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By Consumers Union on Thursday, October 16th, 2014

The Most Important Thing You Need To Know About Apple Pay

(And Any Other Mobile Wallet)

American consumers make 73 payments a month, on average – and Apple, maker of the uber-popular iPhone, wants a piece of the action. That’s why Apple is launching its own mobile wallet Apple Pay on Monday October 20.

Screenshot of Apple Pay landing page on Apple.com

Screenshot of Apple Pay landing page on Apple.com

Apple Pay is not the first program that lets you use a phone instead of a plastic card or old-fashioned cash to initiate a payment. Moreover, as our colleague Jeff Blyskal points out, Apple Pay may not even be the best mobile wallet. Apple Pay may face an uphill battle with American consumers, who apparently have not found a compelling reason to adopt mobile payments. (In 2012, there were just over 250 million mobile payments versus 47 billion debit card transactions.)

With these limitations, why is Apple Pay getting so much attention?

We’re watching in part because we think that mobile pay and mobile financial services generally have the potential to increase consumer choice and make it easier to do financial transactions from wherever you are. But we’re also watching because the consumer protections for mobile are not as good as they need to be.

Consumers need to know that mobile payment protections are only as strong as the underlying payment tool.

Yes, you tap your finger (Touch ID) and point your iPhone to pay when you use Apple Pay, but you aren’t charging your purchase to your phone account. Transactions are sent to whatever credit, debit or prepaid card you’ve stored and selected in your phone for Apple Pay. This doesn’t sound like a big deal, but it is.

Why?

Because payment protections vary. A lot. We’ve called on regulators to close the gaps, but for now, credit cards have the best protections under federal law with broad caps on liability, the ability to withhold payment of disputed amounts and the right to prompt recredit. Debit card protections are second best, with limits on liability and the right to recredit within a specified period of time. But general-purpose prepaid cards have no guaranteed federal protections – a least not yet.

So what does that mean for you?

We recommend that you link Apple Pay or any other mobile wallet to a credit card if you have one, preferably one that you pay off in full every month. This is our most important advice, and you should also protect your phone by using such basics as PINs and passwords. We have more tips on safer mobile payments here.

Whether or not Apple Pay convinces millions to use their phone to buy stuff right away, it seems likely that at some point the 90% of American adults toting cell phones will someday use those phones to pay more often then they do today. And that’s why we’ll keep working to make every way to pay safe.

Do you use mobile financial services? Tell us about it in the comments.

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