Digital wallet
Securely storing payment credentials for reuse.
5-mark Exam Answer
A digital wallet is a mobile application that stores a user's payment credentials and enables contactless payments, typically using Near Field Communication (NFC). According to Laudon and Traver, Apple Pay, Android Pay, and Samsung Pay are leading examples that use tokenisation to protect card information.
- 1.Mobile app storing payment credentials
- 2.Enabled by NFC (2-inch range)
- 3.Uses one-time digital tokens
- 4.Card number never shared with merchant
- 5.Apple Pay, Android Pay, Samsung Pay are leaders
Near field communication (NFC) is the primary enabling technology for mobile payment systems. NFC is a set of short-range wireless technologies used to share information among devices within about 2 inches of each other. Technology companies offer variations on contactless payments, often referred to as digital or mobile wallets.
In Apple Pay, the iPhone comes with a hardware-defined secure area on a chip that contains a unique device number and the ability to generate a one-time 16-digit code. Together they form a digital token. The token information is encrypted and sent to Apple servers to verify the authenticity of the device and the person, then sent to the credit card issuer. Credit card information is not shared with the merchant and is not transmitted from the iPhone.
If hackers intercept the NFC communication at the point-of-sale, or intercept the stream of data moving over the cellular network, it would be useless and incapable of supporting additional transactions because the message is encrypted and involves a one-time-only digital token.
Android Pay and Samsung Pay offer similar NFC-based experiences. Android Pay can store user funds as a prepaid digital card and is therefore subject to federal banking regulations, whereas Apple Pay is solely a technology-based intermediary. Samsung Pay can switch to magnetic secure transmission when NFC terminals are unavailable.
With Apple Pay, a customer presses Touch ID, taps the iPhone near an NFC terminal, and a one-time encrypted token — not the real card number — is sent via Apple's servers to the issuing bank for approval in about one second.
Digital wallets use NFC and tokenisation to enable fast, secure, contactless payments without exposing real card data, with Apple Pay, Android Pay, and Samsung Pay as the leading platforms.
The exam interface follows the university paper pattern: Section A & B carry 5-mark questions; Section C carries objective questions.