"Young People Favor Digital Wallets for Perceived Security, But Experts Warn of Nuances

Young people are increasingly adopting digital wallets, considering them to be more secure than credit or debit cards, reports PaymentsDive. However, cybersecurity experts suggest that the reality is more nuanced. A survey conducted by Michigan-based research firm J.D. Power late last year revealed that 48% of consumers now use digital wallets, marking a 12-percentage-point increase from the previous year.

This growth is primarily driven by individuals under 40, who cite security as a key reason for choosing digital wallets over other payment methods, according to J.D. Power. In theory, digital wallets should offer enhanced security due to encryption. However, the actual safety depends on how the wallet is used and who controls it, cybersecurity researchers explain. Sean Gelles, senior director of payments intelligence for J.D. Power, notes that young people generally have a positive view of digital wallets, largely due to their perceived security.

Typically, a digital wallet is an app on a consumer’s smartphone, preventing anyone from seeing the card numbers or observing the user entering a PIN. This perception of increased security is why many shoppers believe digital wallets are safer, Gelles says. “At a high level, they’re right,” said Lee McKnight, who teaches information security policy at Syracuse University. “In principle, digital wallets should be more secure.”

However, these added security layers come with conditions, McKnight adds. Anyone can use a debit card if they have the card number, expiration date, and the three-digit security code. Digital wallets, however, use an encryption key known only to the user. “If someone steals your phone, it doesn’t matter, because they wouldn’t be able to access it,” said Dr. Jimmie Lenz, a lecturer at Duke University who specializes in fintech and cybersecurity.

Unlike debit and credit cards, which use a 16-digit number for every transaction, digital wallets assign a different randomly generated number for each transaction, explains Dan Schiappa, chief product and services officer at Arctic Wolf, a cybersecurity firm. “If someone obtained that number, they couldn’t reuse it,” Schiappa said. Digital wallet transactions typically require an additional layer of authentication, such as a fingerprint scan on a smartphone, Schiappa added.

Contactless payments, including digital wallets, are generally more secure than swiping a card, as scammers still use card skimmers to steal information from credit card readers.

Using a digital wallet ensures that "you are always in control," McKnight said. "The owner of the digital wallet decides to release money to another party. With a debit card, anyone with your number or PIN can use it."

However, the security of your digital wallet depends on the parent company, McKnight noted. “You don’t have the bank or credit card company insurances to help you,” he said. This extra security comes with drawbacks. Digital wallets used for cryptocurrency trading are often not linked to large tech companies or financial institutions, so if you lose your device, there's no helpline to call.

While credit and debit card transactions are regulated, digital wallets currently lack such oversight. In November, the Consumer Financial Protection Bureau proposed rules to subject digital wallets to the same regulations as banks, but these rules have not yet been finalized.

Regardless of the digital wallet used, there are steps to enhance security. For instance, McKnight advises against using a simple password, which is usually a common word followed by numbers, as these are easier to hack.