Smart Money Podcast: How Secure and Private Are Your Digital Wallet Transactions? Apple Pay, Google Pay, Samsung Pay and More

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Learn the truth behind common credit score myths and get a better understanding of digital wallet privacy and security.

This Week in Your Money: Do you need to carry a credit card balance in order to maintain a good credit score? Does checking your credit score hurt your credit? Hosts Sean Pyles and Sara Rathner debunk common credit score myths to help you understand the realities of your credit health. They offer valuable insights into how carrying a balance affects your credit score, the safety of checking your credit score regularly, and the importance of maintaining a history with your credit accounts open.

Today’s Money Question: Are digital wallets truly safe and private? Is it safer to pay with a check than online? Sean and Sara discuss the intricacies of digital wallets, explaining the role of tokenization in securing transactions, the importance of phone security features like passcodes and biometrics, and the varying privacy policies of digital wallet providers like Google Pay and Apple Pay. They explain how digital transactions are protected, how to navigate privacy settings in apps like Venmo, and how they’ve used digital wallets in their own lives.

Check out this episode on your favorite podcast platform, including:

• Apple Podcasts

• Spotify

NerdWallet stories related to this episode:

How to Calculate Your Credit Utilization Ratio

Apple Pay, Google Pay and Samsung Pay: How They Work With Credit Cards

8 Other Things Your Digital Wallet Can Do for You

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

This transcript was generated from podcast audio by an AI tool.

Sean Pyles:

The personal finance space is full of myths and misconceptions, so today, Sara and I are going to fulfill our Nerdy duties and bust up some of those myths.

Sara Rathner:

Welcome to NerdWallet's Smart Money Podcast. A podcast where we help you make smarter financial decisions, one money question at a time. I'm Sara Rathner.

Sean Pyles:

I'm Sean Pyles. Listener, you know the drill, that money question that you just can't seem to work out on your own, send it our way and we'll stick our Nerds on it.

Sara Rathner:

Leave us a voicemail or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD, or you can email it to [email protected].

Sean Pyles:

This episode, Sara and I answer a listener's question about digital wallets. Are they safe? How is your consumer data handled by companies like Google and Apple?

Sara Rathner:

But first, Sean and I are going to do that myth busting thing, and this time around we're going to clear up some common myths about credit scores.

Sean Pyles:

Yeah, credit scores are one of those areas of personal finance where the basic elements are pretty simple, but once you get into the inner workings, things can get a little bit confusing, so people latch onto rules of thumb or wrong facts that they heard one time to help them understand this kind of awkward nook of the money world. Sara, what is the first credit myth that you're going to bust for us?

Sara Rathner:

All right, brace yourself. But if you had that uncle at Christmas who told you that you should carry a small balance on your credit card to keep your credit score good, stop taking their advice. Myth busted.

Sean Pyles:

Okay, yeah, this is a classic myth that so many people believe. I would bet that our listeners probably know better, but listener, if you do have that relative or friend that insists that this misconception is true, point them to this podcast and have the Nerds set them straight. Anyway, Sara, can you explain what's going on with this myth?

Sara Rathner:

Honestly, I'm not sure why it's so pervasive, but I think what's happening is that many people confuse the fact that it's good to have different kinds of credit, like a mix of loans and credit cards when it comes to your credit score with the idea that you have to be in debt to have good credit. Or maybe there's some confusion around the idea of credit utilization, which is another factor that's considered as part of your credit score. Credit utilization is the percentage of your credit limit that you charge during the course of any one billing cycle, and that's about a month, if you want to put it conversationally. The rule of thumb is that you keep that utilization at 30% or less, less than that is even better, like 10%, so maybe some people think that you should have a balance of like 30% of your limit. You don't have to do that.

The truth is that you don't have to carry any sort of balance on a credit card to have a good score. If you have it in your budget to pay your credit card bills in full, on time every month and avoid debt entirely, that is a huge win. Keep doing that. Sean and Sara approved, big thumbs up. Yeah, it can harm you financially to carry a balance, first of all, because interest is expensive, and second of all, when you carry a balance, it means that you're using more of your available credit, that bumps up your credit utilization and can lower your credit score.

Sean Pyles:

Yes. All right, now onto the second credit score myth. Checking your credit, contrary to what some people may believe, does not hurt your credit. In fact, it can actually help you better your credit, so consider this myth busted. This is another instance where I think people might be conflating two things. Checking your credit either with a credit bureau or on a trusted site like NerdWallet will not impact your credit, but if a lender runs a credit check, also known as a hard inquiry to see if you qualify for their product, that will temporarily ding your credit score, but your credit score should bounce back pretty quickly.

Sara Rathner:

People should know that if you apply for multiple financial products in a short window of time, let's say around two weeks, these credit checks will essentially be grouped together for the sake of your credit score. Let's say you're shopping around for a mortgage or something like that, credit bureaus want to know if you're applying for a ton of new credit over a stretch of time because that could signal financial distress, which makes you potentially a risky borrower and they're going to want to know that about you. But shopping around and getting pre-approved for a few different loans before you select the right one is fine.

Sean Pyles:

Yeah, in fact, it's something that we recommend people do all the time when they're getting a mortgage or an auto loan or even just shopping around for maybe credit cards. But as we just demonstrated, simple credit rules can sometimes have complicated underpinnings, so for the sake of managing your credit score, know that checking it regularly is not going to hurt you. As I said earlier, it can help you have a better score, like if you spot a sudden unexpected drop in your credit score, that could be an indication of an error on the part of your creditor or maybe even a sign of fraud. Those are all good things to keep an eye out for.

Sara Rathner:

It could even be a sign that you accidentally missed a payment too, and you're going to want to know that so you can take steps to fix the problem as well. It happens. It doesn't mean you're a bad person, it just means that you're busy. All right, third myth to be busted. I love this one because it's springtime. Closing old credit card accounts, like spring-cleaning your wallet. It turns out that this could not actually be good for your credit, so in this case, myth busted again. This might contradict your best Marie Kondo spring-cleaning impulses, but that credit card that's sitting in a desk drawer and you, most of the time, don't even realize it's there, might actually just be fine where it is. Also, you should know that apparently after having her third child, even Marie Kondo herself has apparently relaxed her standards a bit around how she maintains her home, so I think we can all learn a lesson from that. Maybe she's not folding T-shirts quite so perfectly. You know what I mean?

Sean Pyles:

Simply does not have the time or mental energy to do that-

Sara Rathner:

Who does, really? Literally, who does?

Sean Pyles:

Not me, and I don't have any children.

Sara Rathner:

Yeah.

Sean Pyles:

What's going on here is that closing a credit card will reduce the total amount of credit that you have available, which can impact your credit utilization ratio when you do make charges to other credit cards. Closing a credit card that you've had for a while can also reduce the overall age of your credit profile, which may have an impact on your credit too, depending on which scoring model is being used. But know that sometimes credit card companies will close accounts automatically due to inactivity.

This is a lesson that I just learned the hard way over the weekend when I got an email out of the blue from my credit card company saying, hey, you haven't used this account in two years, so we've closed it for you, so if you do have a credit card that you don't use very often, but you want to keep it active in the eyes of your credit card company, you can just set up a recurring charge to it monthly, something like a small subscription, and then have it set to be paid off via auto-pay. That way you are still using the account and reaping its benefits for your credit profile, but you don't have to think about it very much.

Sara Rathner:

Yeah, that's happened to me too. Sad trombone sound effect.

Sean Pyles:

Yeah. I actually felt kind of sad because this was a credit card that I've had open for over a decade, but all things must change and move on. That's my life.

Sara Rathner:

To everything, there is a season, and the credit card was ready to retire, whether or not you were ready for it to do that. I'll also add, it's not to say that you should never close credit cards ever, it's something that I have done as well, I've closed cards, it's not a bad thing to do, you just want to be thoughtful about it. If there's a reason to keep the card open, like let's say you pay an annual fee on the card, but you don't really use it that much anymore and you don't want to pay that fee anymore, you could also call the credit card company and see if there's a no annual fee version of the card you could move your account over to.

These are called product upgrades and downgrades, and that way you can continue to keep that account open, you just stop paying the annual fee on it. If that makes you feel better about it, then it could be a way that helps keep you happy with that card being open for much longer, so it's worth a try. All right. I think that's it for money myths for now. Myths have been busted, hopefully you can go forth and tell that uncle to stop giving you money advice next Christmas.

Sean Pyles:

At least inaccurate money advice, let's say that.

Sara Rathner:

Maybe give him some money advice. Anyway, listener, if you have any money myths that you want us to dispel, that you have heard perhaps over a family table, let us know. Maybe you have that one cousin who insists that they can always beat the market by timing their investments and you just know that that can't be right because it's not, so whatever money myth or financial fact check you want, call or text us on the Nerd hotline, that's 901- 730-6373 or 901-730-N-E-R-D. You can also email it to [email protected].

Sean Pyles:

Speaking of hearing from you, listener, a couple of weeks back, Sara, our co-host Elizabeth Ayoola and I shared our favorite money mistakes and we said that we wanted to hear yours too. We heard from a bunch of you, and I want to highlight one that came in from Gabe L. Gabe said that their favorite money mistake was buying a really expensive car the first chance they had to buy one. Gabe's car payment was around a thousand dollars a month, and after two years of making this payment, they realized that they just did not need to pay this much money for a set of wheels, so Gabe downsized to a more modest car with a payment of around $300 a month, and Gabe said that they are glad that they got the get a nice car impulse out of their system early in their career, because if not, they would've spent a lot more money and many more years throwing away all of this money. Gabe's hope is that this helps someone else avoid their costly money mistake.

Sara Rathner:

Yeah, always good to learn that as quickly as possible and move on. Listener, let's keep this going. To share your favorite money mistake, send it to us on the Nerd hotline or email it to [email protected].

Sean Pyles:

All right. Well, let's get to this episode's money question segment after a quick break, stay with us.

We're back and answering your real world money questions to help you make smarter decisions with your money. This episode's question comes from Steve in Salt Lake who sent us a voice memo. Here it is.

Steve:

Hi nerds, this is Steve in Salt Lake. I have a question about using digital wallets. I know they're more secure than using physical cards, and it's definitely convenient not to have to carry around a credit card, a wallet or cash, but my question is, when I use them, like whether it's Google or Apple or Samsung or Venmo, do they track what I'm spending, what I'm buying and where I'm spending at? It's one thing for my financial institution behind that credit card and the merchant to know what I'm doing, but do I want to bring another whole company in to know what I'm buying and spending? Am I overthinking this? Is this rational? Thank you so much, have a good day.

Sean Pyles:

This episode, Sara and I are taking on Steve's question ourselves. Sara, let's start by addressing the security question. Steve mentioned that digital wallets can be more secure than physical cards, but some people might be skeptical of that. Can you explain if and how digital wallets are in fact the safer option?

Sara Rathner:

Yeah, whenever you have new technology, it seems scary at first, but oftentimes new technology is built to solve the problems that existed in the past. In this case, it has done that in several ways. Digital wallets use a built-in security feature that's called tokenization, and that helps you keep your credit or debit card number a secret when you make a purchase, so basically when you pay for something with your credit or debit card, either in a store or online, instead of your actual card number being sent to the merchant, the digital wallet will generate a one-time use token, and that's random numbers or random numbers and letters, and the token is what's actually used to process the payment and your personal information remains secure. Accessing your digital wallet in the first place also involves other layers of security like requiring a pin or your fingerprint or your face to unlock your phone. If your phone is locked, that information is not accessible. It's not like somebody stealing your wallet out of your pocket or purse and grabbing your cards.

Sean Pyles:

Right, but doesn't mean that these are 100% secure, people should still have their guards up to some extent, right?

Sara Rathner:

Always. You always need to exercise some caution, keep a close watch on your phone. You have so much important information stored in there and it's so easy for that to go missing. You want to cover your screen if you're entering a passcode. For the love of everything, your phone should lock and require a passcode or biometric information like your fingerprint or your face to unlock it. Strangers should never be able to unlock your phone.

Sean Pyles:

While you do need to secure your phone, which we all hopefully are doing already, it is still much safer than a physical card, where if you lose it, if it falls out of your wallet or someone steals your wallet, they can use your card immediately and really easily most likely, but with a digital wallet, someone would most likely need to have your biometric information or your phone's pin to use those cards. As someone who's prone to forgetting his wallet at home, I'm a big fan of digital wallets for their convenience, so I am all for using them to the greatest extent possible if it's feasible for you to do so.

Sara Rathner:

Yeah, I agree, I'm a fan too. I'll admit that I don't use them very often because many places I shop at still don't accept them, so the infrastructure has a ways to go in terms of catching up.

Sean Pyles:

I think some of that might be regional or depending on the types of stores that you're shopping at. It's pretty rural where I live in Washington state and paying for something like groceries or a drink with my phone is not possible, but in Portland, where my partner lives and where I spend a good amount of time, I can pay with my digital wallet pretty much anywhere I go, at the grocery store, at a night out, and I find it so much more convenient than having to whip out my card, wait for it to process, I can just have it on my phone, which I likely already have out anyway.

Sara Rathner:

Yeah, here in Richmond it's kind of a mixed bag. What I'm seeing more and more of are registers that accept tap to pay, so I could take my credit or debit card and tap it instead of having to insert the card into the chip reader. That is becoming more and more available, but being able to use a digital wallet is still kind of touch and go, so I haven't really adopted it just because it's not the most convenient option yet, but we'll see what happens over the next couple of years as businesses upgrade their systems. All right, so switching gears, let's move to the main part of Steve's question, the tracking question. Are various digital wallets tracking your transactions? If you buy something embarrassing, is Google going to know? The answer is, probably, but really, Google knows everything. But the actual answer is that your mileage may vary.

Sean Pyles:

Right. Apple says that when you use Apple Pay, it doesn't retain transaction information that can be traced back to you. It says in their terms and conditions that your transactions stay between you, the merchant or developer and your bank and card issuer, and that's in contrast to something like Venmo where it's practically a social network built around your transactions. The default is to have your payments be very public and posted to a feed for the world to see. My friends and I joke about how stalking someone's Venmo payments is actually one of the best ways to get to know what someone is really like. But there are ways that you can add more privacy to Venmo. An easy way to do that is to change your settings so that all payments default to private. At least that way, friends and internet creepers like myself and my own friends can't see what you're spending your money on. But I crept through Venmo's privacy policy and it doesn't appear that they are selling your transaction data to third parties.

Sara Rathner:

Yeah, I definitely have my Venmo settings set to private because the world does not need to know how often I actually Venmo my own husband, and for what mundane stuff we do like gas bills and other really boring expenses, nobody needs to see that.

Sean Pyles:

Hey, whatever works for you guys, that's fine.

Sara Rathner:

It's a system that we have figured out for ourselves. Steve also asked about Google, and it also states that they don't sell your transaction data to third parties.

Sean Pyles:

Yeah, at least there's that. These companies are saying that your information is private and secure, but I would say take that with a hefty pinch of skepticism because any privacy claim from any company that holds vast amounts of your data should be suspect. In fact, Google recently settled a lawsuit alleging that your incognito window browsing is not as private as it appeared, as they told you it was, so I trust that they are finding some balance between keeping your information secure, but also it could just be hacked, so you never really know what's going on with your information. Sara, I'm wondering if you think we should all just accept a certain lack of privacy as the price of existing online in 2024?

Sara Rathner:

I mean, I don't think we've had privacy for a long time, forget the fact that it's 2024. I mean, we've all been existing online for what, like 30 years now? Sorry guys, all of your information is everywhere. Live with it, I guess. But really it's a matter of being reactive to when you think something is weird and things don't line up and there's suspicious information or suspicious charges being made on your accounts, you do the best you can to pay attention to what's going on and then react accordingly when something is strange. That's really the best any of us can do. The thing is, businesses really want to know what you're searching for so they can market products to you specifically, so in exchange for information and convenience being at your fingertips, we're giving up a little bit of our anonymity, or a lot of it.

Sean Pyles:

I actually was really relieved to see Steve's question because it feels noble in a way to even want to preserve your information online or to care about it, because I have kind of given up that battle because between constant data breaches and NSA surveillance and neighbors who have Ring doorbell cameras, I just figured that we are all being watched essentially all the time, so on one hand, I'm kind of apathetic about this, and then on the other hand, I try to have some semblance of control. It feels like a small action, but I almost never let a website have my digital cookies just to be like, no, those are my cookies, I'm going to eat them, don't touch them, but at the same time, there's only so much you can really do.

Sara Rathner:

Yeah, we live in a time where it's impossible to remain truly anonymous. No one's disappearing anytime soon. There's just too many things that can be traced back to you, so it is important to do the best you can to safeguard your information, the information of your children, if you have elderly relatives that you help with technology, helping them secure their information too, because there's just a lot of nefarious, scammy stuff out there that targets people who aren't tech-savvy.

Sean Pyles:

Yeah, and that's a good point. I think that we should be really clear that there's a difference between being apathetic to companies tracking your online behavior for marketing purposes and being careless about sensitive personal information. Things like your social security number and even your phone number, and maybe even your email really should be safeguarded so that you aren't as susceptible to scammers coming after you.

Sara Rathner:

Yeah, never keep your social security card in your wallet, by the way. Don't carry that with you unless you actually need it for a reason, and then the moment you're done, put it back in a safe location in your home. Keep a fireproof safe or something for those important documents if you can. Sometimes I hear, especially from older people I know who used to manage their money in very different, more analog ways, they feel more secure paying bills the old-fashioned way by mailing checks in, that's not more secure at all. It's probably less secure to put a check in the mail right now. I've heard stories of mailboxes being broken into and mail getting stolen and checks getting stolen.

Paying your bills electronically has more security measures in place, so if that's something you feel comfortable doing, you should continue to do so, and if that's something that you've been avoiding because you feel uncomfortable with it, maybe open your mind and heart to the possibility of switching to online bill payments because you have those extra layers of security. I don't like mailing checks ever, I hate doing it, I've gotten them lost. It just makes me feel really icky to have my checking account number and routing number out in the open like that, so sometimes new technology is something worth embracing.

Sean Pyles:

To Steve's question, at least they can take comfort in knowing that these companies allege that they are not tracking your transactions, and to your point as well, Sara, these services are more secure than just putting a check in the mail, so at least that is good to know.

Sara Rathner:

Yeah, if they say they're not tracking your data and then they are, then maybe Steve can be part of a class action lawsuit one day.

Sean Pyles:

Yeah, I'm happy to sign up for that as well. But all of this talk about the way companies are surveilling us and manipulating us online reminds me of an article that our former co-host Liz Weston wrote about dark patterns.

Sara Rathner:

Okay, you're going to need to remind me of what dark patterns are.

Sean Pyles:

Dark patterns sound creepy because they are. It's essentially a tool that user experience designers deploy to direct you to choices that may not be best for you but are advantageous to the company. An example is a company that makes it really difficult for you to cancel a subscription, or if you try to read an article on a website, you're bombarded by popups that ask for your email address. These things that we interact with all the time that make just existing online and trying to get what you want from a company more difficult.

Sara Rathner:

Yeah, those are just so obnoxious. As a user of products and websites, I just want to do what I have to do as quickly as possible and move on with my day, and when you throw these roadblocks in my way, it's going to make me less likely to use your products in the future because that is just shady. What can people do to protect some of their information, if possible?

Sean Pyles:

Well, when it comes to dark patterns, in particular, in Liz's column, she suggests that first and foremost, we just slow down online because, to your point, we just want to get in and get out and move on with our days, but it's worth taking a moment to consider what a company is getting from us. Like, if we're going to be putting in personal information or a credit card number into a company's website, really understand what they're going to be doing with that and how difficult it might be to get that information back. I would also recommend that people do what you may not ever want to do or maybe have never done before, and actually read a company's terms and conditions so you truly know what you're signing up for. This is especially important with subscription services, understand how you would get out of that subscription if you want to and how difficult it might be, and also, going back to your note about class action lawsuits, be really loud about how annoying these dark patterns are.

Sara Rathner:

Yeah, name and shame. The beauty of the internet is we can loudly yell from our phones and home computers about how annoying companies' practices can be and leave bad reviews and contact customer service and mention our experiences on social media and other people will chime in with their experiences and maybe it will shame a company to change its business practices. Give the people what they want.

Sean Pyles:

One can hope, maybe.

Sara Rathner:

Yeah.

Sean Pyles:

Yeah. Listener, I would love to hear what you think about protecting your personal information online. Do you fight the good fight and try to protect your information, or are you resigned to the fact that these companies already know everything about us and you've just given up? Let us know by emailing [email protected] or text us or leave a voicemail on the Nerd hotline at 901-730-6373. That's 901-730-N-E-R-D.

Sara Rathner:

That's all we have for this episode. You can also email us at [email protected] and visit nerdwallet.com/podcast for more information on this episode. Remember to follow, rate and review us wherever you're getting this podcast, and don't forget to share it with a friend.

Sean Pyles:

This episode was produced by Tess Vigeland, who also helped with editing. Sara Brink mixed our audio, and a big thank you to NerdWallet's editors for all their help. Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Sara Rathner: