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Are Mobile Wallets Safe? Addressing Data Privacy Concerns

Digital wallets have skyrocketed in popularity since the start of the COVID-19 pandemic and are expected to account for more than half of all eCommerce payments worldwide by 2024. This trend is not going away anytime soon, as businesses continue to expand their payment options to meet consumer demand for contactless, frictionless, and instant payments, but are mobile wallets safe? 

What is a Mobile Wallet?

A digital wallet is a payment system that protects users’ banking information and passwords and allows consumers to make seamless transactions online, in apps, in stores, and even at ATMs. A mobile wallet is a type of digital wallet that’s accessible through an app on a mobile device. Some popular mobile wallets include ApplePay, Google Pay, Samsung Pay and PayPal. These wallets can hold your credit card and debit card information as well as items such as boarding passes, hotel reservations, gift cards, and concert tickets. With a mobile wallet, shoppers can save time and avoid the hassle of entering credit card information for every purchase or carrying cash.  

As mobile wallet usage continues to increase, users’ information will undoubtedly be considered as a marketing tool for brands; however, one important question to consider is: where does the line get crossed with data privacy and sharing? 

Mobile Wallets and Data Security

One appeal of mobile wallets is the security designed to protect your payment information from thieves or hackers. Through heavily encoded payment information as well as the use of passcodes or biometric authentication to access the digital wallet’s information, they provide safe transactions where the user’s financial information never leaves their actual device. 

However, even with the convenience of banking information at your fingertips, is there a tradeoff between financial security and user privacy and data security? 

Since cell phones can learn a user’s preferences, mobile wallets can personalize content and offerings based on the customer’s interests. Information susceptible to be collected by mobile wallet providers can be some of the most useful information to marketers about demographic information as well as consumer behavior. In a world where your source of payment and money management can also be used as a marketing tool, where is the line drawn? With their growing popularity, mobile wallets are set to become rich marketing platforms within the next five years, which suggests that marketers should be testing campaigns within the payment platforms now to maximize full potential for the future.  

Marketing and Engagement 

Mobile wallets have unique leverage in their ability to keep consumers engaged and boost loyalty. Mobile wallets can be dynamically updated to offer rewards programs, coupons, and exclusive deals based on user’s location and preferences with no user action required. In fact, iOS mobile wallets are 100% opted in for notifications, meaning marketers don’t need customer’s permission to send messages from a mobile wallet pass to a customer’s lock screen. This ability to bypass email and market directly to consumers through their mobile devices is an advantage of mobile wallets that can have adverse effects if overused. As such, companies will have to consider the fine line between convenience and overcommunication when interacting with their consumers. 

Data Collection and User Privacy 

Privacy issues in marketing regarding data collection and user privacy are an increasing concern for consumers across the board, and especially concerning the digitalization of common consumer practices. Customers’ privacy and financial worries are heightened as a result of regulatory ambiguity surrounding mobile payments. “Wallets are not themselves accounts or payments but a vehicle for accessing accounts or making payments,” a recent report from the Congressional Research Service states.  

Many policy issues that relate to accounts and payments, but not wallets, are often conflated with digital wallet issues. Some industry leaders have argued that it necessary for all stakeholders in the mobile payment system to ensure the privacy of customer data and that market forces should be allowed to work freely. Nevertheless, consumer trust is essential to the success of this system, and customer retention and loyalty depends on it. 

The Consumer Financial Protection Bureau is developing proposed regulations around sharing consumer financial data, but it remains unclear whether the rules would apply to mobile wallet companies. The Congressional Research Service recently released an overview of digital wallet technology and cybersecurity, data privacy and consumer protection policy considerations. We can expect to see increased regulation of digital wallets in correspondence with their growing popularity and adoption in the coming months.  

Looking Ahead: Safety of Mobile Wallets 

Recent buying behaviors of consumers and companies alike have proven that the ease, convenience, and safety of contactless payments will continue to drive the popularity of digital wallets, especially as the features behind e-wallets evolve. This payment method can be adopted smoothly and with little effect to consumers’ data and privacy protection if proper legislative concerns are preemptively addressed. 

In the shift to a more mobile commerce platform, users and companies alike must be cautious about the security of consumers’ personal data. Companies should assess this opportunity for strategic marketing, while also ensuring users that their information is well protected and will not be taken advantage of. Shoppers want convenience, but with an increased focus on data privacy, brands must identify a balance between marketing opportunities and healthy and respectful customer relationships.  

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Contributions by Julia Hoffman

Tags: Cybersecurity Consulting, Digital Engagement, Sales and Marketing Technology