Financial dangers of a lost smartphone

The odds are pretty good you've lost a cellphone at some point in your life, or will in the future. In the U.S., 113 cellphones are lost or stolen every minute, and on average, an individual misplaces their phone about once a year, according to a report by mobile security firm Lookout.

Overall, more than $7 million worth of smartphones are lost daily. But for some, the cost of replacing a phone can pale in comparison to the financial risk, should your phone find its way into the hands of a hacker.

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Mobile money

For years, security concerns prevented people from entrusting financial data or conducting transactions on their mobile devices. Now the tide has turned. A Federal Reserve survey found that 51 percent of smartphone owners used mobile banking last year. The most common activities were to check account balances and recent transactions, as well as transfer money. Twenty-four percent of smartphone users made mobile payments, according to the Fed report. Mobile commerce increased by 63 percent in 2013 alone, according to the research firm Gartner.

Every single one of these activities requires the user to enter, send and/or store financial data on their phone, which means more is at stake if the phone is lost or stolen.

"Smartphone devices have security risks in general," says Kevin Du, a professor specializing in smartphone security at Syracuse University. "When that device connects with a financial institution, the risks become more severe, particularly when you consider how commonly people lose their phones. I don't do my online banking on my phone because I am very worried about these things."

Risks and dangers

Most people's smartphones hold a wealth of information about the user. This data is remarkably easy to access, should a phone fall into the wrong hands. The simplest way to protect it is with a device password, but 62 percent of smartphone owners don't password-protect their devices, and 32 percent have auto sign-in for banking and financial websites. In these cases, losing a phone is tantamount to handing control of your bank account to an absolute stranger.

"If you don't put a PIN on your phone, if you don't encrypt anything and you have done all the pre-login stuff for banking apps, it is the equivalent of leaving your front door open and your checkbook on the hall table," says Anuj Nayar, PayPal's senior director of global initiatives.

Once someone has access to your "checkbook," there are a number of ways he or she could wreak financial havoc. They could transfer money out of your bank accounts, lock you out of your account or cancel it, change the billing address on an account, buy merchandise and charge it to your accounts and sell your information to a third party, to name a few.

But using and remembering hordes of usernames and passwords is a challenge, which leads people to adopt insecure methods for tracking them all. Lori Atwood, a financial consultant in Washington, D.C., says this is one of the most common security mistakes she sees her clients make.

"The biggest danger I see is with passwords, account numbers and usernames," Atwood says. "Clients often use a password manager app to keep all that information safe, but this raises the risk of hacking or theft."

Even a strong, secret password is no guarantee that your data will stay safe, says Kai Pfiester, an IT security consultant at Black Cipher Security

"If the attacker is really sophisticated and tech-savvy, he may be able to find cached data, manipulate it and subsequently access accounts on your phone," Pfiester says.

Even if a thief can't access your bank account, they could use other information on your phone to perpetrate identity theft and fraud. Atwood advises her clients to use mobile banking and expense-tracking apps because they help them stay within their budget. However, these apps contain sensitive information about spending habits, which thieves can use to avoid raising red flags with a bank or credit card company.

"Someone who wants to get into your account will find a way if they have access to your transactions," Atwood says. "It shouldn't prohibit you from using reputable apps to keep track of your spending and accounts. Just be smart and know how to access them online; know what to do if you suspect you've been hacked. There are many apps that do not require access to your bank accounts to help you monitor your spending."

Bankrate Audio

Financial dangers of a lost smartphone


More than 100 cellphones are lost or stolen every minute in the U.S. If yours goes missing, you can face serious financial risks.

Many of us now conduct banking transactions on our smartphones: We check balances, transfer money and make mobile payments. Experts say those types of activities can leave behind data, so that if your phone gets into the wrong hands, it's similar to leaving your home's front door open with your checkbook sitting on the hall table.

Protect yourself by taking advantage of security measures. Put a password on your phone, and don't allow banking and other financial apps to sign in automatically. Use different and complicated passwords for each app or service. Be sure to enroll in a program that would let you track, lock and wipe your device if it's ever lost or stolen. Ultimately, you need to understand the risks and use common sense to keep them to a minimum, even if you can't keep hold on your phone.

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