Are digital wallets safe?

Digital wallets continue to grow in popularity, with almost half of all American consumers having used one between December 2023 and March 2024, according to J.D. Power.¹

But, while digital wallets soar in popularity, the threat of online fraud still looms. The monetary losses caused by cybercriminals have spiked staggeringly from $3.5 billion in 2019 to $12.5 billion in 2023.²

This article takes a closer look at digital wallets, how they support online shopping safety, and offers practical tips on how to keep them safe against fraud attempts.

Potential security risks of digital wallets

While digital wallets offer convenience, they do come with potential risks that users should be aware of, such as:

• Risk of losing the device. If a device that stores a digital wallet is lost or stolen, crucial data like credit card information could be accessed. This risk underscores the importance of securing the device and account with strong passwords and biometric data to prevent unauthorized access.
• Compromised login information. Digital wallets can be vulnerable to fraud if login information is compromised. Hackers may use phishing schemes or malware to gain access to a digital wallet, which can lead to unauthorized transactions and possible financial loss.

Potential safety benefits of digital wallets

While the threat of online fraud is a concern, digital wallets are generally safe. Services, like PayPal, offer benefits that make digital wallets secure options for managing finances. For example:

• Protection through passwords and biometric data. Digital wallets can be safeguarded by strong passwords, two-factor authentication (2FA), and biometric data like fingerprints or facial recognition. These layers of security make it difficult for unauthorized users to access a digital wallet, even if the device is lost.
• Buyer protection. Some digital wallet providers, including PayPal, offer buyer protection that covers eligible purchases against fraud, unauthorized transactions, or items not received as described. This adds an extra layer of security when shopping online.
• Eliminates the need for cash. Using a digital wallet reduces the reliance on carrying cash, which can be lost or stolen. Digital wallets also streamline transactions by saving payment information, making purchases a convenient, quick process.
• Contactless payments. Digital wallets may enable contactless payments, allowing for fast and seamless transactions in stores that accept this payment method.

Tips for digital wallet security

The risks of using digital wallets can be minimized by following some simple security best practices.

Be aware of fraud tactics that can affect digital wallets

Phishing and online fraud are significant risks for digital wallet owners. Fraudsters often use these tactics to compromise login details, potentially leading to unauthorized access to digital wallets. Here's how to help lower the chances of being hacked:

• Be cautious with links and attachments. It's crucial not to open links or attachments from senders that are not trusted. These could be phishing attempts designed to steal sensitive information.
• Protect personal data. It's important to avoid sharing personal data with untrusted sources — including making payments on unsecured websites — and to always ensure that the website is secure before entering any login or payment details.
• Monitor activity regularly. Checking digital wallet statements can help detect any suspicious activity early and allow quick action to be taken.

Use strong passwords or passkeys

Consider these tips when creating passwords:

• Create unique passwords for each login. Using different passwords for different accounts prevents a single compromised password from granting access to multiple accounts.
• The longer, the better. A longer password is generally more difficult to crack. It's wise to aim for passwords that are at least 12 characters long.
• Make them random. The more random and complex the password, the harder it is for attackers to figure it out. It's recommended to avoid using easily guessed information, like names or birthdays.
• Consider a passphrase. A passphrase made up of 4-7 completely unrelated words can be both secure and memorable. This is much harder to crack than a typical password but easier to remember than a random string of characters.
• Use a strong password generator. Creating a good password can be challenging. Using a strong password generator helps to create a secure and unique password for each account.
• Passkeys. Using passkeys is another way to add security. They work by linking a person's identity to a specific device, making it much more difficult for unauthorized users to access that individual's digital wallet without their physical presence.

Enable multi-factor authentication

Multi-factor authentication (MFA) and two-factor — or 2-step — authentication (2FA) are critical tools in safeguarding a digital wallet. These methods work by requiring not just a password but also an additional form of verification, such as a code sent to a mobile device or a fingerprint scan, before granting access to an account.

Keep devices and software updated

Keep devices and software updated to help maintain digital wallet security. Software updates often include patches for vulnerabilities that hackers could exploit.

Network security

The network a device is connected to can be a significant weak point. Hackers and fraudsters can exploit public Wi-Fi networks to harvest confidential information, including digital wallet details. It's important to avoid using public Wi-Fi for transactions and opting for a secure, private network when possible.

What to do if you think your digital wallet has been compromised

If there is reason to believe a digital wallet has been compromised, swift action is essential. Here are the steps to take:

• Change login passwords immediately. Updating a digital wallet password and any other related account passwords can help prevent further unauthorized access.
• Contact customer service. The digital wallet provider’s customer service or fraud and security teams can offer immediate support and may help secure the compromised account.
• Inform your bank. It's important to notify the bank associated with any accounts connected to the compromised digital wallet. The bank may recommend additional security measures or monitoring.
• Freeze or cancel payment cards. Canceling or freezing any payment cards saved in the digital wallet can help prevent unauthorized transactions.

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