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Everything you ever wanted to know about digital wallets and mobile pay

By: Josh McConnell on June 12, 2018

Physical wallets are so passé, or at least that’s what technology companies and financial institutions are leading us to believe.

Using a smartphone to pay for something at the counter is no longer a novelty as digital and mobile wallet use is becoming more widespread. Fifty-seven per cent of Canadians used a mobile wallet daily in 2016, while awareness of the technology sits at 99%, according to a study by the Nielsen Company.

But what exactly are mobile and digital wallets? How do they work, are they safe and which companies offer them? While certainly not an exhaustive list, here is everything you need to know to get things started with your journey.

First, the basics: what is a digital or mobile wallet?

Sometimes people use the terms digital wallet and mobile wallet interchangeably, when in fact, they are two slightly different things.

A digital wallet is the storage of your credit or debit cards digitally in one system — but it doesn’t have to be mobile. There are solutions to do this through financial institutions or other companies for your desktop computer or laptop.

A mobile wallet is using that digital wallet in a smartphone or other mobile device to pay for things or services, often through a Near Field Communication (NFC) terminal that contactless physical cards also use.

So while digital and mobile wallets sound similar, technically you’re using a digital wallet within your mobile wallet, generally speaking.

How do they work?

To simplify things, there are essentially two kinds of digital wallets. There are the server side, software-based solutions such as offerings by Visa or Mastercard that will let you store your credit cards securely with them in the cloud and let you pay (on supported websites) with the click of a button. Apps or web browsers can then access that data when prompted.

For example, you might see a “Masterpass” button at a website’s checkout, which then lets you log in and use a variety of your cards already inputted for a quick checkout. Apple Pay and Google Pay also offer desktop solutions such as this.

Then there are the customer side, hardware-based solutions, which moves us into the mobile wallet space. This is where the digital wallets are now being stored physically in a secure area of a person’s phone, and not in the cloud, to create a mobile wallet.

A common misconception with how this technology works is that you can only use your smartphone’s mobile wallet at retailers that advertise they support the services, such as Apple Pay or Google Pay. But this actually isn’t true. The stickers you see at the point of sale kiosk or in the store’s window front is nothing more than marketing.

Virtually any POS that accepts contactless payments — such as physical cards with tap support — will accept your phone’s mobile wallet. You just activate the card on your phone, scan your fingerprint or face to authenticate, then tap away.

Are digital and mobile wallets secure?

The primary concern with digital and mobile wallets is security, since many of your credit and debit cards are housed in one place.

The reason these wallets are supposed to be secure, according to their various stakeholders, lies in the tokenization process.

When you first add your card to a digital or mobile wallet, you input all of its data including the name on the card, its number, expiry date and the security code. The service then connects to the card’s issuer to generate a token.

This new token is unique to your wallet and the mobile device you are using (if applicable) and is now used with merchants instead of your credit card details. Your credit card information is never shared with the merchant, making the transaction more secure theoretically. On your end, purchases will appear on your statement just like any transaction.

What wallet service you use might change how your payment information is stored though. In the case of Apple Pay and Samsung Pay, there is a physical chip on the device itself called the secure element. It’s only used to store sensitive data and can’t be accessed by the operating system or the manufacturers, which makes it secure. Google Pay, while still encrypted, uses a cloud-based software secure element system since not all Android phones have the physical chip.

So while it may be a bit nerve-wracking to know that all of your credit and debit cards are being stored in one place digitally, the tokenization system creates more anonymity in your day-to-day purchases and should theoretically be a stronger fraud protection than simply inputting your card’s details into a web browser or swiping at a machine.

Who's who in the digital wallet space

Picking a wallet ultimately comes down to the individual, as not all banks support all wallets. Some financial institutions have even been trying to compete with the smartphone makers and create their own mobile wallet app.

First, there are the juggernauts that most people use: Apple Pay and Google Pay. These are embedded right into the operating system of many phones, so they have the least amount of friction for setting up since it’s right there.

Apple Pay came to Canada first in 2016 and has a larger number of financial institutions signed on, including all of the majors banks, while Google Pay came in 2017 and is still missing some of the big banks such as RBC and TD Canada Trust, as well as subsidiaries. Your decision to use one of these two services will likely depend on the phone and bank you use daily.

Samsung Pay is available in Canada, too, but also doesn’t have full support from all major financial institutions.

If you didn’t want to go with the native mobile wallets built right into smartphones, there are a number of other options available in Canada. Some of the banks have been creating their own mobile wallet apps for smartphones as a way to compete.

For example, Royal Bank of Canada has RBC Wallet, which works for iOS and Android (a Google Pay workaround). Users can also send money to other people using the app. Scotiabank also has its own wallet app for Android.

There are also the credit cards themselves. Visa, Mastercard and American Express all have their own mobile wallet solutions. Meanwhile even Fitbit has a Fitbit Pay service with some of its products, but right now only RBC and ATB Financial support it in Canada.

Then there are major companies that simply have their own app which supports mobile payments and loyalty programs, such as Starbucks. Sometimes you can just add your loyalty card into Apple Pay or Google Pay, but you may miss out on some extra company-specific features.

So while some of the financial institutions may have an extra feature or two in their own mobile wallet app, chances are you’ll get the biggest bang for your buck with something like an Apple Pay, Google Pay or Samsung Pay.  Not only do the default smartphone apps have native support throughout the operating system, you often can add multiple types of cards from various financial institutions and companies.

That is, of course, unless your bank doesn’t support the big-name mobile wallets yet. Then you might have to use their own apps for now or reach out to find out if they have any plans of supporting mobile wallets in the future