How to make mobile payments safely

If you're a smartphone user or make regular purchases online, you might already be familiar with mobile payment services. Web and phone applications like Venmo, PayPal and Square Cash are becoming

"Users of mobile payments in the U.S. will nearly double by 2020."

more popular at lightning speed - it's estimated that total users of these services in the U.S. will grow from around 70 million today to more than 120 million in 2020.

Paying friends or buying things using your phone might seem almost too good to be true for those who are unfamiliar with these services. It's a good idea for both mobile payment novices and veterans to take a fresh look at these payment options, understand how they work and take steps to be safe while using them.

What are mobile payments?

Mobile payment services, sometimes called peer-to-peer (P2P) payments, are pretty simple at their core. Users create an account with a password, and then connect it to their bank account or a credit card. They can then find friends and family members who also use the service and send money to them. When using a bank account, transactions usually don't cost anything, and the money is credited or debited to the account within a couple of days. When paying using a credit card via a P2P app, there is often a small percentage fee charged.

The convenience of mobile payments makes them ideal for paying back friends after you split a tab at a restaurant, or to allow roommates to settle up on monthly utility bills. According to a survey from Nerdwallet, more than half of mobile payment users utilize these apps to make purchases from an online retailer as well. The service providers themselves say that these are the main tasks that these apps were designed to accomplish.

Are mobile payments safe?

When two people who already know each other use mobile payments to exchange money, the transaction generally goes off without a hitch. However, it is generally recommended that these services not be used to pay a stranger or an unfamiliar business. Venmo and most other payment providers explain that they do not offer buyer or seller protection, so all transactions are made at the risk of both parties involved. To keep things simple and safe, stick with cash when you need to pay someone you don't know personally, such as for a Craigslist transaction, for example.

PhoneMillions now use their phones to complete routine transactions.

There are also concerns related to the security of the device used to initiate mobile payment transactions. If your phone is lost or stolen, there is a chance that someone could gain access to your payment account. But payment apps have several safeguards in place to lower the risk that this might happen.

  • Your mobile payment account is tied to both your phone number and your password. Make sure your password isn't easy to guess, in order to prevent unwanted access. In most apps, you can also set up a PIN or another form of authentication to add additional layers of protection.
  • If your phone is lost or stolen, use another device to log into your account and revoke access to the phone. You may also want to warn friends and family not to accept requests for payment that appear to be from you.
  • Most payment apps have support staff on hand via phone or email to help with security concerns. They also generally encrypt user data and transactions to keep them safe.

What else to know about mobile payments

There are a few other quirks about mobile payment services that are helpful to anyone using them.

  • Linking a credit card to your mobile payment account might be slightly safer and more convenient than using your checking account, but it often costs more. Most mobile payment services will charge a fee on credit card transactions that could be significant depending on the amount transferred.
  • When someone sends you money through the app, it is not usually transferred directly into your bank account. Instead, it's usually held in the app as a balance that can be put toward future payments. To change that balance into cash, you will need to initiate a transfer to your bank account from within the app. Note that these funds usually won't appear in your bank account for at least two days. 

By following these tips, you should be ready to pay and be paid more easily, and securely, using mobile apps.

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