Google Wallet, Apple Passbook, and Cyber-Attacks Oh My!

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With the possible threat of online cyber-attacks should investors steer clear of mobile currency?

Who provides Mobile Currency & What is it?

The two main stars in the mobile currency show right now are none other than: Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL); what each provides is briefly explained below:

Google's version (described here by techopedia)
"Google Wallet is smartphone software developed for Google Android phones and designed to replace credit card processing. Google Wallet technology allows a user to make a payment by tapping a smartphone (using NFC "near field communication") and entering a four-digit security code during checkout.

Apple's version (as described by Apple)
"[Passbook] Passes are a digital representation of information that might otherwise be printed on small pieces of paper or plastic. They let users take an action in the physical world. Passes can contain images and a barcode, and you can update passes using push notifications. The pass library contains the user’s passes, and users view and manage their passes using the Passbook app."

Sounds cool, but risky right?

As high-tech and potentially useful as these applications are it is still hard to shake that feeling of exposure when placing your money into “cyberspace."

As if that were not enough to shake confidences, there are now reports that this year could be a year of heavy attack from cyberspace. CNN Money's David Goldman shared this:

"Nation-state attackers will target critical infrastructure networks such as power grids at unprecedented scale in 2013," predicted Chiranjeev Bordoloi, CEO of security company Top Patch. "These types of attacks could grow more sophisticated, and the slippery slope could lead to the loss of human life."

Whoa. Loss of human life is an extremely gloomy outlook, but not all in the cyber-community share the same level of concern:

"Many security experts are using anecdote and opinion for their predictions, whereas Verizon's researchers are applying empirical evidence," said Wade Baker, head of Verizon's security division. "First and foremost, we don't believe there will be an all-out cyber war, although it's possible."

If you’re thinking this: “The guy said power grids, not mobile payment, so no big whoop…” Then you may want to take a look at this related report from Goldman back in September 2012:

“… the websites of Bank of America, JPMorgan Chase, Wells Fargo, U.S. Bank and PNC Bank have all suffered day-long slowdowns and been sporadically unreachable for many customers. The attackers, who took aim at Bank of America first, went after their targets in sequence…

To carry out the cyberattacks, the attackers got hold of thousands of high-powered application servers and pointed them all at the targeted banks. That overwhelmed Bank of America and Chase's Web servers on Sept. 19, Wells Fargo and U.S. Bank on Wednesday and PNC on Thursday. Fred Solomon, a spokesman for PNC, confirmed that a high volume of traffic on Thursday was affecting users' ability to access the website, but he declined to go into more detail…”

In connecting with banks and making purchases like a debit or credit card mobile currency devices become open to this and other potential threats.

Should you risk using or investing in technology with the potential for such a negative downside?

Back in February 2012 the MIT Technology Review found one such downside in Google Wallet: "A website called Smartphone Champ first reported the vulnerability. It turned out that anyone could get access to your Google Wallet by going into your phone, clearing the data, and setting up a new PIN. “[T]hey’d be able to add your card and have full access to your funds…"

(It may be worth mentioning that I as of this time I have not found any such infractions with Apple's Passbook; but let’s keep an eye out though)

The article goes on to state that Google later addresses the problem and that the author feels that Google Wallet is indeed safe; never the less, this is a perfect image of the "boogie man" that can hide in an investor's closet, causing them to imagine the backlash of massive amounts of consumers (or the companies themselves) suffering financial loss at the hands of a Cyber-Attack. While the Google Wallet scenario required the perpetrator to actually possess the device, other types of attacks (like near field eavesdropping) do not require such a “personal touch.”

Going forward

While they are still just establishing themselves into the mainstream of transactions now, I have confidence that tech tools like Google Wallet and Apple Passbook will become leading features in the next wave of currency. The fact that they can be “hacked” is not exclusive: Just last year I got a call from my credit card company asking me if I bought $1000 worth of groceries from some place 5 hours away from me while my card was still in my pocket!

No wonder Buffett goes slow when investing in technology…

For investors who love the volatility attached to Google and Apple, their strides into mobile currency is a surely a way to keep the peaks and valleys going. If you are going to go long into the “Titans of Tech” be watchful [possibly with puts] and know that their value is tied to more than just Web Search Ads and the price of the latest device. 


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