notes in a white paper that new security risks are being introduced with mobile banking and payments. There’s no real standard for payment app security, and the challenge is compounded by the fact that traditional security controls like encryption and firewalls aren’t as mature in the mobile arena as they are for laptops.

Challenges like these may well be resolved over time. Until then, however, digital wallet users should take extra caution with their financial information and check over transactions carefully.

Cropped image courtesy of Flickr user Incase.