smart spending

Do you need a virtual wallet?

internet shopper
Highlights
  • The three biggest players offer varying features and uses.
  • It pays to know your shopping needs before choosing one.
  • "Never store a checking account number in a virtual wallet."

If you want one location to store payment data for online merchants, virtual wallets are an easy-to-use solution. They hold your account data in one place, which makes storing data easy, and prevent you from having to give it out each time you shop online.

You simply register with a virtual wallet and then click on its icon online when buying something via your computer or, lately, your mobile phone. There are no buyer fees.

And that's where the similarity ends. The three biggest players -- PayPal, Bill Me Later and Google Checkout -- offer varying features and uses. So it pays to know what your shopping needs are before choosing one.

Fortunately, each virtual wallet is safer than using cold hard cash. "You store information for payments," says Beth Robertson, director of payments research at Javelin Strategy & Research. "You're not giving information to merchants and relying on them to store it."

And each virtual wallet has good security in place that equals that of banks.

Still, read the terms and understand the liability coverage, says Robertson. "Also, see if this payment option is available at the sites where you shop," she says.

PayPal, owned by eBay Inc., is by far the most widely used. It gives you the most options, says Avivah Litan, a security analyst at Gartner Research. You can choose to link to your credit card, debit card, cash account or checking account.

Bill Me Later, also owned by eBay, has a twist -- it taps into extra credit. "It's a good system for paying later if you're maxed out on credit cards," says Litan. When using Bill Me Later, you provide the last four digits of your Social Security number, address and birth date for credit checks. Then you get a bill in the mail or electronically that lists your charges.

Google Checkout, which competes with PayPal, hasn't gotten much traction, says Litan. Payment options are limited to credit and debit cards. "I don't see a lot of value in it," says Litan. "It's a place to store credit card numbers. Who wants to do that? They already know too much about you."

Google Checkout does store shipping information, though, says Robertson. "When you click on the icon, you access all your account data."

Credit card companies are jumping into the act lately, too. Visa is rolling out its Right Click. But there's a major drawback -- you're limited to purchases with Visa. "It's hard to beat PayPal innovation," says Litan.

Here are three factors to consider when choosing a virtual wallet:

Read the fine print on fraud protection

Google Checkout offers 100 percent fraud protection. PayPal also offers fraud protection, though consumers have complained online about their difficulties resolving fraud. Bill Me Later offers the same zero-liability protection as credit cards.

Compare payment options

Google Checkout is relegated to credit and debit card payments. But PayPal gives you the most payment options, including e-checks. "We're agnostic to whatever you want to link to," says Dan Schatt, PayPal's senior director of financial innovations. "If you use a virtual wallet, that's the best experience."

Also, you can only use Google Checkout in the U.S. PayPal can be used in 190 countries; more than 8 million online merchants take it. You can also use different currencies.

Litan cautions consumers that linking to credit cards is safer, though. "Never store a checking account number in a virtual wallet," she says. "Right now, credit cards have good protection." The second safest payment is signature debit, where you don't use a PIN, she says.

Scrutinize features

Though Google Checkout and PayPal are similar, Bill Me Later is essentially a line of credit. So a hard credit check is run on consumers for first-time purchases. It isn't run every time after that, though, so your credit rating won't get dinged.

"Virtual wallets are very convenient," says Litan. "You don't have to retype data."

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