Don’t be a dinosaur: how to use digital payments securely

Australia is rapidly becoming a cashless society with less than 13% of payments made with cash in 2022. Rosalyn Page explains how the new breed of digital payment technologies work so you can choose what’s right for you (and protect yourself from scams). 

By Rosalyn Page

Technology has forever changed our lives, and none more so than the way we use money. Paper cheques are an historic relic, in-person banking is dying and even withdrawing cash from an ATM is waning fast.

Most of us are using debit and credit cards which rely on digital payment technologies to move money around. Almost 99% of banking transactions occur digitally today.

Coins and notes are rapidly being replaced by online banking and digital payments.

Understanding how digital payments work should help you feel more comfortable about embracing newer payment options, while being mindful of the steps you can take to safeguard yourself.

How digital payment technologies work

From cash to cards to contactless, payment options continue to change. Today digital payment technologies include mobile phone-based digital wallets, online payment services and even direct person-to-person payments.

Smartphone digital wallets

Smartphone-based digital wallets are apps that store payment details such as credit and debit card details as well as tickets and passes, loyalty and membership cards and even vaccination certificates.

Apple Pay, Google Pay and Samsung Pay are examples of mobile wallets that can be used when paying for things in many stores and when shopping online.

Apple Pay belongs to Apple and can be used on devices such as iPhones, Apple Watches, iPads and Macs to make payments.

Google Pay, previously known as Android Pay, is backed by Google and enables users to make payments with Android phones, tablets and watches.

Samsung Pay belongs to Samsung Electronics and is tailored for Samsung devices including smartphones and smartwatches. One difference is that it can also use magnetic secure transmission (MST) technology, meaning it works with almost all payment terminals, including older ones that read magnetic stripes.

Step-by-step digital wallet set-up guide for iPhone and Android users

Setting up these payment methods on your smartphone is straightforward. Both iPhone and Android devices have dedicated wallet applications where you can add your cards. 

To set up Apple Pay

Open the Wallet app on your iPhone, then tap the '+' button to add a new card.

Follow the on-screen instructions to enter your card details either manually or by using your iPhone's camera to capture them.

Agree to the terms and conditions and verify your card, if necessary.

The Citro app allows you to set up Apple Pay directly from the profile and wallet section.

To set up Google Pay

Download the Google Pay app from the Google Play Store if it’s not pre-installed on your device.

Open the Google Pay app and sign in with your Google account, then tap on 'Payment' at the bottom, then the '+' button to add a new card.

Enter your card details manually or capture them using your camera, accept the terms and conditions and follow any prompts to authenticate your card.

Making payments with mobile wallets

All three mobile wallets work in much the same way. 

To make payments through a terminal, it’s a matter of holding the phone or smart watch near a contactless reader at the checkout. The system utilises near field communication (NFC) technology to send the payment details to the checkout.

To pay online, press the Apple, Google or Samsung Pay button on the payment page in the browser to open the app and authenticate the transaction.

Depending on the device, you may also need to input your passcode and/or click on the sleep button to authenticate the payment.

Are digital wallets secure?

The primary benefits of digital wallets are convenience and enhanced security. 

Apple, Google and Samsung Pay all use a similar security system called tokenisation, where a unique, encrypted token replaces your card details during transactions so your actual card numbers aren't shared with merchants.

Using a PIN, pattern, password, fingerprint or facial recognition is an added layer of security to ensure payments are authorised by the user.

Online payment services

PayPal, Stripe and Square are payment platforms that can be used to purchase things from a website or online marketplace. PayPal acts as an intermediary for financial transactions, where you link your bank account or card and use these platforms to pay for goods and services online, or even receive payments. It’s widely accepted and offers an extra layer of security by keeping your financial details private from merchants.

PayPal allows you to make payments and transfer funds using the recipient's name, PayPal username, email address or mobile number.

You must create a PayPal account and link it your bank account or credit card to send and receive payments for goods and services. Its security measures include buyer and seller protection policies.

Stripe is mainly used by businesses to enable payment processing through websites or mobile apps. It's known for its flexibility, powerful APIs, and suite of additional tools for running an online business.

Square offers payment processing, point-of-sale systems and financial services like payroll and is commonly used by smaller businesses for processing credit card transactions using a smartphone or tablet.

Buy Now Pay Later (BNPL) services

Services like Zip Pay, Afterpay, and Klarna allow you to purchase items immediately but pay for them over time, usually interest-free as long as you meet the repayment schedule. It’s a modern take on the old lay-buy plan, but you get your goods upfront.

Many retailers, both online and in-store, now offer these BNPL payment options. They provide flexibility in managing payments, especially for larger purchases, but beware accruing interest and ending up paying a lot more.

Zip Pay is a digital wallet and payment service that offers a buy now, pay later solution. It allows customers to make purchases with a credit limit of up to $1000 and pay for them over time, typically in smaller, manageable instalments.

Repayments start from $10 a week with a $9.95 monthly account fee, which is waived if the closing balance is paid in full by the due date.

Afterpay lets customers purchase a product and then pay for it in four equal instalments, due every two weeks. It’s interest-free, provided payments are made on time.

Klarna offers a variety of services, including direct payments, pay after delivery options and four interest-free instalment plans, but late fees are charged on unpaid balances.

To get started with one of these services, you must sign up for an account either online or by downloading the app and following the steps to register, which includes verifying your identity, meeting eligibility criteria and having valid bank details.

Peer-to-peer (P2P) payments

A new breed of payment services enable you to make payments directly to other people without going through a bank or other financial institution, known as peer-to-peer (P2P) payments.

Beem It is owned by some of Australia's largest banks and allows you to send, request and split payments instantly to other people, regardless of their bank.

Osko by BPAY is available within many Australian banking apps for making payments or transfers between banks in near real-time.

PayID allows users to send and receive money using a phone number email address or other identifier, instead of the usual BSB and account numbers. 

Wise (formerly TransferWise) enables cross-border transfers which function like to P2P payments.

PayTo is a new real-time payment service available within online and mobile banking for making payments and transfers to other accounts.

Steps to safeguard your digital payments

It’s natural to have concerns about these newer payment technologies and, although they have robust security features, realistically no system is fully impenetrable. 

Data breaches that can expose financial information, account hacking and unauthorised or fraudulent transactions are all a possibility, just as they are with online banking and credit card fraud. 

There are some steps you can take to help protect your information.

•   Always use strong, original passwords to secure your accounts.

•   Protect devices with facial ID, fingerprint ID or passcode.

•   Always use secure internet connections that require a password to log on and avoid making transactions on free, public Wi-Fi networks.

•   Be wary of scam and phishing emails, texts or WhatsApp messages asking for log-in or other details, requesting re-authentication or with links to external sites.

•   Where possible, use two-factor authentication (2FA) such as a password and a second method (like an SMS code) to protect your accounts.

•   Monitor your accounts for any unrecognised transactions.

•   Turn on Apple Find My iPhone or Google Find My Device to lock or erase your phone remotely if it's lost or stolen.

•   If using P2P payments only transact with people you know and trust.

What about digital currencies?

You may have heard of Bitcoin or other digital currencies, which are based on a technology called blockchain, which is a digital ledger that records all transactions in the system.

These digital currencies are also known as cryptocurrencies because they rely on cryptography to code and decode the information so that it is protected. They can be used for payments and traded and through online exchanges or with a digital wallet.[1]  

They’re considered risky because the value is highly volatile, accounts can be hacked and funds stolen and there is little regulation.

They are not backed by any government on central bank authority, although numerous countries, including Australia’s Reserve Bank, are currently considering or trialling the viability of Central Bank Digital Currencies (CBDCs). An Australian CBDC would be overseen by the Reserve Bank with the backing of the government and would complement existing forms of money, but it’s some years away.

_{Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.}