The Safest Way to Pay When Shopping Online This Holiday Season

Here's why you should ditch the plastic and go digital.

According to a Javelin identity fraud study, overall fraud fell by 15% in 2018 -- but high-impact fraud, such as account takeovers and new account fraud, increased. Despite fewer instances of fraud, more consumers had to shoulder the costs: 23% of fraud victims ended the year with unreimbursed expenses due to fraud.

Hopefully, 2019 will be different. One way to avoid becoming a statistic in next year's report is by paying safely and securely while shopping online this holiday season. The best way to pay if you want to protect yourself from fraud is with a digital wallet.

What is a digital wallet?

Digital wallets, electronic wallets, and e-wallets are all the same thing: an electronic payment system that’s linked to your credit and debit cards. They let you pay for goods and services without having your cards physically present.

Mobile wallets are a type of digital wallet and include:

• Samsung Pay
• Apple Pay
• Amazon Pay
• Paypal
• E-wallets offered by major banks
• Cryptocurrency wallets

While digital wallets are linked to your bank accounts, they don't actually use your bank account information during the payment process. Instead, they assign randomly generated "tokens," or alpha-numeric codes, to each of your credit cards, and when you pay, the e-wallet transmits your card's token to the online merchant rather than your actual credit card information.

Why digital wallets are safer

People often assume the safety of digital wallets lies in not having to carry around a physical wallet. If your wallet is lost or stolen, thieves can easily use your cash and credit cards. If your phone is stolen, accessing your mobile wallet is much more difficult.

However, digital wallets are also safer when you're shopping online due to the tokenization process.

In this sense, they're a world apart from the way most people pay for products online. All of the information you'd usually type into a merchant's webpage -- your credit card number, expiration date, and security code -- is encrypted in the form of a token before it's sent off. The token can't be read or used by anyone but the final payment processor, so shady online retailers and hackers have no way of accessing your credit card information.

If you're shopping with a merchant that doesn't accept digital wallets, the FTC recommends paying with a credit card so that you're protected by the Fair Credit Billing Act. Not only is shopping online with a credit card relatively safe, but it's actually safer than shopping with your debit card.

When you pay with a debit card, you can be held liable for up to $500 in fraudulent charges -- or even more if you fail to report the charges within 60 days. You can only be held liable for up to $50 worth of fraudulent transactions on a credit card, and the best credit cards offer a zero-liability policy.

It's also important to remember that having your bank information stolen isn't the only way you can get tricked online. Rather than hacking their way to your credit card number, scammers sometimes get you to willingly hand over your information by convincing you that they're selling you a product or service when they aren't. Be wary when shopping with online retailers you've never heard of, and do sufficient background research to make sure they're legitimate.

Finally, never pay for a product online by sending a money order or wire transfer.

If you don't have a digital wallet, take a few minutes to set one up before you start your holiday shopping. Spending a bit of time now could save you down the line.