5 Risks in Electronic Payment Systems

March 23, 2023 • Shannon Flynn


There are always risks in electronic payment systems, but a few are particularly dangerous. Every payment method, including cash, comes with some calculated risks, such as the potential for a scam or theft. What are the most common risks associated with leading electronic payment systems? There are five that everyone should know about. 

1. PayPal: Poor Account Security

PayPal is one of the most well-established ways to pay for things online and in-person. Unfortunately, there are always risks in electronic payment systems, including PayPal. The main risk on this platform is poor user security practices. 

PayPal itself is fairly well-protected and much more secure than many other payment platforms. However, if individual users aren’t protecting their PayPal accounts well, hackers will use that against them. 

Since PayPal is such a popular platform, hackers have more potential targets compared to other electronic payment systems. This means that PayPal users have good security options available, but if they fail to use those security options, there is a relatively high chance a hacker will breach their account. 

For example, in January 2023, PayPal reported that thousands of user accounts were illegally accessed. PayPal did not take responsibility for the hack, though. The hackers didn’t attack PayPal’s servers but targeted individual accounts instead using the oldest trick in the book: stolen passwords. Many people still reuse passwords between online accounts, which hackers can use to break into a PayPal account, like they did in this instance. 

2. Digital Wallets: Account Theft and Scam Payments

Digital wallets have become extremely popular over the past several years, particularly Apple Pay, Google Pay, and Venmo. PayPal has a digital wallet option, as well. The risks in electronic payment systems attached to mobile devices, like these platforms, are a bit different from other payment systems. When money is stolen through Apple Pay, Google Pay, Venmo, or another digital wallet, it can happen in person. 

For example, someone with Apple Pay set up on their iPhone is able to simply tap the phone at a payment kiosk and pay without unlocking the device. Someone could easily steal that person’s iPhone and use it to steal thousands of dollars since they don’t need to unlock the device. The phone itself acts like a stolen credit card. 

Additionally, digital wallets that rely on social features the way Venmo does can have a high risk of social scams. For instance, someone might try to make a Venmo transfer by friend requesting the account they are trying to transfer to. If they are given a fake username or even accidentally type in the wrong name, they could transfer money to a complete stranger or even a scammer. 

Another risk associated with digital wallets is identity theft or account theft. It doesn’t matter how good Apple, Google, or Venmo’s security is if individual users are not taking steps to protect their accounts. If a hacker is able to break into someone’s digital wallet account, they could change the account email so the owner stops getting notifications. Then the hacker could make all the transactions they wanted and go unnoticed for hours, days or even weeks.

3. Cryptocurrencies: Scam Coins and Wallet Hacking

There are always some risks in electronic payment systems, but cryptocurrencies have built a reputation for being particularly dangerous. It is possible to use digital currencies safely, but it takes technical know-how that many people lack, especially those who are new to cryptocurrencies. 

Investment scams are among the most infamous risks of cryptocurrency. Americans lost an estimated $680 million in cryptocurrency investment scams in 2021 alone. In these cases, scammers offer people a chance to invest in a new cryptocurrency. Once they get a payment or “investment fee” from the victim, the scammer disappears with the money. “Rug pull” schemes are a similar tactic. These scams draw investors in with a seemingly exciting, high-value new project only to turn around and run with the money. 

Scams aren’t the only risk with this electronic payment system. Cryptocurrencies need to be stored in crypto wallets, which are frequently targeted by hackers. Crypto is often stored on hardware wallets, which are intended to be highly secure. However, hardware wallets and crypto exchanges can both be hacked without strong security mechanisms in place. 

Cryptocurrency users also run the risk of accidentally locking themselves out of their crypto wallet. Most wallets are locked with a PIN the user is supposed to write down or remember. Without that PIN, no one can access the user’s cryptocurrency – including the user. There aren’t forgotten password mechanisms on most wallets. One crypto investor made headlines in 2022 when he had to hire hackers to get him back into a crypto wallet worth millions of dollars that he accidentally locked himself out of. 

4. Pay Later: Overspending and Invisible Interest

Buy now, pay later, or BNPL, payment methods are gaining popularity today. They seem easy and convenient at first, like lay-away at a department store. While some common security risks in electronic payment systems aren’t a high concern with BNPL, there are still social risks involved. The nature of BNPL payment systems can lead users to overspend and rope them into high-interest payment plans. 

Today’s leading BNPL platforms include Klarna, Affirm, Afterpay, PayPal’s Pay-In-4 option, and even Amazon installment plans. These platforms all differ slightly from one another but run on the same principle of offering users a way to pay for a large purchase over multiple installments. Amazon’s payment plan tends to be the most user friendly. There is no interest as long as the automatic payment installments are cleared by the user’s card provider. 

Many BNPL systems offer zero or low interest, but only on the condition that users pay on time. Surveys have shown that users frequently fall behind on BNPL payments, particularly younger users. This is not surprising considering the option of BNPL can encourage shoppers to spend more money than they actually have. 

If shoppers fall behind on BNPL payments, it can often result in staggering interest rates that exponentially worsen the situation. BNPL interest rates aren’t always well advertised initially, so it’s easy for shoppers to miss this important catch. If users fall behind on payments, they could face credit score penalties in addition to high interest rates. 

5. Wire Transfer: Risk of Irreversible Payments

Wire transfers are among the most risky electronic payment platforms around today. Fraud and scams are common risks in electronic payment systems, but these risks are disproportionately high with wire transfer payments. Wire transfer is a payment method favored by scammers because wire transfers process instantly and are virtually impossible to track or refund. 

Other payment methods, like credit card payments, are more traceable or easier for scam victims to recover money from. Cryptocurrencies are gaining popularity as the payment method of choice for scammers, but wire transfers remain a highly appealing option. As a result, everyone has to be careful when agreeing to any wire transfer transaction. 

There are some key red flags of wire transfer scams to be aware of. For example, if someone is requesting a wire transfer urgently and won’t accept any other form of payment, they are probably a scammer. The biggest risk here is that if the victim falls for one of these scams, it will probably be impossible to get their money back. 

Avoiding the Risks in Electronic Payment Systems

There are always risks in electronic payment systems, but good user behaviors can go a long way toward mitigating those risks. No payment platform is completely secure against every possible threat, even cash transactions. So, individuals need to simply practice good security habits to make sure they are staying safe when using electronic payment systems. 

Users should always have a complex and unique password on any money-related account. If available, multi-factor authentication is a great tool for adding an extra layer of security. Additionally, shoppers can stay safe by always verifying they are buying from or transferring money to a legitimate source. With safe purchasing and account management practices, anyone can avoid the risks in electronic payment systems.