FDIC Consumer News
Are You Ready to Leave Your Credit Cards at Home ... and Pay by Smartphone?
Photo: NFC Forum
Paying for purchases by smartphone is becoming increasingly viable. Three major companies now enable consumers to buy goods at participating merchants with their credit or debit card by just waving a smartphone over the payment terminal. In fact, a major smartphone manufacturer recently teamed up with many banks and merchants to make the service available to anyone buying the newest version of its smartphone. What should you know about using your smartphone to pay in a store or a restaurant?
You need the right equipment. Your smartphone must contain a contactless or “NFC” (near field communication) computer chip that allows it to “talk” to the payment terminal via a wireless connection, as well as a digital wallet to store your payment card information. If you are buying a new smartphone, you can ask the salesperson if it has an NFC chip. For a phone you already have, check the “settings” menu and look for “NFC.” Your phone may already have a digital wallet feature. You can also download one through an app store or other online marketplace.
You have to load your credit or debit card information onto the phone. The setup procedure can be as easy as taking a picture of the front and back of the card with the mobile wallet application. The app will then send it to your bank for approval and to confirm that it’s really you. Some mobile wallets may allow consumers to load “loyalty” cards from favorite retailers. You may also receive store or restaurant coupons or other offers through your phone, based in part on your recent purchase history with the company.
Most merchants that accept mobile payments are large national chains, but smaller stores are beginning to sign up. A merchant must first install card terminals that accept contactless payments; they look different than the swipe terminals you are used to and display the symbol shown on the left.
As with any electronic transaction, pay attention to security issues. According to Jeff Kopchik, a Senior Policy Analyst at the FDIC, “Many security experts believe that mobile payments are more secure than swiping your magnetic stripe credit card because the mobile service keeps your credit number in encrypted form and does not transmit it to the merchant. But you still should make sure your phone is protected, such as with a password, so it cannot be accessed by a thief. Some of the newest smartphones use fingerprint readers to control access, which can be secure and convenient.”
Also make sure your phone “times out” and re-locks itself after it isn’t used for a short period of time. If you lose your smartphone, notify the bank or other issuer of any credit or debit cards that may be loaded on the phone.
“Remember that if there is a problem with a transaction, you will receive the same federal protections that otherwise apply to the underlying payment source,” noted FDIC Senior Policy Analyst Elizabeth Khalil. “For example, if the transaction drew on a credit card for payment, you will be protected by the same laws and regulations that cover credit cards.”
To learn more, start by contacting your smartphone service provider or credit card issuer.