Mobile payment systems: everything you should know about making and accepting mobile payments to grow your business
If you’ve ever doubted how central smartphone use is in American culture and commerce, consider the emergence of “selfie pay.” That’s right. There’s an app for that. With recent advances in facial recognition technology and biometrics, consumers can now authenticate a payment by taking a selfie or having their fingerprint scanned.
For U.S. retailers and restauranteurs, the big question in 2018 has changed from whether to implement a mobile payment system to when to implement one.
It’s safe to say that the mobile payment trend isn’t going away anytime soon, and the time to be an “early adopter” has already passed.
Setting up a mobile payment system isn’t particularly hard or prohibitively expensive. But many merchants aren’t sure what type of system to buy. In this article, we’ll cover the different types of mobile payments systems available and which of them are best suited for your business type.
Let’s start by getting some clarity around what people mean when they say “mobile payments,” since a mobile payments system can describe both paying and accepting payments via a mobile device.
Mobile payments versus mobile acceptance
When discussing mobile payments, it's helpful to define the meaning by segmenting the topic into two main categories: acceptance and payments.
- Paying with mobile payments: Customers pay for goods and services using their mobile device.
- Accepting mobile payments: Merchants accept payments from customers.
Paying with mobile payments
To make a mobile payment in-store, the customer taps their phone to a mobile payments-enabled NFC (near field communication) terminal activating the mobile wallet, and completes the transaction by using their fingerprint, facial scan, PIN, or other method depending on the phone and wallet.
Another form or making a mobile payment is when a customer makes an online purchase in-app on their mobile phone. In either situation, the cardholder’s stored credit card credentials are accessed by a mobile device to make a payment rather than using an actual credit card or manually imputing their credit card number into a mobile site.
Mobile payments methods:
- In-store countertop payment terminals that recognize digital wallets
- Online in-app purchasing
Accepting mobile payments
To accept a mobile payment in-store, the merchant provides an NFC terminal with mobile payments acceptance enabled, wherein the customer taps their phone to the terminal to initiate the transaction.
Another form of mobile acceptance bypasses the “in-store” requirement by turning the merchant’s phone or tablet into a credit card terminal. In this scenario, a small hand-sized credit card reader is attached to (via audio jack or USB) or communicates with (via Bluetooth) the merchant’s mobile device. The merchant is mobile, and accepts payments by swiping a credit or debit card through the device.
Lastly, an outlier in this category is a handheld wireless POS terminal that is integrated with the larger POS system. This is a semi-mobile solution since it uses wireless connectivity to allow movement within the business and at a certain distance from the POS, but cannot be used outside of the business’ WiFi signal.
Mobile acceptance methods:
- In-store countertop payment terminals that recognize digital wallets
- Credit card reader dongle plugged into (or connected via Bluetooth) the merchant’s mobile device for swiping cards away from a countertop terminal
- Handheld wireless POS terminals
Whether you're considering the ability to accept mobile wallet payments, or making your business more mobile by having the ability to accept payments anywhere, now is the perfect time to take the leap into mobile payment systems.
Making payments with stored credentials
Mobile payments technology has progressed to the point where there are now several major applications or use cases for making mobile payments.
Types of mobile payments
- In-store—payments made with a mobile wallet by tapping the device at the point of sale (POS) to pay for a good or service at a business location. A popular example is Apple Pay.
- In-app—payments made by using credentials stored in the customer’s account on a business’ proprietary app. A popular example is Amazon.
- Closed loop—payments made by accessing funds previously loaded onto a business’ proprietary loyalty card. A popular example is Starbucks.
- Person to person (P2P)—funds sent by one person to another using a payment app that connects the users finances. A popular example of a P2P app is Venmo. This category also covers money transfers between two people who use supported banks. A popular bank-supported P2P app is Zelle.
- Carrier—digital payments authorized by the user are charged by the cell phone carrier to the user’s monthly cell phone bill.
What is a mobile or digital wallet?
A mobile wallet, also referred to as a digital wallet, is essentially the digital keeper of a cardholder’s credit or debit card credentials. Entering your credit or debit card information into a mobile wallet enables you to use your phone to complete purchases instead of using a plastic card. Though the terms are commonly used interchangeably, a mobile wallet is specific to credentials stored on a mobile device, whereas a digital wallet can be accessed via web browser on desktop or laptop devices.
Most mobile phones produced within the past couple of years come with mobile wallet technology built-in so the owner can securely enter their card information and access it when they wish to make a mobile payment.
Though other companies had been exploring mobile payment technologies, mobile wallets first garnered national attention when Apple launched Apple Pay in 2014. Apple Pay is available on iPhones version 6 and above and on the Apple Watch and several iPad versions. It uses its proprietary Touch ID technology to authenticate payments with a fingerprint.
Since 2014, dozens of digital and mobile wallets have been launched. Some have already come and gone, and others are evolving and joining forces with other big name brands to increase visibility and consumer adoption.
Popular mobile wallets
Mobile wallets can be placed in four main categories: 1. Device and operating system-specific, 2. Device-neutral, 3. Retailer-specific, and 4. Bank-specific. Of the current top four mobile wallets in the U.S. all but one are in the first category: device-specific. Less common but worth noting are wallets that are POS-specific, only working with certain POS systems in limited merchant locations; P2P wallets that facilitate funds transfers without merchant involvement.
Apple Pay leads the charge in mobile wallet popularity, accounting for 75 percent of all U.S. contactless payments, and accepted at over four million retailers and counting. Samsung Pay, Android Pay, and PayPal follow Apple Pay in popularity with PayPal retaining the top spot in device-neutral wallets.
Popular device-specific mobile wallets:
- Apple Pay
- Samsung Pay
- Android Pay
Popular device-neutral mobile wallets:
- Google Wallet
Popular retailer-specific mobile wallets:
- Walmart Pay
Popular POS specific mobile wallets:
- Square Cash
- PayPass (Mastercard)
- payWave (Visa)
Popular bank-specific mobile wallets:
- Chase QuickPay
Top P2P mobile wallets:
- Facebook Messenger payments
- Square Cash
Mobile payments offer greater security
Despite consumer skepticism about the security of mobile payments, the technology used to perform mobile wallet payments is very secure. Similar to new fraud busting EMV chip card technology, both mobile payments and chip card transactions offer more security because they generate a unique one-time use code for every transaction.
Traditional credit card transactions use the same authorization code for every transaction. If a fraudster gets ahold of the code, they can use it to create counterfeit cards and make fraudulent purchases. That is not possible with mobile wallets, however, since every transaction uses a unique and encrypted code.
Accessing a mobile wallet on a stolen phone is highly unlikely since since the wallet requires a fingerprint, facial scan, password, or other form of authentication to complete the payment.
Payment security experts also consider mobile transactions to be more secure than traditional credit card transactions because of the physical security of the transaction process as well as the biometrics involved in authentication. Whereas traditional cards often leave the possession of the cardholder (think about handing your card to a server at a restaurant to pay the bill) and may be skimmed for duplication, mobile transactions require the involvement of the cardholder. The less a credit card is handled by others, the greater the security.
What if the mobile phone is lost or stolen? Unlike a stolen credit card, a stolen mobile phone with a mobile wallet is useless to thieves since the wallet requires a fingerprint, facial scan, password, or other form of authentication to complete the payment.
Top benefits of accepting mobile wallets
- Attracting new customers—Millennials currently represent the largest group of consumers in the U.S. They’re also the least likely to carry cash, and most likely to rely on their smartphones for everyday tasks including making purchases. In fact, 83 percent of them own a smartphone and nearly 40 percent engage with their phone more than anything else. Capturing the attention of this group will become more important with every year that passes. And rising to meet the needs of Millennials will help prepare you for the surge of Gen Z consumers who already overwhelmingly own and use phones (76%), although the oldest representatives are just starting to reach adulthood.
- Increasing customer loyalty—Attracting new customers isn’t important if you can’t keep them. Offering customers flexibility in payment choices and a pain-free checkout goes a long way in creating the type of customer experience that keeps customers coming back.
- Automating customer information collection—It’s also easier to create repeat customers if you can collect enough information to market to them effectively. When a customer pays with a phone, much of the mobile payment process is automated—which means that there is a tremendous hassle-free opportunity to collect customer information with each purchase. This type of data collection is simple to integrate with today's mobile payment systems, and opens the door to many important marketing/sales tools like digital coupons, customized offers, targeted ads, cross-sales opportunities, and digital loyalty programs that entice customers to visit your business.
- Enhancing data security—Customers enjoy greater security by accepting mobile payments since they employ advanced technologies like encrypted one time use authorization codes. But they also protect businesses by reducing the amount of data available to be stolen from the system. Since the terminal or POS system doesn’t actually “see” the card data behind a digital wallet, it can’t be stolen or duplicated. Plus, using an NFC terminal enables you to accept chip cards, which reduces fraud.
How to accept mobile payments
Accepting mobile payments requires a mobile payment system. There are three main categories for mobile payment hardware:
- Countertop NFC payment terminals
- Handheld mobile POS terminals
- Mobile phone card reader attachments
Countertop mobile payment terminals
Accepting the top mobile wallets in-store is relatively painless. All it requires is an NFC-enabled terminal or POS system. All of the top terminal manufacturers like VeriFone, MagTek, and Ingenico have NFC models available and the price ranges from $130-$500, depending on additional features and functionality.
If you have multiple stations, or require a more robust POS system, upgrading existing equipment can be a bit more involved and costly. But as mobile payments and EMV chip card usage become more popular among consumers, NFC-capable POS systems have become the norm. In fact, it’s likely more difficult to find a new system that doesn’t use NFC technology today.
This is in part due to the industry-wide push for EMV payment technology required by the card brand associations as of October 2015, for merchants that don’t wish to be liable for in-store credit card fraud. The upside of upgrading to EMV equipment for many merchants is the fact that they can also accept mobile payments after upgrading since EMV protocol requires NFC to process chip cards.
The same one-time use unique token for authorizing a mobile wallet payment applies to EMV payments. Merchants who upgrade to accommodate chip card processing get the additional benefit of accepting mobile payments from their customers.
Mobile acceptance on the go via card reader attachments
Mobile device credit card acceptance allows merchants to take payments without a standard POS system or payment terminal. With this type of mobile acceptance, you can accept credit and debit card payments on a mobile device in lieu of a countertop terminal, and your business becomes mobile.
Mobile device acceptance means that you can process payments away from your brick and mortar location. In fact, you don’t even have to have a physical business storefront or office to accept credit card payments. This form of mobile payments requires a simple card reader device, also called a dongle, that plugs into the audio jack or USB port of a mobile device or connects via Bluetooth.
Mobile dongles come in a variety of models with different capabilities. Bluetooth, EMV-enabled, magnetic stripe only, pocket size, hand held, regardless of the type you choose, purchasing a mobile card reader won’t break the bank. You can purchase one for anywhere from $30-$100 depending on the features and some companies will supply them for free if you process payments with them.
In addition to being inexpensive, mobile card readers only require a mobile device and a network connection or WiFi signal to work. As with all credit card acceptance, you will require either a basic merchant account with a payment processor like Vantiv, or a storefront or marketplace solution with a Payment Facilitator (PayFac) like Square to authorize and process the transactions.
Handheld mobile POS terminals
This type of terminal is wireless and mobile, but “tethered” to the POS system. Meaning, its mobility is limited to the strength of the WiFi signal that connects it to your POS system. Whereas a card reader dongle can be used on a mobile phone wherever a cell signal is available, a wireless handheld terminal is an appendage of your main POS system and therefore needs to stay connected.
Mobile handheld systems are sometimes referred to as “pay at table” solutions because of their usefulness in the restaurant setting. Pay at table solutions provide better customer service and greater card security. Servers can bring the terminal to the customer to pay rather than taking the credit card away from the table to process the payment. This saves the server time and steps that would normally be spent bringing the check, taking the card to a terminal, and returning to the table with the receipt for a signature. And it protects the customer’s card from being tampered with or skimmed by unscrupulous employees.
Some systems like Ziosk are meant to permanently live on the table so customers can add food and drinks to their tab and pay the bill at will, independently of the server. Using the mobile terminal, the customer can also leave customer feedback, enroll in loyalty programs, or even play games while they wait for their order.
Some restaurants also use handheld solutions for curbside pick-ups and to go orders. Unlike a mobile dongle, a tethered handheld system communicates with the central POS system so functions like kitchen order print outs, automated inventory management, and daily sales totals and receipts remain integrated with the larger system.
Handheld terminals have many uses in retail settings as well. Checking customers out while they’re standing in line at the register aka “line busting” is a great way to manage heavy checkout lines during the holidays and busy events like doorbuster sales.
And they come in handy for retail operations with large or unconventional items like lumberyards, nurseries, and furniture stores. Rather than bringing the customer to the register to scan their items, you can meet them in the warehouse or greenhouse and ring up the items on the spot.
Types of merchants using mobile payments acceptance
In addition to handheld usage in the restaurant and retail settings discussed in the section above, mobile payment acceptance systems also have a lot of applications when it comes to on-the-go selling at trade shows, festivals, kiosks, craft fairs, and other events.
Service providers like carpet cleaners, massage therapists, real estate appraisers, and any in-home or mobile businesses love the convenience of mobile payments acceptance. Simply swipe the client’s card to initiate the transaction, and the customer can sign on the screen with their finger or stylus. Depending on the situation and settings, you can print or email the receipt to the customer.
Many merchants use mobile dongles to supplement their brick and mortar terminal. This enables them to perform business as usual with a countertop terminal the majority of the time, and take their business on the go when needed with their mobile device.
Mobile payment acceptance can help small businesses grow
Mobile payment acceptance can make a big difference for small companies that don't accept credit cards at all. In fact, one of the most common uses for mobile card readers is for micro merchants that do a small volume of business but want to offer their customers the convenience of paying with a credit card.
Thanks to the streamlined apps and devices that mobile payment systems providers offer, many of the old complaints that kept small businesses from adopting credit card payments are fading. Getting set up with a payment account on an existing phone or tablet device greatly reduces the barrier to entry that some businesses have felt in the past with expensive POS systems.
Regardless of the industry you’re selling in or the size of your business, there is a mobile payment system out there that is just right for you. Whether you’re bringing convenience and mobility to your customers or taking your business on the go, mobility can give your business a boost.
Contact us for more information about mobile payments and mobile acceptance for your business.