Digital Wallet vs. Debit Card: Which Is Safer?

Digital wallet usage is skyrocketing, according to a recent J.D. Power study. It showed that almost half of Americans had used a digital wallet in the previous 90 days. They're such a convenient way to store debit and credit cards, loyalty cards, gift cards, and more, that I often leave my actual wallet at home.

Convenience isn't the only benefit. Fans also argue high-level encryption makes digital wallets more secure than cards. But how safe are they really? Read on to find out how debit cards and digital wallets stack up, safety-wise.

Are digital wallets safer than debit cards?

I don't want to sound alarmist, you're at risk every time you use your debit card. Your card information and three-digit security code are printed there for anyone to see. If you physically swipe, the card reader could be rigged to let criminals skim your information. Someone may see you enter your PIN at the ATM. Last year, FICO said debit card crime nearly doubled from the year before.

In contrast, when you use your digital wallet, the information is encrypted. Tokenization makes it extremely hard for anyone to steal information or clone your card. It essentially allocates randomized data for every transaction so card information won't be stored on the merchant's system. If the store gets hacked, your money is safe.

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Another big worry with digital wallets is what happens if you lose your phone. I certainly don't want anyone accessing the banking and other sensitive data that's stored on mine. But -- as I discovered the hard way when my phone got stolen -- it was actually super easy to lock it and erase the data remotely.

Plus, anyone who takes your phone would have to bypass security on both the phone and the wallet app. Unlike a card, your phone's biometric capabilities give an extra layer of security. Debit cards don't require fingerprint or face scans. If you lose your card, the person who finds it might be able to go on a spending spree before you report it.

Key takeaway: At a transaction level, digital wallets are safer to use than debit cards.

Combine your debit card with your digital wallet

The good news is that it isn't a question of digital wallets or debit cards. You can connect debit cards and checking accounts from most major banks to digital wallets like PayPal, Google Pay, Apple Pay, Zelle, and more. That's the whole point of digital wallets.

Some banks, such as Discover, make it extremely easy. Even better? You'll still earn your Discover® Cashback Debit rewards when you pay via a digital wallet. Its 1% cash back offer applies to up to $3,000 of monthly spending, whether or not you physically swipe the card. Click here to learn more about the benefits of Discover's popular no-fee checking account.

Key takeaway: This isn't an either-or scenario -- find out what digital wallets work best with your bank to get the best of both worlds.

Understanding fraud liability

There's more to worry about with a debit card than with a credit card regarding fraud. This is because the best credit cards come with zero liability protection. That means you'll usually get all the money back once you report unauthorized credit card transactions.

Debit cards are another story. By law, if you report the loss within two days, the most you could lose would be $50. If you don't notice the problem within 60 days of getting your statement, that figure increases to $500. It gets even higher after that.

The other issue is that if criminals use your debit card, any spending will immediately impact your checking account balance. You may get the money back eventually, but you'll be out of pocket while everything gets resolved.

Key takeaway: Fraud can have an outsized impact on debit card users. A digital wallet can help reduce the risk of criminals spending your money.

Digital wallets could carry different risks

Security comes in many forms. You might have a deadbolt on your front door and a top-notch home alarm system, only to find you have malware on your computer that allows criminals to access your private data.

I'm being a bit dramatic. But digital wallet technology is new, and we may not fully understand all the risks. For example, it's very hard to hack a piece of plastic. But if you're accessing your digital wallet via a public wifi network, hackers could gain access.

You might also find digital wallets don't offer the same customer support as banks or other financial institutions. In a similar vein, digital wallets may not have as many consumer protections as bank accounts do. For instance, as the CFPB pointed out when pushing for new digital wallet rules, safeguards like FDIC insurance won't always apply to funds in wallets.

Key takeaway: Digital wallets offer bank-like services but may not come with bank-like consumer protections.

Bottom line

Digital wallets come with a lot of advantages and are certainly more secure than swiping your debit card. There are some unknowns in terms of consumer protection. But for now, as long as your phone doesn't run out of battery and the merchant accepts your payment, digital wallets are a safer way to pay.