Digital wallets, like Apple Pay and Google Pay, are no longer just “emerging” payment methods – for many, they’re the new normal. Consumers love them for their ease, speed, and occasional perks (who doesn’t like double-tapping a phone to make a purchase?).
But with convenience comes complexity. Fraud risks tied to wallets often go unnoticed or misunderstood, leaving your revenue vulnerable. Here’s how to separate fact from fiction and embrace digital wallets confidently without compromising on fraud prevention.
Myth: Digital Wallets Are Immune to Fraud
We often hear, “But Apple Pay uses Face ID!” or “Google Pay needs the device’s fingerprint — how could that be risky?” While it’s true that these biometric checks confirm the phone’s owner is present, they don’t prove that the loaded card actually belongs to that same individual.
Reality Check
- Stolen Card, Real Device: If a fraudster steals card information, they can add it to their phone. Biometric scans only prove they’re holding the phone, not that the card is legitimately theirs.
- Tokenization Challenges: Digital wallets use tokenization to replace card numbers with unique codes. While this is great for privacy, it limits merchants’ access to key fraud signals like the actual card number or AVS/CVV details.
Why It Matters: If you skip your regular fraud checks just because a transaction came through a digital wallet, you could be letting in unauthorized purchases. Biometric sign-in is helpful but doesn’t tell the whole story — a fraud solution must still fill in the gaps.
Myth: Digital Wallets Eliminate Chargebacks
While wallets reduce certain risks, chargebacks are far from a thing of the past. Fraudulent or abusive claims like “I didn’t receive my order” remain common, even with wallet payments.
Reality Check
- Friendly Fraud Isn’t Going Anywhere: Consumers can (and do) claim they never got their purchases even when paying with Apple Pay or Google Pay. The result is the same: a chargeback you have to fight.
- Limited Data for Dispute Defense: Masked card details and reduced visibility into the payment process can complicate fighting chargebacks tied to wallet transactions.
Why It Matters: You still need a robust game plan for disputes — don’t assume a shiny new payment method automatically solves all your chargeback woes. If chargebacks spike, you could face the added risk and cost of being placed in a chargeback monitoring program.
Myth: The Bank Handles the Risk
When customers add cards to wallets, banks and payment providers typically manage the behind-the-scenes approvals. For example, many U.S. shoppers use Apple Cards with Apple Pay, but Apple Cards are actually issued by Goldman Sachs, meaning you’re dealing with Goldman Sachs for any disputes — not Apple. Still, even with these financial institutions playing a role, merchants aren’t off the hook.
Reality Check
- Shared Responsibility: Even if a bank approves a card for a digital wallet, the merchant may still be liable for disputes or fraud if your fraud tools fail to catch something suspicious.
Why It Matters: While banks and digital wallet platforms do a lot to keep payments secure, merchants remain responsible for many types of disputes and unauthorized transactions. Staying proactive in fraud prevention is key.
Myth: You Don’t Need a Special Fraud Strategy
It’s tempting to think, “A card’s a card, right?” However, treating digital wallet payments exactly like standard card-not-present transactions can backfire.
Reality Check
- Different Data, Different Rules: Traditional fraud checks may rely on details you’re not getting from digital wallets. Because tokenization can obscure the underlying card — and a single physical card can be added to up to nine Apple Pay devices, for example — you need new ways to spot patterns, like how often the same card is used across multiple tokens in a short time.
- Customer Experience: Overly aggressive security steps might scare off legitimate shoppers who love how fast Apple Pay and Google Pay can be. Conversely, ignoring digital wallet fraud signals can leave you wide open.
Why It Matters: Digital wallets require a nuanced approach to fraud prevention. Treating them like standard card-not-present transactions can lead to two critical missteps: alienating loyal customers with unnecessary friction or exposing your business to unchecked fraud.
How to Embrace Wallets Responsibly
Digital wallets aren’t just a trend — they’re transforming how consumers shop, with adoption rates continuing to soar globally. If fraud management of these payment methods flies beneath the radar, the potential cost only grows with time. This means that striking a balance between security and convenience is more critical than ever.
The challenge? Preventing fraud without driving away legitimate customers. Think of it like adding just enough spice — you want flavor, not a five-alarm fire.
By embracing digital wallets responsibly, you unlock new revenue opportunities while staying ahead of fraud risks. The proper safeguards can help you confidently offer one-click checkouts, in-app payments, and a frictionless experience that builds loyalty without increasing vulnerability.
- Refine Your Fraud Toolkit: Use solutions that make decisions based on identity and improve performance through tokenized payments. Monitor for velocity issues and account takeover attempts.
- Optimize for Speed and Security: Adopt a layered approach. Escalate security steps (like MFA) only for high-risk transactions, preserving a smooth experience for trusted customers.
- Monitor and Reduce Chargebacks: Track chargeback reasons for wallet purchases and adapt policies to reduce disputes.
- Foster Cross-Functional Collaboration: Align your fraud and payments teams to balance security with seamless checkout flows.
Apple Pay, Google Pay, and other digital wallets redefine how people shop. While friction-free isn’t the same as fraud-free, busting the biggest myths and adopting the proper safeguards will help you offer a modern, convenient checkout that keeps your customers happy and your bottom line healthy.
