Four security features of digital payments

Quick insights

• The security measures of digital payment methods may include encryption, two-factor authentication and fraud detection.
• Many digital payment methods allow users to set notifications making it possible to detect fraudulent transactions more easily.
• Digital payments are becoming more popular than traditional payment methods.

When Equifax announced in 2017 that more than 140 million accounts had been affected by a data breach, it made national headlines. Data breaches of that size and magnitude don't happen often but the security of people’s personal and financial information is an ongoing concern. If you use digital payments, you may have wondered how safe they are.

In this article, we’ll explain four security features of digital payments that can help keep your financial information safe.

Understanding digital payments

Digital payments are the process of paying for goods or services electronically. The percentage of people who make digital payments is rising, as technology advances and e-commerce growth have enabled the popularity of digital payments in recent years. The COVID-19 Pandemic also played a part in accelerating the adoption of electronic payment methods.

As making digital payments became increasingly common, the need for consumers and financial institutions to consider and ensure their safety and security was important.

Security features of digital payments

Digital payments are sometimes subject to data breaches and phishing attacks, so adopting cybersecurity best practices extends to the use of digital payments. Many digital payment methods have built-in security measures like two-factor authentication, fraud detection, tokenization and encryption.

Encryption

Encryption is used to help keep digital payments secure. It converts information into a code that helps prevent unauthorized use of your accounts. With digital payment methods, encryption is used to protect sensitive data such as credit card numbers and personal identification numbers (PINs). Encryption helps ensure sensitive information remains secure during transmission or storage.

As an added layer of protection, encryption often includes the use of Secure Sockets Layer (SSL) or Transport Layer Security (TLS) protocols. These protocols establish a secure connection between your device and the payment server. They encrypt the data being transmitted, increasing the chance that it remains confidential and tamper-proof.

Tokenization

Like encryption, tokenization helps protect your sensitive card information. It is a process that replaces sensitive card details with a unique digital identifier or "token". Many digital payment systems use tokenization.

The token is often a series of numbers and letters that mask your card’s 16-digital number and security codes. This token can be used for the transaction but is meaningless if intercepted. For example, Paze, an e-commerce digital payment method, uses a token with online merchants rather than the debit or credit card number.

Two-Factor Authentication

Many people are aware of two-factor authentication to help keep accounts safe. Social media platforms, apps and financial institutions, to name a few, often encourage two-factor authentication to help keep your accounts and information secure. Many digital payment methods require it as well.

Two-factor authentication requires users to verify their identity at least two different ways to access an account or before a transaction can be completed. This will often look like providing a password as well as a specific code—often sent to a mobile phone or email address—to access an account or complete a transaction. Other two-factor authentication methods can include biometric data, push notifications or security questions.

Fraud detection and monitoring

Digital payment platforms use advanced algorithms and round-the-clock monitoring to help detect and prevent fraudulent transactions. They can often employ a combination of machine learning, data analytics and behavioral analysis to detect unusual activity.

Many digital payment methods allow users to set notifications for their accounts. Account users can often set parameters around spending patterns to be alerted if something out of the ordinary happens with their account. For example, you can have alerts set up for transactions over a certain dollar amount or those that take place outside of a specific geographic location. You can often get alerts sent via text, email or both to help ensure you don’t miss a notification.

Comparing digital payments to traditional payment methods

Cash, checks and physical credit and debit cards are considered traditional payment methods. Some security concerns with traditional payment options include:

• Theft and loss: Physical cash and cards can be stolen or lost, leading to potential financial loss and unauthorized use.
• Counterfeiting: Cash and checks can be counterfeited, potentially resulting in financial fraud and loss for individuals and businesses.
• Fraud: Checks can be altered or forged, and card information can be skimmed or cloned, leading to unauthorized transactions.

Digital payments can sometimes provide a more secure and convenient alternative to traditional payment methods. Not to mention, there is an increasing number of businesses who no longer accept cash. Sometimes, digital payments may be your only option.

In summary

The use of digital payments by consumers is increasing. With their rise, the need to ensure digital payments are secure increases too. Many digital payments use encryption, tokenization, two-factor authentication and fraud detection and monitoring to help boost their security. It is not uncommon to encounter businesses that do not accept cash, so finding a secure digital payment is something to consider.